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June 2017
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FA M Gr OFFE ILY F a n RS A I RS T IN PAC d S GEN LI F SI D K T E AGE la S E CO m
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Annuity Buyers Shift, Bringing An Industry Along With Them PAGE 24
Annuities Heading Into a Blended Future PAGE 32
Four Annuity Myths and How To Overcome Them PAGE 60
Not Too Late: An Annuity Can Help Clients Who Need LTC Now PAGE 64
Annuity Awareness Month Special: Five thought leaders share their expertise
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IN THIS ISSUE
View and share the articles from this month’s issue
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JUNE 2017 » VOLUME 10, NUMBER 6
FEATURES 24 Annuity Buyers Shift, Bringing an Industry Along With Them By Steven A. Morelli
Consumers across the nation are turning to annuities primarily to conserve principal and less so for income or market gain.
32 Annuities Heading Into a Blended Future By Cyril Tuohy
Insurers are revamping features and revenue models as regulations tighten and markets evolve.
INFRONT
12 C ongress Facing Tough Decisions on Reform Measures By John Hilton and Susan Rupe Health care and tax reform are two issues that the new president is trying to push through Congress, while the fiduciary rule might be too far along to be reversed.
36 Annuity Awareness Month Special
Great minds from five different companies offer their own ideas on how financial professionals can help Americans in new and lucrative ways.
64 N ot Too Late: An Annuity Can Help Clients Who Need LTC Now By Debapriya Mitra A medically underwritten singlepremium immediate annuity can be a financing solution for older Americans in poor health.
LIFE
52 Overseas Clients: Underwriting Obstacles, Lucrative Opportunity By Richard Whitbeck The ability to prospect and tap into a resident alien or foreign national client base provides a number of advantages for insurance agents.
54 Focus on the ‘Life’ in Insurance for Next-Generation Clients By Ron Sussman We need to change our sales focus to the underserved markets of Generation X and millennials with products that solve their problems.
INTERVIEW
14 How to Sit at the Head of the Affluent Table An interview with Dan Kennedy How do you unlock the door to the high-net-worth market? Marketing legend Dan Kennedy says that when you truly understand this group, you can attract them and earn their trust. 6
InsuranceNewsNet Magazine » June 2017
ANNUITY
60 F our Annuity Myths and How to Overcome Them By Chris Conklin Educating clients about the timing and fee structure of annuities is important to help overcome the common misconceptions many have about their merit as a financial tool.
HEALTH/BENEFITS
68 H ow to Make Shopping for Insurance More Like Online Buying By Jeff Surges Many Americans think shopping for and enrolling in health insurance is a stressful and dissatisfying experience. Here are some ways to make the process easier.
58 IOVAs Present a New Take on TaxAdvantaged Investing By Laurence Greenberg Low-cost, investment-only variable annuities are a tax-advantaged investing solution with virtually no contribution limits.
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IN THIS ISSUE
View and share the articles from this month’s issue
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JUNE 2017 » VOLUME 10, NUMBER 6
BUSINESS
online
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68 LIMRA: Small-Business Perspective on Big Ideas for Retirement
74 The Top 3 Prospect Attractors
By Alison Salka Few would say that giving more employees access to a retirement plan is a bad thing. The real debate is in determining the best way to accomplish that.
By Dave Vick Evaluate whether your clients and prospects are finding what they’re looking for.
INSIGHTS
64 THE AMERICAN COLLEGE: Help Abused Women Reach Financial Freedom By Jocelyn Wright Statistics show most women who leave an abusive relationship will go back because of financial reasons.
65 NAIFA: Finding Success by Serving Main Street America By Juli McNeely Main Street advisors understand the culture of their communities.
66 MDRT: Why Financial Literacy Should Start at Home By Thomas J. Henske An advisor should provide the resources and let the parents teach.
EVERY ISSUE 10 Editor’s Letter 22 NewsWires
50 LifeWires 58 AnnuityWires
66 Health/Benefits Wires 70 AdvisorNews Wires
79 Advertiser Index 79 Marketplace
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For Agent/Representative Use Only. Not Intended for Marketing or Solicitation. This piece provides a brief summary of product features. The contract associated with the product will contain the actual terms, definitions, limitations and exclusions that apply. Product features and availability vary by state and are solely the responsibility of Colorado Bankers Life Insurance Company®. Contract form series ICC16C-FPDA. Some exclusions and exceptions apply. Please refer to the contract for the actual terms and conditions that apply. The statements and comments offered in this communication are provided as general information and ideas. They are not intended to be, nor should they be relied on as, investment, legal, tax advice or recommendations. Before making a decision or giving advice about any matter contained in this communication, agents or individuals should consult their own attorney, tax or investment advisor. Products and services are underwritten and/or provided by Colorado Bankers Life Insurance Company® (Durham, NC), licensed in 49 states (excluding New York), the District of Columbia, and Puerto Rico. Products and services may not be available in all states. 17013101
WELCOME LETTER FROM THE EDITOR
The Gray Horizon
H
ow do you fit a life into three dresser drawers and 3 feet of closet space? The furniture wouldn’t be able to go into the new place. Two dressers. Nightstand. The TV in all its 42-inch, flat-screen, unwatched glory. The filing cabinets filled with the meticulously preserved paperwork of life — the ancient bills; the deed for the $28,000 house in Los Altos, Calif.; the marriage certificate from Providence, R.I., and the separation agreement from Mexico; the next marriage certificate from San Jose, Calif., and the list splitting up the house contents, with a note attached, “I have tried over and over. You have a big wall around you that never, ever weakens.” And all the pictures. So many pictures like the one held between the old man’s shaky fingers. “That’s you,” he said. “No. I was never in the Navy. And that’s 1950.” “It’s your twin.” “It’s you. That handsome bastard is you, Dad.” I took the picture back. There he was with that self-assured smile, like he knew something you didn’t. He always seemed to carry that attitude. Not now, though. Not since that massive stroke in 2009. Dad has been in assisted living since then, draining the money he saved for me. He wasn’t present for most of my life, but he wanted to leave me something when he died. Now that was gone too. After a day, Dad still wasn’t sure who I was — his father, his brother, but definitely not his son. He hadn’t seen me since his mother’s funeral in 1982. He was then just younger than I am now. These days, he looks just like his dad did then. As I suppose I now look like he did then. I got the sense that Dad’s world is stuck in the twilight between sleep and wakefulness, like he is never sure if he is dreaming. This was early in my stay, and I had a whole week to convince Dad who I was. But in the end, it didn’t really matter who he thought I was. I just had to get him to his newest assisted living facility. In this move, we were going way down market. 10
InsuranceNewsNet Magazine » June 2017
The choice was between a large, tired facility in an industrial section of Long Beach near the Los Angeles International Airport. The other was a small, also-tired facility in Toluca Lake that at least felt cozy. In either case, he’d have to share a room that was smaller than the single he occupied in his Glendale facility. New owners have taken over the Glendale facility. They spruced things up and are now raising rates. It didn’t matter. Dad ran out of savings and I couldn’t afford to keep paying the spread between his income and the current monthly bill, much less the $1,700 difference with the spruced-up price. Dad was entitled to a Veterans Administration pension called Aid and Attendance because he served during wartime. But after a year and a half, the VA rejected our application, simply because the agency had the discretion. His disabilities weren’t related to his service, so they didn’t have to grant it. Here was a guy who wanted to serve his country and became a medic because he didn’t want to kill people. This was one of the people politicians and “patriots” all saluted until their arms fell numb but ignored when they actually needed help. It was hard to blame the underfunded VA for creaking along, but it was easy to feel bitter. The VA’s rejection letter, I waited eight months to receive, suggested another pension. I applied for that, not even bothering with the Disabled American Veterans caseworker who was supposed to be helping me. I was better off helping myself. Someone suggested calling a congressman. After a request to Rep. Scott Perry’s office, followed up with paperwork and phone calls, the VA seemed to notice that a congressman was interested in the case. But things weren’t looking that much better — just another long ride on the merrygo-round. We were out of time. I had arranged a mover long distance from Pennsylvania, but it looked like there would be more dumping than moving. The new place was furnished. All Dad was getting was half a dresser and half a closet. So, there I was, fresh off the plane, deciding what to take
back with me and what to toss. That was when I decided to take a break and cleared the packages of Depends undergarments and plastic bed liners off the only chair in the room that did not have wheels or a hole cut out of the middle of the seat. I did the now-customary extraction of my iPhone and started poking at the screen. That puzzled Dad. The last time he saw me I had a smartphone, but I wasn’t yet addicted to it. The time before that, I had a flip phone. I turned the phone around to show him the weather report. It was going to be unseasonably hot. But that didn’t mean much to him. He didn’t even care who the president was. Then again, being oblivious to the whole 2016 presidential campaign is a little enviable. As I dipped into my email, I noticed one from Tyra Wallace, Perry’s aide. She wrote, “Rec’d 15 min ago,” with an attachment.
Dear Mr. Morelli: Congressman Scott Perry has expressed an interest in your claim and will receive a copy of this letter. We made a decision on your claim. This letter tells you about your entitlement amount, payment start date, what we decided and how we calculated your benefit ... There it was after nearly two years of CONTINUED ON PAGE 13
COMPETITIVE 10-PAY WHOLE LIFE YEAR 1
YEAR 2
YEAR 3
YEAR 4
YEAR 6
YEAR 7
YEAR 8
YEAR 9
YEAR 5
YEAR 10
Signature Whole Life Insurance Distinguishing Features • Highly competitive premiums • Guaranteed death benefit
Company
American National
Annual Premium
$36,590
• Premiums guaranteed not to increase
Minnesota Life
$40,001
• Guaranteed cash value
National Life
$40,448
• Paid-Up Additions Rider to build additional coverage
Penn Mutual
$41,050
• Guaranteed Insurance Option Rider
Guardian
$42,350
• Three Accelerated Benefit Riders*
Standard Male, Age 45, $1,000,000 Death Benefit, 10-Pay
The competitor comparison from carrier illustration software is current as of 3/09/2017. American National Insurance Company does not make any representations as to the accuracy of the ranks as these are provided by an unaffiliated third party. *The riders are offered at no additional premium. However, the accelerated payment will be less than the requested death benefit because it will be reduced by an actuarial discount and an administrative fee of up to $500. The amount of the reduction is primarily dependent on American National’s determination of the insured’s life expectancy at the time of election. Outstanding policy loans will reduce the amount of the benefit payment. Form Series: PWL16, PUAR16, GIR16, ABR14-TM, ABR14-CH, ABR14-CT (Forms may vary by state). American National Insurance Company, Galveston, Texas. For Agent Use Only; Not for Distribution or Use with Consumers.
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06.17
INFRONT TIMELY ISSUES THAT MATTER TO YOU
Congress Facing Tough Decisions on Reform Measures Health care and tax reform are two issues that the new president is trying to push through Congress, while the fiduciary rule might be too far along to be reversed. By John Hilton and Susan Rupe
T
he Trump administration just passed the 100-day benchmark around the time this issue of InsuranceNewsNet went to press. Three major issues affecting the insurance and financial services industry remain in the forefront. Two of those issues — tax reform and health care reform — face a fight in Congress, while the third issue — the Department of Labor’s fiduciary rule — could wind up being a done deal. Here’s a rundown of those issues as of press time.
Health Care Reform Heads to the Senate
After squeaking through the House of Representatives by only one vote needed for passage, the American Health Care Act (AHCA) moves to the Senate. And that’s where things could get bogged down. Key Republican senators say they want to write their own version of the health care bill, and they don’t appear to be in a big rush to complete the task. “We’ll write our own bill,” Sen. Lamar Alexander, R-Tenn., told Bloomberg, although he added that senators would consider pieces of the House bill. “Where they’ve solved problems we agree with, that makes it a lot easier for us.” Alexander is chairman of the Senate health committee. Whereas the debate over coverage for pre-existing conditions was a major stumbling block for the AHCA in the House, the Senate is expected to focus its debate on Medicaid expansion. To get any bill through the Senate, moderate and conservative wings of the GOP will have to come together. The GOP holds a 52-48 majority in the Senate, meaning 12
InsuranceNewsNet Magazine » June 2017
that Republicans can lose no more than two votes and still pass the bill. Those two Republican votes are crucial because Senate Democrats are united in their opposition to any repeal-and-replace of the Affordable Care Act. Here are some of the sticking points that the bill could face in the Senate: » Medicaid: The House-passed bill would bring the most widespread change to the program since it began in 1965. But some of these changes, such as capping federal funding, would provoke divisions among Republicans. » Uninsured rates: Earlier this year, the Congressional Budget Office estimated that the House bill would mean the loss of coverage for 24 million people. Many
analysts expect that number will be higher when the CBO scores the newest version. » Tax credits: Some GOP senators have said they oppose the bill’s age-based tax credits. Some describe these credits as “Obamacare Lite.” » Planned Parenthood funding: The House bill would defund Planned Parenthood for a year. A handful of Senate Republicans oppose this provision. Further complicating things in the Senate is that the Senate rules won’t allow them to bring the bill up for a vote without waiting for a CBO score on the bill. It could take one to two weeks for the CBO to finish its analysis, which the Senate parliamentarian would review.
Here are the key measures in the House-passed version of the American Health Care Act: • Mandates: It guts the IRS requirement that people face a fine for not purchasing health insurance. • Tax credits: Income-based subsidies enabling people to purchase insurance in the individual market will be replaced with refundable tax credits based on age. • Medicaid: The Medicaid expansion is frozen immediately. In two years, the states have the choice of adopting a block grant for the program or coming up with a new formula based on population instead of need. Work requirements have been added for most able-bodied recipients who aren't pregnant or caring for a child under 6. • High-risk pools: The bill provides $130 billion to states over 10 years for high-risk insurance pools to cover the most expensive to insure. An additional $8 billion will assist people with pre-existing conditions. • State waivers: States can obtain waivers so insurers don't have to offer benefits packages that include maternity care and mental health coverage. Waivers can also be obtained to charge sicker people and people with pre-existing conditions more. Those people would most likely then go into the high-risk insurance pools. • Taxes: It repeals every tax in the Affordable Care Act, including the 0.9 percent tax on couples making more than $250,000 and a 3.8 percent tax on investment income. • Health savings accounts: The measure increases the allowable contribution limits of health savings accounts. • Other: It continues to permit people under the age of 26 to stay on their parents' insurance.
CONGRESS FACING TOUGH DECISIONS ON REFORM MEASURES INFRONT If the Senate passes its own bill, that legislation will go back to the House. The House can then approve the Senate version or negotiate a compromise with senators. Any compromise bill would need to be approved by the House and Senate.
Tax Reform: Some Action Is Probable
Beltway analysts agree something will happen that can be called “tax reform.” Whether it’s the wholesale re-organization of the tax code favored by House Speaker Paul Ryan, R-Wis., or streamlining/eliminating some deductions and calling it tax reform remains to be seen. President Donald J. Trump rolled out a preliminary tax plan in late April, a onepage document that called for slashing the federal income-tax rate to 15 percent for corporations, small businesses and partnerships of all sizes. It imposes a one-time tax on about $2.6 trillion in overseas earnings by U.S. companies. Trump proposes condensing the existing seven individual income-tax rates to three, cutting the top rate from 39.6 to 35 percent. Also, he would end a 3.8 percent net investment income tax that applies only to individuals who earn more than $200,000 a year, repeal the alternative minimum tax and eliminate the estate tax. Estate tax repeal has been on the table before, but always managed to survive. Odds of significant tax reform are pretty low, say many analysts. After all, the early
ED. LETTER CONTINUED banging my head against the VA wall. I wouldn’t have to move Dad after all. And I thought of all the residents I had met in the other facilities I had been con-
returns on the Trump-Congress working relationship are not good.
Fiduciary Rule
Campbell said, as long as they adhere to impartial conduct standards. That means three things:
The Department of Labor fiduciary rule might be on its way to a final conclusion by the time you read this. What was expected to be a game-changer — the election of President Donald J. Trump — has not delivered much for rule opponents. The reasons are numerous, but suffice it to say that the DOL was too far down the road with this rule to reverse it, especially when it didn’t make Trump’s A-list of priorities. However, the new administration made some concessions to rule opponents with its 60-day delay. The new plan is for the rule to go into effect June 9, but the department introduced “transition exemptions” allowing the industry to ease into full compliance. The transition period is most important as it applies to the Best Interest Contract Exemption and Prohibited Transaction 84-24. The transitional exemptions require adherence to impartial conduct standards only. “You are allowed to receive compensation during the transition period that would otherwise be prohibited — commissions,” explained Bradford P. Campbell, former assistant secretary of the DOL and counsel at Drinker Biddle & Reath. In fact, agents and advisors can continue to sell variable and fixed indexed annuities under 84-24 for the rest of the year,
» Use the best interest standard — in other words, the fiduciary process. “Using the next seven weeks to get your fiduciary process completed in place and ready to use is crucial because it’s not only the legal standard you have to meet on the front end, it’s the standard you have to meet on the back end to avoid a prohibited transaction for receiving a traditional commission,” Campbell explained.
sidering. Many of them said they didn’t have family to help them. They really didn’t know what happened to their money, their things and, really, their lives. What will happen to the even more dispersed, vast population of boomers when they start shuffling through these doors to live out their ever-extending lives? The Medicaid fund for nursing homes in California was already closed for new cases for the fiscal year. Who will care for those people when the money runs out?
At least this is one veteran who for the foreseeable future does not have to worry about that or anything else. After I spent a few days just visiting Dad, it came time to say goodbye — for probably the last time. I pulled out my phone for the now-customary selfie. As I angled the phone to get us both in the frame, Dad pointed to his own image. “Who is that?” “That’s you, Dad. That handsome bastard is you.”
» Charge no more than reasonable fees. » Make no materially misleading statements. The DOL is not expected to delay the rule again, he added. 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. Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Contact her at susan.rupe@ innfeedback.com.
Steven A. Morelli Editor-In-Chief
June 2017 » InsuranceNewsNet Magazine
13
Sitat the Head of the
How To
Affluent
Table
Marketing legend
DAN KENNEDY
unlocks the door to the high-net-worth market
14
InsuranceNewsNet Magazine Âť June 2017
HOW TO SIT AT THE HEAD OF THE AFFLUENT TABLE INTERVIEW
M
arketing to the affluent is not so much about understanding the rich as it is about understanding yourself. If you are bringing your most polished, practiced game to the upper reaches of net worth, you might be surprised to find that you’re doing it wrong. That’s Dan Kennedy’s point about reaching the ultra-wealthy. Off-the-rack solutions are off the table. This is where custom tailoring lives. This is where special is expected. What works for the mass affluent doesn’t work here. But you might be thinking this air is too rarefied for you. You might think the ultra-wealthy will see right through you. Dan has been a copywriting legend for decades, and he will tell you that it’s not a pristine surface that sells. It’s the human touch that says, “I made this for you.” Instead of a clean, spare headline and a paragraph of gloss, Dan writes a sales letter several pages long. And it works. Why? Because Dan’s presence is unmistakable in the material. He is speaking to you, one on one. Or, it looks that way. Dan has led countless mastermind groups, seminars, books and consultations to help clients explore the ways of the wealthy, but he is sharing some of his secrets in this interview with Publisher Paul Feldman. Marketing to the affluent is one of the themes Dan and Paul will showcase at the 2017 Advisor Super Conference in September. One of Dan’s key secrets is that the wealthy are interested in connecting with you — but they want to connect with the authentic, focused and maybe even larger-than-life you. Paul and Dan talk about what that means. FELDMAN: Who are the affluent and what are some of the best ways for advisors to connect with them? KENNEDY: We know who they are statistically and we know who they are demographically. What’s always most important to learn about is who they are psychographically and behaviorally, and that’s a science and an art. Statistically, they are the top 5 percent of the population, and it almost doesn’t matter whether you define this segment by household income or by net worth.
And no surprise the majority of them tend to be age 50 and up. Below that, you often have a lot of high income but under-invested people. It takes time to accumulate money, largely thanks to our tax system.
In colloquial parlance, poor people buy products and rich people want to find the go-to guy. I’m no different. I recently had a little situation in my home with some kind of critter getting in
The key to attracting and creating trust with the affluent is all about understanding them intellectually, emotionally and experientially. The affluent tend to be more longmarried than not — for the obvious reason that one or more divorces tends to divide the affluent to the point that it’s not affluence anymore. They tend to be sort of stable people. The old Thomas J. Stanley “Millionaire Next Door” kind of profile applies to more of them who are in business than not. There’s a reason that Tesla can sell only 50,000 luxury cars — because it’s a fairly exotic automobile that the guy who has built up a chain of seven dry cleaners in Kansas City is simply not likely to want. The geography of the affluent is readily obtainable. In every state, they tend to cluster by ZIP code, so these people are readily findable. Then the key to attracting them and to creating trust with them is all about understanding them intellectually, emotionally and experientially. If you are not one of them, then that is a process of education and observation. FELDMAN: How do they make decisions differently than the average Joe? KENNEDY: For starters, they have far more choices. The affluent are less geographically bound. So, if you fly commercial and if you open the airline magazine in the pocket — if you’re not being dragged down the aisle and beaten up at the moment — you’re going to find a fullpage ad for a cosmetic dentist in a city, a full-page ad for a hormone treatment clinic, a full-page ad for an anti-aging doctor. Those ads are there because 20, 30, 40 percent of their patients are coming from all over the country instead of from within their local area. Second, the higher you go up the affluence ladder, the less likely people are to respond to their need by buying the product or service that meets the need. Instead, they are prone to look for the best provider.
and getting trapped inside a wall. A really poor person would address that by smashing a hole in the wall and trying to kill it. A middle-income person would pick a local vendor by Google search probably and they might well take whoever answered the phone as they would call three or four of them. Now, a really affluent person now wants to know: Who’s the best guy, the smartest guy? Half of the time, they are going to go to their Rolodex, which makes referrals and networks very important. In my case, I happen to know one of the No. 1 animal remediation guys in the country and I don’t care if I have to fly him in. The cost is not an interest to me. Having the problem solved as efficiently and successfully and permanently as possible, and being able to delegate it and forget it, are what’s important to me. So the marketing of what you do, the pie charts of financial services, the argument for or against annuities — the more affluent the client, the less important all of this is. That is because the client is increasingly making decisions about the person rather than the specifics of what the person does or how the person does it. In some ways, this can lead affluent clients astray and make them vulnerable. Bernie Madoff is a prime example of how this works. It leaves them vulnerable because they are often dependent on that Rolodex and dependent on referrals. So as soon as you penetrated the fortress wall of one, you are inside the fortresses of many, which can get affluent consumers in trouble. I asked my friend, Joan Rivers — now the late Joan Rivers — if she had lost any money to Madoff and she said, “No, I’m probably the only rich New York Jew who didn’t.” She said it was because she had a rule: if she didn’t understand in five minutes or less how the money’s being made, she didn’t want any part of it. June 2017 » InsuranceNewsNet Magazine
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INTERVIEW HOW TO SIT AT THE HEAD OF THE AFFLUENT TABLE But most people do not have that rule and they think, “If so-and-so is respected and trusted and used by Charlie, then he’s good enough for me, too.” I have a private client whose wealth management firm requires its clients to have a minimum of $20 million, and he has clients for whom he’s handling up to $150 million. What the clients all have in common is having sold a company fairly recently, so the prospect target range is pretty narrow.
KENNEDY: Surprisingly, it takes less effort to do this than it does to get average clients to clone themselves, because the affluent are more engaged in relevant conversation with their peer group. There’s a certain amount of automatic, organic activity that is going to occur if you do a really great job and provide some information devices that lend themselves to passing along. Continuous presence, feeding them, cocktail party and golf game conversation, discussion points via
Dan Kennedy’s
6 No B.S. Keys To The Vault
1. Make all your marketing to the affluent mirror the way they see and think about themselves. 2. Who you bring through your door matters a lot. Why not deliberately get higher value customers? 3. Your desired customer’s attitudes about things related to your product or service matter much more than any facts about your product or service. 4. Be a good-news merchant. Sell optimism along with whatever else you sell. 5. Create the tribe your desired customers are eager to be a member of. 6. Make owning your product or being your client signify something. Dan S. Kennedy, No B.S. Marketing To The Affluent, 2015, Entrepreneur Press
The sales cycle to get one of these clients is considerably longer than that of the rank-and-file financial advisor who does a workshop for old people in his hometown, waves a steak at the door, does a great show, books meetings and meets with everybody the next week. The cost of getting the affluent client is very different, and to most financial professionals, it would all be characterized as much more agonizing. But when you know that one of those clients is going to clone himself and provide three or four or five of himself over a 24-to-36-month period, then the return on investment is really quite extraordinary. FELDMAN: What are some strategies for getting the affluent to clone themselves with referrals? That’s probably one of the biggest ways to multiply the value of one of your clients.
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InsuranceNewsNet Magazine » June 2017
newsletter, white papers, conference calls — this approach works very well. The higher an individual’s net worth, typically the more competitive they are within their peer groups. So, one of the things they want to do is look smarter and be smarter than everybody else. And if you provide the means of being that, you will get referenced and mentioned. If you drop down to the guy who’s retired from General Electric after 40 years and you as the financial advisor are now moving his 401(k) money, he’s really not running in circles where those same kind of competitive cocktail party conversations occur. So you actually have to provide that client with more tools and you will have to do more work to get him to refer. Then on the back side, the client he’s referring to you is most likely comparable to him, so you’re doing more work to get a referral of lesser value than if you were working with a high-net-worth
individual to start with. The third thing that works is events — but very different kinds of events. There’s a matrix of 21 different things that I talk about to people in your industry and to other professionals who deal with highnet-worth consumers. The higher the affluence of the clientele, the better these things work. FELDMAN: Do the affluent speak a different language than everyone else? KENNEDY: Of course, all tribes do. There is no tribe without a tribal language, and then you have sub-tribes within the tribes. So if we’re talking about high-net-worth dentists, they have a tribal language that is different from average-income dentists. High-net-worth lawyers have a different tribal language than do rank-and-file general practice attorneys, and on and on and on. Here are things to know about tribal language. One is that tribal language is the representation of how this person thinks and feels about himself, his money, his family, his business, his life and his world view. Second, when you can speak it in an authentic, empathetic, non-pandering way, you get points. It’s a way of accelerating trust. The third thing is it’s a silent alarm. People who don’t know the tribal language are viewed with great skepticism because what it tells the high-net-worth individual at bare minimum is this person hasn’t taken the time and trouble to know and understand us. FELDMAN: What are some ways of getting trust? KENNEDY: Trust is built on more things that you shouldn’t control, instead of on things you should. Trust is when more than 90 percent of the people who go into a hospital and let somebody cut them open do so without ever doing any research about the success rate of those procedures by doctor or by hospital. And clearly that should be the opposite. Like with Madoff and finance. Trust is very much driven by personal affinity. So, to be simplistic, if the financial advisor whose offices are in Boston goes to a meeting with a high-net-worth individual in Oklahoma City and dresses up
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INTERVIEW HOW TO SIT AT THE HEAD OF THE AFFLUENT TABLE like a cowboy, he’s got problems because he destroys his believability. However, if he shows up looking like a Boston dandy, he’s got other problems. If there is no point of affinity at all, he’s probably not going to do well with that client no matter how logical the match is between the two or how beneficial he could be. Points of affinity are important to figure out, to leverage and to build into your marketing. Sometimes people don’t like hearing those things so I’ll give you two examples — one that’s easy and one that the client didn’t like but works. The easy thing I’ve taught a lot of rankand-file financial advisors whose clients are middle-net-worth is to go buy an interesting classic car. I happen to own five and so the effectiveness is well-known to me. Yesterday, I had a guy chase me in a parking lot to show me pictures of his classic car that is of the same breed and vintage as mine. If you don’t drive it much but you at least park it at the office, you immediately bring an affinity point with almost every client coming in that office, because everybody has a “car of my youth” story. That sounds silly but things like that put a thumb on the scale. The other example is a client I had for four years. It’s a woman-owned firm and it sells and delivers fairly sophisticated financial management services to hospitals. It sells in the C-suite, so it is selling to the CEO and the CFO. The sales process almost always culminates with the CEO of this company — who is a woman — meeting with the hospital CEO, CFO and their team. Unfortunately, almost all hospital CEOs and CFOs are 55-to-65-year-old white men and they have certain biases that, despite political correctness, have not gone away. And so against other consultancies, her
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InsuranceNewsNet Magazine » June 2017
How to Make Yourself
MagnetictotheAffluent There are three big things you must do to make yourself magnetic to the affluent — and their money.
1
Develop, display and convey a profound position of expertise, good judgment, understanding, professionalism and competence. Present yourself as the most trustworthy of advisors. The most trusted advisors relied on by the affluent automatically and certainly become very affluent themselves. Almost every wealthy and powerful person has an almost equally wealthy trusted advisor standing next to them — or a step behind them.
2
Relieve your affluent clients of time, pressure, anxiety, stress, day-today hassle, tasks they’d rather not do or even think about or that should be below the value of their own time. Create privilege and luxury-level convenience for them. Make mere mortals’ normal burdens — such as standing in lines or filling out forms — go away.
3
Give them acceptance, approval and applause. The wealthy are extremely response to those who celebrate their success and respect it as earned. Become known as a supporter and advocate of their achievement and affluence. Dan S. Kennedy, No B.S. Marketing To The Affluent, 2015, Entrepreneur Press
firm has a disadvantage and it’s her. My answer was to hire what we privately call a show pony, a retired hospital CEO from a name hospital who gets paid because he looks right and he’s right out of central casting. If you were going to put him in a TV show as the CEO of a hospital, he’s the guy. He goes along to the meetings and has a fancy title and his job is to nod and help minimize her biological “problem,” and it has an effect. FELDMAN: Do you have an example of a financial advisor who was able to develop part of their story or persona to connect with wealthy clients? KENNEDY: An example of that is the client I spoke about earlier — the wealth advisor who deals with people who have built
up and now sold companies. Before I got a hold of him, he talked very little about his experience of youth: being raised by relatively poor grandparents, using an outhouse, starting out selling things doorto-door to pay for his own clothes and his own schooling, and being the first person in the family to go to college. He started a business with $500 and built it up. He talked very little about this but you know this is the affinity story of 75 percent of his clients. So I immediately want him to talk a lot more about it with his clients instead of talking about what he actually does with their money when he gets it. A lot of people have this ammunition to work with and they discount it. They haven’t really thought through how, where and when to talk about it. Some may be embarrassed by it and yet therein lie these connection points that really matter. FELDMAN: What are some of the differences that you see between the successful advisor and the rank-and-file advisor? KENNEDY: So many differences are generic, meaning that you certainly would find the same differences in all other faceto-face, trust-based professions. There are a bunch of generic things that
determine why somebody is a 1 percent, 5 percent, 15 percent or on down to the bottom 40 percent: How people manage and organize their time; how much of their time is devoted to their highest and best capabilities versus things that should have been delegated; their ability to communicate; a certain level of persistence. There’s a big difference between an advisor who is barely eking out a living and an advisor who actually has become a high-net-worth individual. That difference has more to do with who that advisor decides to target and craft themselves for. A lot of that falls into the category of what I call place strategy, meaning not necessarily physical location but where you plant your flag to organize clients and activity and centers of influence around you. Second would be process strategy. So it’s how effective you are at systemizing lead generation, marketing, trust-building, and follow-up versus how much needlessly repetitive, time-consuming manual labor you are doing to get to the same place. Third is what I would call personality strategy, which encompasses authority, credibility, believability, celebrity and affinity. The top earners have integrated those things and are masters of conveying them to their target audience. The greatest weakness in moderate-income to low-income advisors is their inability to customize anything they’re doing because they’re not dealing with high-net-worth individuals where they can justify and afford it. So they’re always presenting standardized, off-the-shelf presentations, products, solutions and pitches and they sound like they are presenting off-the-shelf solutions. There’s a big difference between showing you a PowerPoint presentation that you know is the same damn PowerPoint presentation I show pretty much to everybody else with a wallet and a pulse and a 401(k), and me being able to take out a legal pad and three different color markers and take you through what appears at least to be a very customized and a very personalized solution. The truth is I might draw much of the same illustrations for 50 other people but it doesn’t feel like it. How these successful advisors craft their personality matters a lot, and those are really the big differences.
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INTERVIEW HOW TO SIT AT THE HEAD OF THE AFFLUENT TABLE FELDMAN: What are some strategies for crafting your personality and creating that celebrity? KENNEDY: First of all, you really do not want to try to be something that is not identical to what you are. It’s very hard to sustain that. But you want to embellish and exaggerate parts of you. Personally, I chose some 35 years ago what I call the stern but loving parent persona. And by the way, there are about a dozen choices, in much the same way that any mystery novelist will tell you there are only about a dozen plots. Ultimately, you are going to pick a persona that best fits yourself and your target audience and that you can make reasonably authentic. So, for someone in my type of consulting practice, the very emotive hug, cheery rainbows and unicorns encouraging persona might fit them best. But it’s not going to work best for me and there’s no point in my attempting it. The most important thing to know is that the highest earners in every field are very definitive, distinctive and consistent
about the persona and the positioning they choose. The voice in which they choose to speak is so definitive that it repels as many or more than it attracts. You have to be willing for that to happen because you are very clearly going to be inappropriate for and unappealing to one segment of a target market. The closer you try getting to the middle, the less effective you are with anybody. FELDMAN: You mentioned customizing presentations. How important is it to the affluent that you have fancy flowcharts, pie charts and whatnot? KENNEDY: Less than most people think and, if overdone, they raise skepticism and distrust. The higher up the affluence ladder you go, the more damaging it is to be perceived as just another salesman. It’s pretty easy for us to identify salespeople. Salespeople have brochures that are always very professionally done, pretty, classy, glossy and corporate-looking. Sales professionals all have PowerPoint presentations. Financial sales professionals all
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InsuranceNewsNet Magazine » June 2017
have pie charts and bar graphs. You won’t catch a salesperson without them. Some of it is necessary for credibility, and no one dealing with high-net-worth individuals can risk the idea that they are — as Chris Farley used to say on “Saturday Night Live” — living in a van down by the river. We need some representation of professionalism and a support system behind us. But to rely on it is a big mistake. It’s a big step down in status. There’s a version of this business that mimics Frank Sinatra’s great quote, which was, “Anybody who needs anything more than a spotlight and a microphone is a putz” — and I happen to agree with him. You need to be where you are able to deliver it with conversational authenticity and appear to be thoughtful about it. Here’s what a salesman does. A client gets halfway through a question or an objection and it’s like pushing the third button to the left on the salesman’s forehead. He doesn’t even wait for the client to finish the question. He’s heard enough to trigger his canned response to it. That approach is deadly with high-net-worth individuals. First of all, they want to be listened to. And second of all, they don’t want a push-button response. They want an expert response. They want a thoughtful response. In some cases, they want a creative response. They want an authentic response. They want a genuinely consultative relationship, so this requires a better repertoire of knowledge and information in your head and less dependence on the vices that automatically mark you as a salesman. I will tell you that it often shocks and surprises that with marketing materials, I can outperform pretty with ugly. I mean an ugly, clunky 16-page sales letter will outperform the really nice one-page cover letter and brochure. And a lot of advisors are lazy and cheap about this and over-reliant on their corporate partners for tools. They wind up looking interchangeable with other financial professionals rather than being very consistent with their overarching positioning and persona.
10X LEADER INTERVIEW
June 2017 » InsuranceNewsNet Magazine
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NEWSWIRES
Ending ACA Subsidies Could Cost Billions
Subsidies could rise by an additional $31B over 10 years 4
Pulling the plug on one of the Affordable Care 3 Act’s most popular and controversial features – subsidies for low-income enrollees – could end 2 up costing the government billions of dollars more than what it would save. 1 The Kaiser Family Foundation found that taxpayers would end up paying 23 percent more than the potential savings from eliminating the 0 2018 2020 2022 2024 2026 2028 ACA’s subsidies, which help low-income people with insurance deductibles and copayments. The total price tag is an estimated $2.3 billion more in 2018, or an additional $31 billion over 10 years. How can that be? Kaiser’s explanation is that insurers would still be free to raise premiums, causing the feds to spend even more money to reimburse insurers under the program. The cost-sharing subsidies cost about $7 billion this year. About three in five consumers who buy coverage on the federal or state exchanges qualify for a subsidy.
TRUMP TARGETING ‘TOO BIG TO FAIL’
President Donald Trump continues to take aim at the Dodd-Frank financial reform law, otherwise known as the “too big to fail” act. Trump has signed three measures to weaken the 2010 law. One memorandum orders the treasury secretary to review a component of Dodd-Frank that allows federal regulators to liquidate large, failing financial firms during a financial crisis as an alternative to bankruptcy. Another orders the Treasury Department to review a process that designates which nonbank firms could threaten the financial system if they fail. Critics argue the process is costly and arbitrary. Trump also signed an executive order directing the treasury secretary to review significant tax regulations issued in 2016 to determine whether any imBarney Frank and Chris Dodd pose an undue burden on taxpayers.
DID YOU
KNOW
?
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YELLEN SAYS U.S. ECONOMY IS HEALTHY
Federal Reserve Chair Janet Yellen gave her diagnosis of the U.S. economy and proclaimed it is on a healthy footing, helped by a global economy that is slightly more robust. Her prescription for keeping it healthy? Give the U.S. economy some gas but don’t press down too hard on the accelerator. Yellen said the Fed needs to get interest rates closer to a more neutral level that would allow the U.S. economy to grow at a moderate pace. The U.S. jobless rate has sat at or below 5 percent since September 2015. The low jobless rate, Yellen said, gives the Fed
The United Nations is investigating whether a repeal of the Affordable Care Act could be considered a human rights violation. Source: Washington Post
InsuranceNewsNet Magazine » June 2017
QUOTABLE
Either this ends up costing the federal government more money, or there’s chaos that leads to people losing their health insurance. — Larry Levitt of Kaiser Family Foundation, on the proposed elimination of health care subsidies
more room to change its focus and adjust its monetary policy toward higher rates. The goal is to raise rates gradually in advance of any inflationary pressures. “We want to be ahead of the curve and not behind it,” she said.
THE COLLEGE DEBT BUBBLE IS BECOMING DANGEROUS
We’ve already lived through the dotcom bubble and the housing bubble. But another bubble is looming – the student loan bubble. Over the past 10 years, the amount of student loan debt in the U.S. has grown by 170 percent, to $1.4 trillion — more than car loans or credit card debt. New York Federal Reserve President Bill Dudley described these high levels of student debt and default as a “headwind to economic activity.” In the U.S., 44 million people have student debt. Eight million of those borrowers are in default. Rising college education costs are only making matters worse. Although the consumer price index is 2.7 percent, between 2016 and 2017 published tuition and fee prices rose by 9 percent at four-year state institutions and 13 percent at private colleges. The average debt load individual graduates carry is up 70 percent over the past decade, to about $34,000.
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June 2017 » InsuranceNewsNet Magazine
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FEATURE
The latest LIMRA annuity buyers survey shows the changing objectives that are driving sales. BY STEVEN A. MORELLI 24
InsuranceNewsNet Magazine » May 2017
ANNUITY BUYERS SHIFT, BRINGING AN INDUSTRY ALONG WITH THEM FEATURE
W
ashington is not the only place that has gone conservative over the past few years. Consumers across the nation are turning to annuities primarily to conserve principal and less so for income or market gain. That was one of the key findings from LIMRA Secure Retirement Institute’s Annuity Buyer Metrics 2016 report. The study focused on data from annuity companies and surveys charting changes in buyers’ investment objectives over three years, 2014-2016. The researchers’ focus on objectives was natural considering the ongoing pressure to advise clients holistically rather than sell products, said Joseph E. Montminy, assistant vice president, LIMRA
been shifting so dramatically over the past few years. Two objectives associated with variable annuities have dropped significantly over the period, closely tracking the slide in VA sales. The first objective is income later, which LIMRA linked to VAs with riders such as the guaranteed lifetime benefit (GLB), fixed indexed annuities with GLBs and deferred income annuities. “VAs make up probably around 60 percent of the income later, and the indexed annuities make up almost 40 percent,” Montminy said of annuities sold to consumers principally interested in income later. “The deferred income annuity is a really small percent. So it is really the VA and the indexed that’s driving that category.”
TRADITIONAL VIEW
THE NEW VIEW
Retail Annuity Sales by Product Types: 2014–2016 (in Billions)
Income Annuities Fixed-rate Deferred $12.4
$11.7
$29.4
$28.8
Fixed Indexed Variable
$11.9
the difficulty sustaining riders. “GLB sales are down almost half of what they were about five years ago,” Montminy said, adding that the age of the typical GLB buyer nevertheless has been consistent at around 63 for at least the past 10 years. Another significant factor is the DOL’s fiduciary rule, which placed VAs under the more onerous best interest contract exemption standard. The rule also was cited as the reason the FIA market cooled off toward the end of 2016. FIAs were not placed under the BICE standard until the rule’s final version was released last April. The rule’s applicability date had been postponed to this June 9. As this edition went to press, no further delays were apparent. The principal preservation objective
Retail Annuity Sales by Product Objectives: 2014–2016 (in Billions)
Market Growth Principal Preservation $39.0
Income Later Income Now
$40.0
$34.0
$36.6 $47.0
$49.4
$53.0
$55.6 $65.0
$59.4
$117.9
$108.7
$111.1
$100.0
$83.5
$83.7 $9.7
2014
2015
2016
2014
$9.1
2015
$9.2
2016
Source: Analysis completed by LIMRA Secure Retirement Institute using U.S. Individual Annuities survey, VA GLB Election tracking survey, and Indexed annuity GLWB Election Tracking Surveys.
SRI. The Department of Labor’s fiduciary rule is only the latest manifestation of the drive for a needs-first approach. The respondents were assessed on four objectives: income now, income later, principal protection and market growth. The results yielded not only a greater understanding of what drives annuity buyers today but also perhaps some insight as to why the annuity market has
The other objective is market growth, which is associated with VAs that don’t have withdrawal riders. Although the drop in these objectives mirrors the decline of VA sales over the same period, the decrease in sales might not be completely attributable to the shifting objectives. Insurance companies had been easing off VAs since the 2008 economic crash, largely because of
steadily climbed during the period. LIMRA associates that objective with FIAs without GLWBs, fixed-rate deferred annuity sales and VAs with a guaranteed minimum accumulation benefit. Although FIA sales grew substantially in those years, fixed-rate deferred annuities made up a majority of the principal preservation sales. “They make up just under six out of June 2017 » InsuranceNewsNet Magazine
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FEATURE ANNUITY BUYERS SHIFT, BRINGING AN INDUSTRY ALONG WITH THEM
Top Goal for Retirement: Have Enough Money to Last a Lifetime List of Most Important Retirement Goals Most important
Second most important
Have enough money to last your lifetime
41%
Remain financially independent Stay and live in own home Spend time with family or friends
8%
14% 6%
11%
10%
Leave money for heirs or charities
6%
Spend most or all money during lifetime
5%
Source: LIMRA Secure Retirement Institute
InsuranceNewsNet Magazine » June 2017
12%
10%
6%
13%
12% 17%
71%
64%
39%
21%
7%
12%
Maintain control of assets
26
22%
12%
Pursue your interests and/or hobbies
every 10,” Montminy said of the deferred annuity sales. “That’s really what is driving much of the change. A lot of that was because we had a large block of business that came out of surrender charges from sales that occurred back in the market crisis in 2008-2009.” That flight to safety amid the collapse carried those buyers to the relative stability of 2016. When those surrender periods ended, that money sought a new home. It found that home largely in new fixed-rate deferred annuities, which featured rates that compared well with certificates of deposit and other safe money. “We saw a huge spike in fixed-rate deferred sales, particularly in the first half of the year,” Montminy said. “We also saw some small pockets of a flight to safety, especially in the first quarter of 2016 when there was a lot of market volatility.” The “income now” objective was steady through the period, along with the immediate income annuities associated with that objective. Although the burgeoning retirement-age population fuels a need for
18%
25%
Have enough money to pay for medical expenses Have enough money for emergencies
Third most important
13%
28% 24% 25%
12% 11%
Note: Based on 2,000 retirees and pre-retirees.
immediate income, Montminy suggested that persistently low interest rates could be dampening demand. “Interest rates hit record lows in the middle of 2015,” Montminy said. “As interest rates continue to rise, you are going to see that market continue to grow over the next two years not only because the higher interest rates get more income, but also because of the larger demand. There are a lot more retirees who need to generate their own personal type of pension plan.”
Pensions Not Dead Yet
The concept of creating a personal pension has been growing in popularity the past few years, but that does not mean traditional pensions are extinct. The conventional wisdom is that few Americans have pensions, and they are left to their own retirement devices, apart from Social Security. But The American College regularly studies how many Americans have traditional pensions and found the percentage surprisingly high. David A. Littell, a professor and researcher at the college, said a recently
concluded financial literacy and asset study of people between 65 and 70 found that 75 percent had a pension. Although that percentage is high, it is down from 80 percent in 2014 — indicating a rapid drop in pension-holders. The survey respondents had at least $100,000 in assets. “When we talk about people buying income now, the pensions even affect the marketplace,” Littell said, adding that it even affects deferred income annuities. “I was at a meeting with a bunch of different companies where they were talking about adding DIAs as an option in defined contribution plans. They said the take-up rate was really low. Part of that was just, still we are in this environment where we haven’t switched over. The people retiring today are still not those people who have only Social Security and no other income.” The situation might change quickly for deferred income annuities because the buyers’ average age is 59. But immediate annuities might be suppressed for a while because the average age of a single premium immediate annuity buyer is 72, Littell said.
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27
FEATURE ANNUITY BUYERS SHIFT, BRINGING AN INDUSTRY ALONG WITH THEM Still, the lack of interest in simpler annuities is a reflection of unwise planning, said Littell, who is also co-director of the college’s New York Life Center for Retirement Income. “The deferred income annuity product is a good way to reduce your risk as you are approaching retirement, versus just moving it to bonds to buy income at that point,” Littell said, adding that more consumers are buying annuities with qualified money. In Littell’s own case, he wanted the deferred income aspect of an annuity but not the date certain. The 63-year-old expects to retire in a few years and will likely work part time, but he’s not sure for how long. So, he joined the growing ranks of FIA owners — not only because of the flexibility of a withdrawal benefit rider. He is an educated consumer who looked at the contract details and liked what he saw. “The chances of the income beating a deferred income annuity were pretty good,” he said. “So, even if the market didn’t do well, I was going to end up at about the same place.” At the Center for Retirement Income, he makes certain financial and insurance advisors realize the value DIAs and FIAs with riders provide. But part of the challenge is drawing advisors out of their comfort zones. “My experience with advisors is that many of them have a product line that they’re comfortable with, and they are not equally comfortable with all the different options,” Littell said. A particular area of discomfort for some advisors is the perception of inflexibility, the opposite of what attracted Littell to his annuity. “The deferred annuity offers the promise to annuitize as specified with the mortality table, with some kind of guaranteed interest,” he said. “Plus, if you don’t like the price when you’re going to annuitize, you just do a 1035 exchange. So it does lock you in to an opportunity, but it doesn’t lock you in if you can get a better rate somewhere else.” He also preaches the value of variable annuities, having bought a low-cost one himself as a tax strategy when he received a small inheritance. He’s pretty happy with the terms of the contract, so he expects to do with his annuity what a lot of consumers usually do not — actually annuitize. 28
InsuranceNewsNet Magazine » June 2017
The retirement market will grow for decades, as will the prospect for annuities.
2050: 12,000 per day
2021: 11,000 per day
2035: 78 million
2025: 66 million
2025: $25 trillion
10,000 per day
49.5 million
$13 trillion
2015: Americans Reaching Age 65
2015: Number of Retirees
2015: Retirement Income Market
Source: LIMRA Secure Retirement Institute analysis of 2013 Survey of Consumer Finance, Federal Reserve Board, 2014. The retirement income market size estimate reflects consumers aged 25 or over, and households with assets between $50K and $4.9 million.
“Now when it comes time to annuitize from that product, the payout rate is substantially higher than the current market rate because of the promises in that contract,” he said. “I can actually add money to that contract and still get the same promise.” And that ought to make the insurance company a little nervous, because Littell’s father lived to 104. Longevity is a key reason why Littell and many other experts argue that failing to advise clients on the value of annuities is not protecting consumers’ best interests. In fact, ever-expanding longevity might even undermine the argument against locking in an annuity in a low-interestrate environment. Although Littell does admit that the low-interest-rate argument sounds compelling. “That’s certainly the challenge,” he said. “But I think that sometimes it’s overblown. Mortality tables will probably continue to extend. Annuity costs may not ever be cheaper. It’s quite a promise for an insurance company to guarantee income for life. They might get more gun-shy over time.” Littell said the greater insurer exposure with longevity reminds him of the longterm care insurance market, which is still
grappling with policy pricing and sustaining contracts. Littell’s father got considerable value out of an annuity he bought in his 80s, an age that raises a few eyebrows among advisors and regulators considering suitability and fiduciary duty. But few could argue that it was a bad deal if a client lives to be 104. “He was worried he was spending down his money in his 80s,” Littell said. “He had plenty of money, but the whole idea of spending down freaked him out. He was in a retirement home and he wanted to make sure they didn’t kick him out. So, he bought an annuity to pay his retirement home bill, which let him sleep at night. Every year or so he announced that he had to live a little longer to get his money’s worth. So he did — he got his money’s worth.”
Safety and Security First
Now that Littell is in the retirement-planning frame of mind himself, he finds himself tracing his father’s careful footsteps. “I’ve been buying income,” Littell said. “Certainly not anywhere near all of my assets, but I want the security that there is income for life. That, and it allows me to take more risks with my other portfolio.” And there is plenty to be said for the peace of mind his father sought, according to data.
ANNUITY BUYERS SHIFT, BRINGING AN INDUSTRY ALONG WITH THEM FEATURE “There is a fair amount of research showing that people are happier when they have more income in their retirement,” he said. “People enjoy spending their income, but they don’t enjoy spending their assets. Like with my father — he still had a lot of money, but the idea that it was going down was disconcerting.” That all figures into a concept that Littell teaches in the Retirement Income Certified Professional program. Basically, it’s a flooring strategy. It’s a safety-first approach that considers the most important expenses first. That’s where low-risk products, such as income annuities, would be called for. Some advisors who don’t like annuities prefer a bond ladder, but Littell said that does not address the longevity risk. “The flooring approach is clearly a common strategy,” Littell said. “Especially with people who come from an insurance background, who are more focused on and aware of risk assessment and risk management. There is a lot of academic support for the role of some annuitization both for the psychological and portfolio value as well.”
Littell suspects qualifying lifetime annuity contracts (QLACs) could be a bigger player in coming years. They allow consumers to buy an annuity with qualified money but postpone the required minimum distribution from age 70½ until age 85. “A QLAC can end up providing wealth protection,” he said. “If you take a small
your assets, you’re not giving up a lot. If you live a long time, you’re probably going to leave a lot more to your heirs.”
Annuity Illiteracy
Annuities represent a clear value to consumers, but that is not clear to consumers. In fact, according to The American College’s financial literacy surveys, noth-
Qualifying lifetime annuity contracts (QLACs) could be a bigger player in coming years. sliver of your assets and buy an annuity, distribution will start at a much later age. That protects your wealth and protects your legacy. We think of annuities as a trade-off between income and wealth. But you really could argue that if you died young, you’d give up a little bit of wealth with a QLAC; but, because it’s a sliver of
ing about annuities is terribly clear to consumers. “When we test people’s knowledge on a wide range of retirement income planning issues, they perform the worst on annuity knowledge,” Littell said. “We asked the simplest possible question you could ask about annuities. It was something like,
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June 2017 » InsuranceNewsNet Magazine
29
FEATURE ANNUITY BUYERS SHIFT, BRINGING AN INDUSTRY ALONG WITH THEM ‘If you took 20 percent of your portfolio and bought an annuity, would that give you a better chance of being able to meet your basic expenses for retirement?’ Only about a third of them got that right.” Even consumers who had annuities weren’t sure of what they had. “I did also ask a hard question, which was a little unfair,” Littell said. “But so many people have purchased variable annuities with GLWBs, so I asked, ‘If you had one of those and the account balance went to zero, would you still get any income?’ I wasn’t expecting good performance on that one, but a lot of people have them and they don’t know what they have.” Littell said he makes the case to advisors that they have an obligation to explain the products and their role in planning. They should be explaining not just how annuities work, but how much they cost. “And people should know that if you’re 65 years old, the payout rate on an immediate income annuity is about 6 to 6½ percent,” Littell said. “So basic things like that, we should be communicating to people.”
Still Leery After All These Years
Part of the annuity illiteracy even among more sophisticated consumers might have something to do with the significant resistance to the products within the financial advisor community. “If you have been primarily handling someone’s investments and now you are doing the accumulation planning for that person,” Littell said, “you probably have a lot to learn because you’re not practiced in risk assessment and risk issues.” Retirement carries varied risks with it, and a guaranteed income protects against many of them, he said. » Market risk. The financial crash of 2008 was a reminder of that risk. » Excess withdrawal risk. “Which just means that you didn't do any planning done, you didn’t have planning, or you didn’t follow the plan. You spent more than you could afford. Guaranteed income gets rid of that problem.” » Uncertainties risk. “You want a diversified portfolio to address inflation, to address the uncertainties. You need some liquidity. Tax laws and public policy change. You need the flexibility to change course.” 30
InsuranceNewsNet Magazine » June 2017
1 of 4 Americans age 65 will live into their 90s Probability of 65-Year-Olds Surviving to Select Ages Men
Women
95
93 89 86
50%
25%
Retirement Income Reference Book, LIMRA Secure Retirement Institute 2015
» Long-term care risk. Americans are living longer. They also are more likely to live in expensive assisted living facilities or require other care. » Financial abuse risk. “It helps you with all of these issues around frailty and aging where you have less capacity to make complex decisions. It even protects you against your kid stealing your money if you’re only getting a monthly check.” Littell said education such as the RICP program helps break down barriers between financial disciplines. “When we started the program in 2012, we talked a lot about seeing too many different retirement income planning approaches based on people’s financial model,” Littell said. “Some people refer to that as kind of the siloed approach, depending on how you get paid.” Littell was alluding to the commissionbased vs. fee-based compensation battle. But the silos are breaking down. And it is not just education programs smashing silos. It is also becoming a good business model.
Nice Niche
Chris Harclerode has a niche within a niche in Jacksonville, Fla., as the senior vice president of annuity sales at a life insurance marketing organization catering to financial advisors. He is the go-to guy for thousands of advisors looking to understand the annuities that their clients are asking about. It just so happens that the advisors and their clients are right in line with a principal reason consumers like annuities. “They’re just looking for a conservative vehicle with principal protection,” said Harclerode, a partner at Pinnacle Insurance & Financial Services. “These financial advisors have been reading stuff in the press about how popular fixed indexed annuities are, and they really never ever sold them. And their customers are saying, ‘Hey, I’ve been reading that a fixed annuity with principal protection has the potential to have a better interest rate than CDs. Tell me more about it.’” Harclerode and his independent marketing organization occupy that demilitarized zone between insurance and finance, where advisors want to
ANNUITY BUYERS SHIFT, BRINGING AN INDUSTRY ALONG WITH THEM FEATURE incorporate life insurance and annuities but don’t know how to tread in this formerly hostile landscape. Call it a truce or a new alliance, but the IMO is finding it is very good to be Switzerland. The IMO partners realized several years ago that with tightening regulations and market pressure, getting individual agents was becoming more difficult and time-intensive. So, they started focusing on independent broker/dealers. As they scoped out that space, they happened to find an even bigger opportunity than they expected. “About eight years ago, this one guy says, ‘Man, our insurance platform at our broker/dealer is a disaster,’” Harclerode said. “Then we said, ‘OK, we can be your insurance platform. Our whole operation can be the back office for your financial services platform — for life insurance, annuities, disability and long-term care.’ And it took off from there.” Now about 90 percent of the advisors that Pinnacle deals with have securities licenses. On the life insurance side, the IMO partners with wire houses and B/Ds. On Harclerode’s side, wire houses have direct contracts with insurers for those products, so the IMO focuses on independent B/Ds for annuities. “There are thousands of these out there in the marketplace,” Harclerode said. “It’s really still untapped.” Pinnacle offers the guidance of how to fit annuities into a FINRA-regulated world. That means making sure the advisor doesn’t put too much of a client’s assets into annuities. Prudent placement would be 5 to 20 percent. That is going by their experience with FINRA guidelines and insurance suitability requirements. But Harclerode said he has seen some excessive sales. “I’ve been in this business for 25 years and have been running this annuity platform for the last 10, and I’ve seen so many times where advisors are putting too much of somebody’s portfolio into annuities,” Harclerode said. So, it’s a learning curve for everybody. The IMO learned to reverse its perspective. Instead of a typical insurance shop working with a selection of products, the IMO works with advisors to assess need and then scout the larger market for products, usually from one of 25 carriers. “We don’t know what product we’re
going to go with when a rep calls us until we dig,” Harclerode said. “That’s where the case design comes in. With the independent broker/dealers that we do business with, we develop their approval sheet on products. So, that’s the 10/10 rule — no more than 10 years in surrender or 10 per-
IMOs to become the financial institutions required to sign contracts for FIA sales with qualified money. But Pinnacle was not large enough and also had a different route. The B/Ds it was dealing with already were considered financial institutions.
“You just don’t see the insurance-only people anymore. It’s really a dying breed...” cent surrender charge in the first year. Just simple, clean, easy-to-explain products.” That also means steering away from bonus annuities that are popular in the insurance distribution channel. They get a little too close to the suitability and fiduciary trip wires for B/Ds. “If you’re going to give a client money upfront, what happens on the back end?” Harclerode asked and then answered. “They’re going to limit their upside potential.” But it was clear to Harclerode that some carriers are still doing well with bonus products that feature long surrender periods and steep charges. Harclerode asked a company representative who was visiting his office a few weeks ago what his No. 1 product was. “It’s a 16-year product with a 20 percent surrender charge in the first year,” he said the rep told him. “So, it doesn’t fit the criteria. We would never, ever promote something like that.” But that particular company and others are offering simpler annuities that appeal to B/Ds and registered independent advisors. And there are promises for more of those to be rolled out this year. Pinnacle has had to adjust its expectations with advisors. Unlike insurance agents who focus on annuities, financial advisors are turning to annuities as part of a larger picture. Instead of a single agent selling 50 cases in a year, Pinnacle will engage with more advisors who sell two or three cases a year.
The DOL Rule, Maybe
The IMO’s spot in the market puts it in a unique position for the DOL’s fiduciary rule, if it goes into effect as written. The DOL opened the door for jumbo-sized
Carriers indicated they were willing to sell through the IMO if the contract were signed by the B/Ds as the financial institution, according to Harclerode. “It’s going to be more paperwork and compliance and more disclosure to the client,” he said. “Will it make financial advisors gun-shy and affect prospecting for new sales? Probably some. But if we can help them with that process, we will.” Insurance companies have been relatively quiet about the DOL rule and the approach they expect to take in the event of the rule’s survival. At least, they haven’t revealed a lot to Pinnacle. “Right now they keep on saying, ‘Business as usual, business as usual,’” he said. “We’ve got a next hurdle coming up here in June that’s going to be — well, everybody’s anxious to see what’s going to happen.” Even with that, Harclerode said his IMO partners are sure they are steering in the right direction. The way of the future is clearer with each new advisor they deal with. “More and more young guys coming up the ranks are securities licensed and are aligning with a broker/dealer,” he said, adding with some reluctance: “You just don’t see the insurance-only people anymore. It’s really a dying breed — just the insurance-rep guy. It’s why years ago, we had to change our model.” Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. Steve may be reached at steve. morelli@innfeedback.com.
June 2017 » InsuranceNewsNet Magazine
31
FEATURE
Annuities Heading Into a Blended Future The DOL’s fiduciary rule may be on-again, off-again, but it has already had an impact. By Cyril Tuohy
I
ndependent agents, the traditional lifeblood of FIA sales, can expect to see a reshaping of annuity product lines as insurers revamp features and revenue models to meet the needs of distribution channels evolving under tighter regulation and market conditions. The Department of Labor’s fiduciary rule has been delayed until June 9, and many observers are conceding that the rule is likely to go forward in some form. No one doubts, however, that the
Variable Fixed
Despite FIA sales ending 2016 up 12 percent to a record $61 billion, it was less than the 13 percent increase in 2015, 23 percent rise in 2014 and 16 percent rise in
2016 $104.7B
Annuity, the company’s first fee-based fixed indexed annuity. Voya Financial’s new Voya Journey Index Annuity offers a “two-stage” interest-crediting approach to give advisors
2017 21%
2018
10-15%
10-15%
$117.4B
14%
0-5%
0-5%
Indexed
$60.9B
12%
5-10%
15-20%
Fixed-rate Deferred
$38.7B
25%
0-5%
15-20%
Income (SPIA & DIA)
$12.0B
2%
5-10%
10-15%
Total rule is already serving as a catalyst for important changes at manufacturers and distributors. The annuity market saw the hot-selling indexed segment cool at the end of 2016. Nonindexed fixed annuities, meanwhile, perked up as insurers sought to help agents sell under the strictures of the DOL fiduciary rule. But sprucing up fixed annuities wasn’t solely aimed at boosting sales for the independent agents. It was a way to 32
Indexed Annuities: The Changing Profile
InsuranceNewsNet Magazine » June 2017
$222.1B
6%
5-10%
2013, LIMRA Secure Retirement Institute reported. Industry analysts have expressed doubts about whether FIAs will be able to maintain the record pace this year, but insurers aren’t sitting back as they reshape product lines with more feebased options to attract new advisors. In Februar y, Allianz Life Insurance, the nation’s biggest seller of fixed indexed annuities, announced the launch of Retirement Foundation ADV
Source: LIMRA Secure Retirement Institute
Annuity Sales Projections
help independent marketing organizations stay in business and for IMO-centric insurers to continue catering to that IMO segment. IMOs were dealt a blow last year when DOL refused to include them on the same regulatory footing as banks, broker/ dealers, registered investment advisors and insurers, and for IMOs an era of consolidation and realignment is at hand.
0-5%
more flexibility. An advisory version of Voya Journey is scheduled for release later this year, the company said. Lincoln Financial, another indexed annuity seller, added fee-based versions of its Lincoln Covered Choice 5 and 7 to its fixed indexed annuity portfolio, the company said. With fee-based products, insurers want to give advisors choices as regulators seek to restrict varieties of commissions earned by agents.
ANNUITIES HEADING INTO A BLENDED FUTURE FEATURE In the near term, agents can also expect distributors to stock their shelves with shorter-term surrender charge FIAs, which are easier for agents to justify under the DOL’s best-interest standard, annuity market experts said. “Shorter-term surrender charge products are in our future, whether it’s fixed, indexed or variable — that’s what I’ve heard,” said agent Bob Quinlan, owner of Quinlan Insurance and Financial Services in Winona, Minn. Seven-year surrender FIAs are Quinlan’s best-selling, he said. On the horizon is a tighter commission range across annuity product portfolios, and advisors will be paid on account values rather than on the initial premium paid into the annuity, said Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink, publisher of the life and annuity industry data tracker Wink’s Sales & Market Report. “You’ll see more trail options, and it will be a time of disruption for the agent because the typical independent agent likes to sell three different annuities
(with few exceptions) out of more than 1,000 annuities available today,” she said. But in a DOL-governed best-interest world, agents will need to evaluate dozens of annuity options for clients, not just two or three as they have in the past. For advisors who insist on sticking with old practices, “maybe it will be time
In April, Athene USA launched Athene MYG, a multi-year guaranteed fixed annuity with different durations and competitive rates. The launch, along with enhancements to Athene’s indexed annuities Performance Elite and Ascent Pro, broadens Athene’s appeal.
No one doubts, however, that the rule is already serving as a catalyst for important changes at manufacturers and distributors. for them to go,” said Matt Gray, senior vice president of product innovation for Allianz Life.
Fixed Annuities: Sweetened for Sale
As the fiduciary rule pressure bore down on insurers to simplify FIAs and revamp commission structures, insurers turned to fixed annuities to fill the void.
“Adding these new solutions significantly enhances our ability to meet the evolving needs of our distribution partners, their producers and their clients," said Chris Grady, executive vice president and head of retail sales for Athene. American Equity’s new RateShield fixed annuity series in March are available with IncomeShield, an optional
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June 2017 » InsuranceNewsNet Magazine
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FEATURE ANNUITIES HEADING INTO A BLENDED FUTURE lifetime income rider, the company said. RateShield series products offer seven- or 10-year surrender schedules. In January, American International Group launched Assured Edge Income Builder, a new fixed annuity product issued by American General Life Insurance Co. The income rider offered investors age 65 at contract issue a guaranteed income of up to 5.6 percent of the contract value. Higher percentages of up to 6.35 percent are available for older issues, and lower withdrawal rates apply to younger issues, AIG said.
American Equity earlier this year reported “abnormally high” MYGA sales on the way to the company’s record sales of $7.1 billion for 2016, said President and CEO John Matovina in a February news release. Income riders, also known as guaranteed lifetime benefits, or GLB, on fixed annuities allow agents to sell the retirement income story, said Gary Baker, president of CANNEX USA, a pricing and analysis service supporting the annuity market. Fee-based options, which were introduced 10 years ago but never flourished,
IMOs, who are responsible for about 60 percent of FIA sales, were left out as “financial institutions” authorized to certify an annuity sale. By sweetening nonindexed fixed annuities with income riders, insurers hope to reach agents who have no intention of selling into qualified retirement accounts under the DOL’s best-interest contract but will instead sell under Prohibited Transaction Exemption 84-24, analysts said. Last year, sales of fixed-rate deferred annuities increased 25 percent to $38.7 billion, deferred income annuities rose 4 percent to $2.8 billion, fixed immediate annuities edged up 1 percent to $9.2 billion and structured settlements rose 5 percent to $6 billion, LIMRA SRI reported. Excluding indexed annuities, fixed annuity sales last year rose 15 percent to $56.5 billion compared with 2015, according to LIMRA SRI. Multi-year guaranteed annuities (MYGA) were big beneficiaries as well. In the fourth quarter, MYGA sales rose 12 percent to $6.6 billion compared with the year-ago period, according to Wink. Year-end MYGA sales were $33.4 billion. 34
InsuranceNewsNet Magazine » June 2017
are now even turning up on single premium immediate annuities (SPIA) and deferred income annuities (DIA) in the face of the DOL rule, he said. Rising interest rates have helped all annuity sales, and benchmark rates would have to rise to about 4 percent before advisors seriously consider shifting clients out of FIAs and into fixed annuities, industry analysts and agents said.
IMOs: Crystals in a Kaleidoscope
Beefing up fixed annuity product lines helps not only agents but also IMOs, which have undergone a maelstrom of change after the final version of the fiduciary rule was released in April 2016. IMOs, who are responsible for about 60 percent of FIA sales, were left out as “financial institutions” authorized to certify an annuity sale. The DOL’s proposed pathway for IMOs to becoming a financial institution on a par with banks, broker/dealers, insurers and registered investment advisors appears to be leaving out all but a dozen
or so of the largest IMOs. As many as 300 to 400 other IMOs, those without the business volume to even qualify to becoming a financial institution, were left in the lurch and face questions about their business mix, which annuity products to keep and which to drop. “Since the DOL rule hit, both IMOs and IMO-centric carriers have been scrambling,” Baker said. Smaller and midsize IMOs retreating behind the shelter of PTE 84-24 will decide whether they can continue to support life insurance and fixed annuity production without relying too heavily on FIAs, Baker said. Other IMOs looking to stay in the FIA game, staring at hefty investments in supervisory and compliance infrastructures, may seek to reformat like crystals in a kaleidoscope and realign themselves with FIA-centric insurers. “Some IMO-centric carriers continue to evaluate whether or not they would take on supervisory responsibility for BIC (best-interest contract) on behalf of the IMO,” Baker said. Whatever the future holds for IMOs, the channel is here to stay. IMOs are run by entrepreneurs who find ways to survive by meeting the regulatory environment while still offering value to independent agents. “IMOs are very durable; they last and last,” said Chad Tope, president of Annuities and Individual Life Distribution for Voya Financial. Already, IMOs are working with broker/ dealers, and those IMOs that remain independent will either themselves become a financial institution under the DOL or seek to align themselves with one, said Tope. Indeed, many IMOs already have deals to work exclusively with broker/dealers or a bank, which offer fiduciary requirements through which independent agents must work if they want to sell in the new DOL world. “I think we are in a much better position than we were a year ago,” Tope said. InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril. tuohy@innfeedback.com.
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FEATURE TOO BUSY TO DIE
Special Sponsored Section
In this year’s Annuity Awareness Month Thought Leadership Series, great minds from five different companies offer their perspective on products, process, and the future of an ever-changing annuity marketplace.
INSIDE
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The Pension Protection Act & Asset-Based LTC Products By Pat Foley of OneAmerica PAGE 37
11 Risks Your Competition Is Ignoring By Douglas Dubitsky of The Guardian Life Insurance Company PAGE 40
Grow. Merge. Transition. Possibilities For Your Business Abound Q&A with Mark Williams of Brokers International PAGE 38
CPA Direct Generates Successful Alliances Between Advisors and CPAs Featuring Table Bay Financial PAGE 42
InsuranceNewsNet Magazine » May 2017
Mission Possible: Preparing for Long Life Featuring Great-West Financial PAGE 44
The Annuity Issue • Special Sponsored Section
The Pension Protection Act & Asset-Based LTC Products
How to finally offer LTC protection that your clients actually want Pat Foley, President, Individual Insurance and Retirement Services for the companies of OneAmerica®
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e know that most retirees’ No. 1 concern is whether they’ll have enough income. Their next concern is worry over a catastrophic health event that will devastate their finances. But between common myths about long-term care (LTC) protection (the government will pay) and common objections (prohibitive cost, “use it or lose it,”) to problems associated with traditional long-term care insurance (LTCi), convincing your prospects and clients to actually acquire coverage can be tricky. One solution is hybrid annuity products with longterm care riders, and a compelling enabler, the Pension Protection Act. The Pension Protection Act, also known as Public Law 109-280, is a piece of legislation with a wide scope that includes specific focus on annuities, long-term care and tax advantages via Section 844. What this law has successfully accomplished is enabling withdrawals from specific annuity contracts that pay for qualifying LTC expenses or LTCi premiums as income tax-free. The ideal products for this provision are fixed interest annuities with long-term care benefits, which OneAmerica® actually pioneered almost 20 years ago. We have since introduced two more annuity-based LTC products, including the first indexed annuity long-term care hybrid product in 2014 — in the years after the Pension Protection Act went into effect. Such annuities provide additional long-term care benefits, through riders, on top of long-term asset growth and the benefits of tax deferral and non-LTC liquidity. Their most appealing difference from traditional LTCi is the guaranteed payout benefit. If policyholders die before they file any claims, an assigned heir will receive the accumulated value. These annuities can be purchased for a single person or shared between two people, which allows married couples to share one larger pool of money, and it also keeps costs down as the risk is spread over two lives. Another benefit is that premiums don’t increase, whether coverage is for one or two people, which effectively counteracts the rate hikes that have plagued the LTCi industry. Repositioning assets to take advantage of the Pension Protection Act is relatively simple. Internal Revenue Code section 1035 under the Federal Tax Law allows the exchange of an existing annuity into a new annuity on a tax-free basis, so all one needs to do is transfer the existing annuity into a hybrid annuity product featuring LTC protection. There are generally three main types of annuities that are ideal for such 1035 exchanges. One is variable annuities held by clients typically between ages 65 and 75, who realize they don’t have the same risk appetite that they did when they purchased a variable annuity. A second type is an older annuity that was purchased because it had some initial interest rate bonus or other hook and is now sitting dormant without being used for income. And finally, there are the annuities that were purchased with an income rider whose owners realize they’ll never utilize that rider. There is a wealth of opportunity, both for consumers to finally access affordable LTC protection, and for financial professionals to increase business, given that only 0.4 percent of all deferred annuities are turned into income1 — and the amount of money Americans have in deferred annuities is a staggering $938 billion2! The Pension Protection Act can be a powerful talking point in the LTC conversation. It provides a way for clients to access their money
on a tax-free basis versus perhaps having their money in a place where liquidation involves paying a high tax rate — or not having funds available for LTC expenses at all! Consider that people who buy annuities don’t just luck into the money used to purchase them. They worked hard. They invested well. They’re prudent thinkers and are mindful of cost and taxes. When you present an option for them to obtain critical LTC protection via the Pension Protection Act, and with zero taxes, it’s likely they’ll listen very closely. Being able to thoroughly explain to your clients a legislated advantage they’ve probably never been told about can highlight your knowledge and credibility, and may help your clients see a fuller picture of the value you can provide. We at OneAmerica believe strongly that LTC protection should be part of every person’s retirement strategy, which is one reason why we are focusing strongly on development and sales of our Care Solutions hybrid long-term care products, including annuity-based products. The other reason is the excitement we’ve experienced from the marketplace. Since we introduced the first indexed annuity long-term care product in 2014, we’ve exceeded sales projections. In 2016, we had a 23 percent increase in sales in our Care Solutions products, and we are planning to grow sales by 25 percent this year, and each following year through 2020. It’s because as market demand is increasing, we have something that addresses consumers’ concerns, and we are backed by an A+ rated, 140-year-old organization. Thanks to the Pension Protection Act and the Care Solutions product suite, we’ve never been in a better position to provide consumers with what they need.
To access the OneAmerica complimentary guide, “The Pension Protection Act and Long-Term Care,” visit www.PPA-annuity.com.
About OneAmerica® A national leader in the insurance and financial services marketplace for 140 years, the companies of OneAmerica help customers build and protect their financial futures. OneAmerica offers a variety of products and services to serve the financial needs of their policyholders and customers. These products include retirement plan products and recordkeeping services, individual life insurance, annuities, asset-based long-term care solutions and employee benefit plan products. Products are issued and underwritten by the companies of OneAmerica and distributed through a nationwide network of employees, agents, brokers and other sources who are committed to providing value to our customers. To learn more about our products, services and the companies of OneAmerica, visit OneAmerica.com/companies. OneAmerica® is the marketing name for the companies of OneAmerica. On July 28, 2016, The State Life Insurance Company® was rated A+ (Superior) by A. M. Best. This is the second highest of 16 possible ratings assigned by the agency.
1 Table 282, Annuitization of Deferred Annuity Assets, U.S. Individual Annuity Yearbook – 2015, LIMRA Secure Retirement Institute, 2016. 2 Table 28, Year-End Deferred Annuity Assets by Market Type, U.S. Individual Annuity Yearbook – 2015, LIMRA Secure Retirement Institute, 2016.
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The Annuity Issue • Special Sponsored Section
Grow.Transition.Merge. Grow. Merge. Transition.Possibilities Possibilities for Your Business For Your Abound Business Abound Brokers International is going back to its roots, helping advisors and agencies explore next steps for their businesses — whether it’s to grow, merge transition or transition. or merge. In this thisQ&A, Q&A,Mark Mark Williams, Williams, Brokers Brokers International CEO International CEOand and president, president, explains how the company has the experience and infrastructure to help those advisors and agencies evaluate their options and implement change. Q: How is Brokers International returning to its roots? A: The majority of our business is driven through field marketing organizations (FMOs) that partner with us, due to our specialized backoffice support. Our experience is in helping organizations build. We provide contracting, licensing, marketing and many other services. This is how the company was built — the majority of our business runs through other FMO agencies. We understand how an FMO should operate; we know all of the processes and procedures that have to be put in place to be successful. Some smaller FMOs may not have all of these resources in house. And that’s where we fit, and fit well — better than most. It’s one of the advantages of doing business with us. We’re trying to get back to the agency builder platform; the original roots of Brokers International. Q: What’s driving the approach? A: Regardless of what happens with the proposed Department of Labor Fiduciary Rule, I think there are certain aspects of the Rule that are important and most likely will be mainstays in the industry. This includes compliance and oversight. To comply with the Rule, special oversight needed to be in place for our own downlines (smaller FMOs). We felt this was a good opportunity to support not only our own agents, but also other agents or agencies that either couldn’t comply, didn’t have the capacity, or simply didn’t want to take on the liability or the responsibility as it relates to the Rule. We’re fortunate to be one of the few organizations that could fall under the Rule’s proposed Financial Institution Exemption. For example, we already have an infrastructure for compliance, including a dedicated compliance team and experience with the auditing processes. If we need to take in commissions and pay agents out individually, we have the systems and support to be able to do that too. We felt the timing was right to re-focus on being an agency support system, because so few of our peer organizations have the experience, capability, or the systems built to fill that role. Q: What is Brokers International’s grow-transition-merge grow-merge-transition strategy? A: We want to be the provider of solutions to agents, agencies, 17-0315-041718
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broker-dealers, and registered investment advisors. No matter where you fit in that financial services arena, we believe we can help you either grow your your business, business, merge transition youraway business, from or transition your business, away or merge from your your business business — or all three, at some point. We’re here to help you accomplish your goals in the lifecycle of your business. For example, if an individual agent wants to produce more business year after year, but not build an agency, we offer a menu of services to help that agent grow his/her business, with administration, marketing and sales support. But, we can also help an agent who is producing large amounts of business and wants to build an agency; we have the experience and and infrastructure infrastructure to tohelp helpthat thatagent agenttransition create a new to anagency. agency.We Wecan can assist assist with with recruiting recruiting agents, licensing in all states, providing the kind of backoffice, administrative and technology support they need and more. One for And of our thosesuccesses ready to retire, over the regardless years has of age, been most to have help agents no ideaand howagencies to transition merge away together, from their merge business. with us,One or transiof our tion as anover successes exit the strategy, years either has been at the to help producer agentslevel and or agencies at the agencytogether, merge level. And merge for those with us, ready or transition to retire, as regardless an exit strategy, of age, most have either at theno producer idea how leveltoortransition at the agency awaylevel. from their business. AsAs a starting a starting point, point, we can we can help help agencies agencies valuevalue their busitheir business ness so they so they know know whatwhat theythey have. have. I think I think this this is another is another big big opportunity, opportunity, because because a lot a lot of ofproducers producershave haveno no idea idea what their business is worth. And if you sell today, that doesn’t mean you have to walk away. You can stay on for years, have no responsibility responsibility for forrunning runningthe thebusiness business butbut continue continue to reto receive ceive anan income income stream. stream. Q: What’s What’sthe thefirst firststep step in in exploring exploring solutions solutions with with BroBrokers kers International? International? A: We keep it simple and start with a questionnaire. We want insurance and financial services professionals to know they have options — many they haven’t considered — and we think they should give us a call before they sign on the dotted line with anyone else. There’s no obligation or upfront cost. These are big decisions, and we want to help them explore all their options. Like the value these professionals provide to the general public through their services, we believe we can offer our services to agents, agencies, and producers, and help them plan for the future of their own business to achieve their goals.
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The Annuity Issue • Special Sponsored Section
11 Risks Your Competition Is Ignoring How to structure the ultimate annuity conversation around retirement risks By Douglas Dubitsky Vice President of Product Management and Development for Retirement Solutions at The Guardian Life Insurance Company of America®
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hen you talk to prospects and clients about retirement planning, have you ever heard them say, “I’ve got a guy … ”? A powerful response is asking, “How much guaranteed lifetime income do you have?” and “Have you taken the key risks off the table?” This will open the door to a conversation around the importance of guaranteed lifetime income, and the value that income annuities provide in retirement. To achieve the greatest impact for consumers, you’ll need to base this conversation not on opinions and emotions, but on the math and science of retirement income planning. The universe of retirement risk can be overwhelming, so start by addressing each of the following 11 risks that most clients face.
1. LONGEVITY
First, speak with your clients about longevity. Simply put, how long do they expect to live? And what if they live longer than expected? Longevity itself isn’t actually a risk; living a long, healthy life is a blessing. But a longer life brings with it the potential for all the other risks that can exist in retirement to multiply. The biggest mistake advisors and consumers make regarding longevity is looking at averages. Average life expectancy is nothing more than a calculation that means half the people will die before that age, and half will die after, so there’s a 50 percent chance that a retirement plan based on this average will fail. The closer your client gets to surpassing the average life expectancy it is often too late to correct planning mistakes made years earlier. The power of guaranteed lifetime income is that it minimizes the impact of longevity on the other risks your clients
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face in retirement. Let me be clear: Each risk faced in retirement is multiplied by longevity.
2. INFLATION
People often fail to understand the toll that the compounding effect of inflation takes on their retirement plan. With traditional money management, advisors and consumers focus on assets under management and rate of return. Instead, they should be focusing on income and expenses. When you take your clients through a retirement expense fact finder, are you also increasing those expenses to account for the impact of inflation? What happens to the plan over 20 or 30 years if expenses rise due to inflation but income stays flat? Income annuities now offer a great feature to help your clients mitigate the impact of inflation: COLA (cost of living adjustment) riders, which allow for increasing payments throughout the remainder of one’s lifetime. Be sure to discuss the role inflation will have in your clients’ plans, and show them how using an income annuity with a COLA rider can provide a greater state of comfort through the many years ahead.
3. DIY
The biggest mistake do-it-yourselfers make is in the way they perceive liquidity. Your clients may want liquidity, but going to the bank next Tuesday to access their money isn’t liquidity; it’s impulsiveness. True liquidity is having money in the bank throughout the entire course of their retirement, no matter how long. It is the constant and consistent flow of cash for the remainder of their lifetime. If your clients come to you with the misconception that income annuities “handcuff” them and prevent access to their money, point out how annuities diversify their assets to cover specific expenses in retirement with a guarantee. Explain the benefits of a diversified retirement plan that includes investments for other needs and can also provide other guaranteed sources of income — most commonly, fixed income investments such as CDs and Treasury bonds. Although CDs and Treasury bonds don’t offer much in the way of capital growth, and therefore do not offer much protection against inflation risk, they bring minimal risk and provide income via interest and coupon payments. But they are of course not guaranteed to provide lifetime income, as annuities do. 1
LIMRA, The Retirement Income Reference Book, 2015
The Annuity Issue • Special Sponsored Section
4. TIMING
Research shows that most people don’t control when they retire. In fact, 49 percent retire earlier than planned, often because of health- or job-related reasons.1 With many traditional retirement plans, the two years before and after retirement are critical. If your client’s retirement is based on a 401(k) or an IRA, and the market takes a 20 percent drop in this four-year window of retirement, they suddenly have 20 percent fewer assets right out of the gate. The biggest mistake is to enter retirement with an AUM (assets under management) mindset instead of an income mindset — in other words, “I have a million dollars” versus “I have $5,000 a month for life coming to me in retirement.” We must get our clients to change the way they think and start shifting assets into income prior to retirement.
5. MARKET RISK
Remember, your clients are people, and people don’t always act rationally. They get rattled by markets, and they make mistakes. If these mistakes happen when they’re younger, they have plenty of time to correct them, but if they happen during retirement, they can be catastrophic.
6. SEQUENCE OF RETURNS
A common mistake, besides not having a lifetime income stream as the foundation of a retirement plan, is to focus on average returns without considering the sequence of returns. There is a big difference between losing a percentage of assets right after retiring and losing the same percentage
a year or so before death. Also, as your clients begin to withdraw money from their portfolio for retirement, the sequence of positive and negative annual returns may impact how long their assets will continue to provide them with income. With a “protection first” retirement plan, guaranteed lifetime income is in place to cover fixed expenses. Following that, other sources of discretionary income can be put to work in the market. What to avoid is “cross-pollinating” guaranteed expenses. To appeal to clients who may expect that interest rates may improve in the future, without risking involvement in the market, structure their deferred annuities at different times, with payouts at different terms. Your clients can give themselves a raise, and everybody wins.
7. RULE OF 219
The Rule of 219 is based on the simple fact that people need to eat. If you factor two people eating three meals a day for 365 days at $5 each meal, for 20 years, the total comes to $219,000. When figuring a client’s expenses in retirement, remember to calculate more than just their standard living expenses. Nobody works their whole life to retire and sit alone in a room somewhere, living on just enough to cover food, shelter and clothing. A retirement expense fact-finding exercise is critical to helping your clients understand their true expenses in retirement. What about trips to see family, or club memberships that support their social network, or the cost of sporting events, the theater or whatever else they plan on doing? Use the Rule of 219 to introduce the point. Then add in everything else, including inflation. Your clients need the facts in order to plan properly.
8. INCOME GAP
Fear can be a great motivator, but it doesn’t shock people into taking action. It paralyzes them. Spotlighting the trillions of dollars in the retirement income gap might get people’s attention, but it’s unfair to your client. No one person has a trillion-dollar income gap. Simply identify your client’s actual income gap, using fact finders and retirement income gap analysis, and focus on bridging that gap. Show clients how Social Security and other forms of income (pensions, existing annuities, etc.) benefit their plan. Then work to identify sources of assets that can be turned into guaranteed lifetime income in order to
close their personal retirement income gap. As you know, based on each person’s circumstances, needs and goals, the plan will vary, so no two plans will be alike.
Read the remaining risks and download the 11 Retirement Risks infographic at
www.11RetirementRisks.com.
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The Annuity Issue • Special Sponsored Section
CPA Direct™ Generates Successful Alliances Between Advisors and CPAs
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hile today’s CPA referral models are abundant, there’s little evidence that they are successful for most advisors who pursue them. Table Bay Financial recognizes the shortcomings of today’s referral models, and is confident in the power of CPA-advisor alliances only when they are done well. In response, it built CPA Direct™ — a program that eliminates the pain points of referral programs. Table Bay Financial created what it considers a new distribution channel that leverages the untapped revenue streams of CPAs and supports advisors who want to move to the next level of productivity with a continuous flow of highly qualified prospects. “The current models that use CPA referrals are essentially an advisor-centric program,” says Barry Bulakites, President and CEO, Table Bay Financial Network, Inc. “Getting CPAs to refer to advisors seems like a great idea, but it doesn’t work. We went with a CPA-centric program that’s not a referral program. Instead, it helps eliminate the roadblocks between the CPA’s office and the advisor’s office.” What makes Table Bay Financial’s program different is that the advisor meets with clients in the CPA’s office. The CPA is contracted with Table Bay Financial, and when it’s time for the client to seek financial planning advice, the handoff from CPA to advisor can be immediate. According to Bulakites, “This highly specialized program has been designed to help qualified advisors build new business with qualified CPAs. With our program, you’re the “go-to advisor” for their clients’ retirement distribution and financial planning needs — and you’re right down the hall, so to speak.”
WHY IT WORKS
With referral models, CPAs have some angst about referring their good clients to financial advisors. In many cases, they have multiple advisors vying for their business, and they aren’t sure where to make their referrals. Plus, if the CPA’s client seeks financial planning services, the communication back to the CPA is often lacking. Despite these challenges, the changing tax preparation landscape continues to make CPA firms consider financial services as a necessary option to better serve their clients, retain clients, and — in some cases — survive. The key to the right program is eliminating aspects of referral models that leave a lot to be desired. “Our program is designed to attract CPAs to the financial services world, CPAs who have long wanted to do this but 42 42
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can’t overcome the barriers to their participation — money, wherewithal, knowledge or simply their disinclination to become salespeople.” Bulakites describes CPA Direct as building a financial services practice inside an existing tax practice, with Table Bay Financial providing staffing, all training and turnkey materials. It’s not just CPAs who have issues with today’s referral models. From the advisor’s perspective, today’s programs are inefficient and can be expensive.
“If a CPA has the right knowledge and tools that enable him or her to ask about next steps for rollover funds, it’s an incredible opportunity to open up a discussion with an advisor about financial planning options.” — Barry Bulakites, President and CEO, Table Bay Financial “The typical sales funnel requires the advisor to find prospects and identify qualified clients. CPA Direct eliminates those time-consuming, frustrating and expensive steps. It frees up more time for the advisors to do what they love — helping people.” And at a time when public mistrust in the financial services industry — including banks and Wall Street — is growing, CPAs continue to enjoy the most trusted advisor position. “For an advisor today, highly motivated, engaged clients who are referred from CPAs are far more valuable than any prospects derived through traditional marketing,” says Bulakites. “This program is offering a different portal for the client. It eliminates the client’s wary perception that a mistrusted advisor is coming at them. Instead, they’re seeing it as their most trusted financial advisor coming to support them. That flips the paradigm on its head.” CPA Direct offers CPAs an option that eliminates their requirement to “sell” financial services, but still gives their clients access to a highly trained, highly skilled advisor. And it gives advisors a new way to access revenue streams that may not be available to them today. “Distribution planning for our aging Baby Boomer generation is largely underserved with today’s CPA referral models,” says Bulakites. “This generation is starting to reverse from accumulation into distribution, and that’s when the skills of a financial advisor can be invaluable.”
The Annuity Issue • Special Sponsored Section
CPAs’ clients who are changing jobs can also be overlooked for financial planning. While a CPA may learn of a client’s job change when providing tax preparation services, the discussion may never include potential next steps for any related rollovers. “Potential rollovers are an ideal example of assets under a CPA’s influence that may wind up in low-earning CDs or other low-return investments. A client changing jobs may simply try to figure out what to do with retirement money on their own,” says Bulakites. “But if a CPA has the right knowledge and tools that enable him or her to ask about next steps for rollover funds, it’s an incredible opportunity to open up a
The other piece of CPA Direct is establishing relationships with advisors who want to partner with a CPA under America’s Tax Solutions. They work in concert inside the CPA’s practice to make financial services available to the CPA’s clients. According to Bulakites, this is an efficient and effective way to help advisors who are struggling to find sufficient quantities of quality prospects to tell their stories to. “CPA Direct is a great opportunity when traditional marketing methods aren’t working anymore, or the cost of those is soaring.” The first step to learning more is tuning in to a Table Bay Financial webinar. Sessions are hosted every other week. Then, interested advisors can register for and attend one of the Advisor Road Shows held around the country in the same locations as the CPA Best Practices Tour. According to Bulakites, Table Bay Financial is seeing great interest from CPAs who are looking to have a team that includes a skilled, dedicated financial advisor. He says that CPAs and advisors have a common interest in supporting retiring Baby Boomers and helping to eliminate the disconnect that this generation experiences between accounting and financial planning. “CPA Direct is designed to help advisors enter the lucrative CPA alliance market by setting up shop with accountants in their area. Advisors gain access to top accountants and their clients, and receive a steady stream of highly qualified prospects,” says Bulakites. “We want to create something for the future — essentially a new distribution channel for the financial services industry.” “We’re feeling really enthusiastic about this program because it’s addressing a lot of advisors’ concerns about what doesn’t work in current CPA referral programs and setting them up to do the parts of their job they enjoy — identifying problems and recommending solutions.”
With CPA Direct, advisors could go from a handful of meetings per week to between 25 and 40 a month with qualified and highly motivated prospects. discussion with an advisor about financial planning options at the same time.” Bulakites estimates that under its new program, advisors could go from a handful of meetings per week to between 25 and 40 a month with qualified and highly motivated prospects.
HOW IT WORKS
Table Bay Financial employs a two-part process that identifies and recruits CPAs and advisors separately — then it matches them to work together in the CPA’s firm. The first piece of CPA Direct is reaching out to CPAs through Table Bay Financial’s CPA Best Practices Tour. The ideal CPA Direct firm is highly motivated to build wealth management inside the existing practice. Bulakites says most firms are smaller, with fewer than five partners. To participate, CPAs sign contracts with Table Bay Financial and participate in its America’s Tax Solutions™ (ATS) program. ATS uses proprietary software to strategically analyze tax data to uncover wealth management planning needs and opportunities. “ATS offers CPAs a completely turnkey financial services platform that they plug and play into their existing tax practice. It’s also uniform across all participating CPA firms. The platform, training and support we provide create the foundation for the CPA to work with an experienced financial professional to assist in building a wealth preservation business.”
Are you ready for a viable, cost-effective and efficient marketing channel — and a pipeline of qualified prospects? Take the first step toward eliminating the volatile sales cycle. Download your free CPA Direct info kit at
www.CPADirectKit.com.
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The Annuity Issue • Special Sponsored Section
Mission Possible: Preparing for Long Life Great-West Financial Helps Make it Happen
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ith a long-standing mission of helping people be financially prepared for long life, Great-West Financial understands that additional tools can help financial advisors have fruitful discussions with clients: in particular, helping them safeguard retirement income, while considering multiple strategies — including an annuity with a guaranteed lifetime withdrawal benefit (GLWB) — that will generate a stream of lifetime income payments. A GLWB is a rider on a variable annuity that allows withdrawals from the invested amount without having to annuitize the investment. The amount that can be withdrawn is based on a percentage of the total amount invested in the annuity. Although the withdrawal percentage varies by contract, it is a guaranteed amount subject to the claims paying ability of the insurer.
planning a budget for other expenditures like entertainment, clothing and philanthropy.
MEETING BASIC NEEDS
• Market protection. As long as your client’s annual withdrawal never exceeds the guaranteed income amount, the level of income is guaranteed for his or her lifetime — even during market downturns.
Planning for retirement may be overwhelming, so a good place to start is helping a client understand how much he or she will need to cover basic, budgeted expenses — needs “Our goal is to that may be addressed by a support financial guaranteed income amount. advisors when You’ll first want to determine how much money helping clients they anticipate having after determine desired they stop working and from outcomes for their what sources. Then consider that most pre-retiree clients retirement plans will spend 60% of their reand plan for their tirement income on food, families’ futures.” housing and healthcare.1 The next step is to find the — Bob Shaw, president gaps — and then provide a of Individual Markets solution for filling them. for Great-West Traditionally, retirement income has come from three sources: Social Security, defined benefit (pension) and/or defined contribution plans (401(k), 403(b), 457), and personal savings. Only Social Security benefits, however, are expected to be guaranteed by most Americans. The value of workplace savings plans and personal savings accounts can fluctuate with market conditions or be depleted by unexpected spending emergencies. So it may be prudent to consider another source of guaranteed income such as a GLWB available with a variable annuity. An annuity with a GLWB could provide lifetime income for your clients and help close the retirement income gap for budgeted expenses. Knowing their basic expenses will be covered can provide a retiree with confidence when they move to
GLWB AND OVERALL FINANCIAL STRATEGY Most clients want to protect their nest egg and create an income stream that will carry them through retirement. Doing both of these requires a balance that you can help with. When creating an overall retirement strategy, some GLWB potential benefits to consider:
• Growth potential. Lifetime withdrawals will be protected against any investment losses during down markets. If the market takes a negative turn, payments never go down. But, if the market improves, your client’s annual withdrawal amount can increase.
• Ability to leave a legacy. If your client’s account has a positive value when he dies, that amount can be paid to his designated beneficiary 78 percent of or charity. • Guaranteed income for a joint beneficiary. In many contracts, your clients may designate a joint beneficiary, which means that the income is guaranteed for the individual who outlives the other, usually at a lower maximum withdrawal rate.
Consumer Expenditure Survey, “Consumer units with reference person age 65 and over by income before taxes: Average annual expenditures and characteristics,” 2013-2014.
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The Stanford Center on Longevity, The Future of Financial Wellness, September 30, 2014, Conference Proceedings
InsuranceNewsNet Magazine » June 2017 InsuranceNewsNet Magazine » June 2016
— Lifetime Income Score 2016 White Paper, April 2016.
GLWBs offer the potential for growth in your client’s retirement savings and retirement income, while guaranteeing that their income won’t decrease — even with market fluctuations. With the GLWB, clients can withdraw the remaining part of their retirement savings at any time, even after their retirement income starts, however, in some cases this may result in additional fees. The GLWB allows your clients to guarantee a base level of lifetime income — regardless of market performance. Since income from the GLWB portion of the portfolio is protected, your client may have the flexibility to consider a more aggressive strategy with the remaining portfolio.
1
2
American workers say they would feel better about their retirement income if they had a guaranteed income investment option.
The Annuity Issue • Special Sponsored Section
IMPLICATIONS OF LONG LIFE
Great-West is celebrating the one-year anniversary of its collaboration with the Stanford University Center on Longevity to study, explain and better understand the implications of what happens when people live longer. The affiliation is aimed at highlighting the importance of longevity in financial planning, among other areas. “Longevity is one of the most important financial planning
The center also recommends using stories with positive anecdotes to influence your client’s retirement decision-making. Such narratives help bring different scenarios to life by making them understandable and relatable.
STEP-BY-STEP PLANNING
Great-West offers an essay, “Navigating the Retirement Income Gap,” with a step-by-step plan that you can follow to guide your recommendations. They summarize the issues and provide you with tools to evaluate whether your client is a suitable candidate for a guaranteed income, including allocation adjustments for years of wealth, years to retirement, life expectancy, and preferences that may help with your calculations. It also includes hypothetical scenarios for three retirees with various goals and pre-retirement incomes. Great-West illustrates how a guaranteed retirement income can help these individuals with covering the costs of the basics: food, housing and healthcare. Even though a variable annuity with a guaran*National Center for Health Statistics. Health, United States, 2015: With Special teed income has many attractive features, it may Feature on Racial and Ethnic Health Disparities. Hyattsville, MD. 2016. not be right for everyone. “Navigating the Retire**Xu JQ. Mortality among centenarians in the United States, 2000-2014. NCHS data brief, no 233. Hyattsville, MD: National Center for Health Statistics. 2016 ment Income Gap” will help you explore guaranteed income features including protection from market volatility3 and guaranteed payments for life to help detopics of our day and there is a significant need in the markettermine if it’s a good fit for your client’s retirement strategy. place for better thinking and greater understanding of all the related implications,” said Bob Shaw, president of Individual To access Great-West’s essay, Markets for Great-West. “Our goal is to support financial advisors when helping clients determine desired outcomes for their “Navigating the Retirement Income Gap,” visit retirement plans and plan for their families’ futures.” A few insights2 from the Stanford University Center on Longevity for financial advisors include:
GreatWestIncomeforLife.com.
• Family involvement leads to long-term behavioral change. • Personalized goal setting works best. • Visualize the future: Individuals are more likely to save money for the future when it is tangible. The guaranteed income benefit does not guarantee the investment performance of the applicable Covered Fund and is subject to the terms and conditions of the contract and the claims-paying ability of Great-West Life & Annuity Insurance Company or, in New York, Great-West Life & Anuity Insurance Company of New York.
3
Before purchasing a variable annuity, investors should carefully read the prospectus which contains the annuity’s investment objectives, risks, charges, expenses, and other information associated with the annuity and its investment options. You may obtain a prospectus for an annuity and its underlying funds from the annuity provider. Great-West Life & Annuity Insurance Company and Great-West Life & Annuity Insurance Company of New York do not offer or provide investment, fiduciary, financial, legal, or tax advice, or act in a fiduciary capacity, for any client unless explicitly described in writing. Please consult with your investment advisor, attorney and/or tax advisor as needed. Unless otherwise noted: NOT FDIC, NCUA/NCUSIF INSURED | NOT A DEPOSIT | NOT GUARANTEED BY ANY BANK OR CREDIT UNION | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY | FUNDS MAY LOSE VALUE | NOT A CONDITION OF ANY BANKING OR CREDIT UNION ACTIVITY Variable annuities are long-term investments and may not be suitable for all investors. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59½. An investment in a variable annuity is subject to fluctuating values of the underlying investment options, and it entails risk, including the possible loss of principal. Loans and partial withdrawals will decrease the death benefit and cash value. A withdrawal charge may also apply. There are fees and charges associated with variable annuities which include, but are not limited to mortality and expense risk charges, sales, surrender charges, administrative fees, charges for optional benefits as well as charges for the underlying investment options. The guaranteed income benefit is provided through an optional rider for an additional fee which goes into effect upon the purchase of units of a Covered Fund. Great-West Financial® refers to products and services provided by Great-West Life & Annuity Insurance Company (GWL&A), Corporate Headquarters: Greenwood Village, CO; Great-West Life & Annuity Insurance Company of New York (GWL&A of NY), Home Office: NY, NY; and their subsidiaries and affiliates. The trademarks, logos, service marks and design elements used are owned by GWL&A. [(05/17) B1016INNA AM150606-0517]
June 2017 » InsuranceNewsNet Magazine June 2017 » InsuranceNewsNet Magazine
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Ameritas leaders are industry leaders
Kim G. Allen, LUTCF
Stephen D. Andersen, RHU
Peter C. Browne, LUTCF
Stephen L. Bruneau, CLU, CFP
United Wealth Advisors Group Watertown, NY
Midlands Financial Benefits Lincoln, NE
DFG - PRB New York, NY
Boston 128 Companies Weston, MA
S. Patrick Kelley, ChFC David White & Associates San Ramon, CA
John C. Kenan
Patrick J. Kenney, CPA
Brett A. Moldenhauer
Wilcox Financial Toledo, OH
Southeast Financial Services Greensboro, NC
Wilcox Financial Toledo, OH
Moldenhauer & Associates Orchard Park, NY
Joseph S. Pantozzi, CLU, ChFC
Ronald G. Pray, CLU, ChFC
Arnold J. Price
Stuart J. Raffel, CLU, CPC, RFC
Brian P. Walsh, CLU, ChFC, RFC
Alpha Omega Wealth Las Vegas, NV
Cenco Altmann Affiliates Gilroy, CA
Price/Raffel LA Los Angeles, CA
Price/Raffel LA Los Angeles, CA
Walsh & Nicholson Financial Group Wayne, PA
Robelynn H. Abadie, RFC, CAP, LUTCF
Abadie Financial Services Baton Rouge, LA
Jarrod F. Hirschfeld
Ameritas® and the bison design are registered service marks of Ameritas Life Insurance Corp. Fulfilling life® is a registered service mark of affiliate Ameritas Holding Company. © 2017 Ameritas Mutual Holding Company
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InsuranceNewsNet Magazine » June 2017
2017 MDRT Top of the Table Ameritas salutes our valued field associates who have attained the highest levels of MDRT membership.
Mark A. Cecil, CFP United Wealth Advisors Group Bethesda, MD
Daniel J. DeVerna
Mark E. Friese, CMFC
Keith M. Gillies, CLU, CFP, ChFC
Frank G. Heitker, CLU, FLMI
Creative Financial Partners Perrysburg, OH
Friese Financial Advocates Libertyville, IL
United Wealth Advisors Group La Place, LA
Premier Planning Group Cincinnati, OH
LeaAnn M. Moore
William C. Moore, CFP
Kevin P. Nicholson
Mitchell W. Ostrove, CLU, ChFC
Midlands Financial Benefits Lincoln, NE
W.C. Moore Financial Services Centreville, VA
Walsh & Nicholson Financial Group Wayne, PA
The Ostrove Group White Plains, NY
David B. Wentz, J.D., LUTCF
R. David Wentz, J.D, CLU, ChFC
Michael R. Wilcox
Peter J. Winovich III
Tax Favored Benefits Overland Park, KS
Tax Favored Benefits Overland Park, KS
Wilcox Financial Toledo, OH
Wilcox Financial Toledo, OH
Richard C. Moldenhauer, CLU, ChFC, RFC, CEP
Moldenhauer & Associates Orchard Park, NY
DST 1364 5-17
June 2017 Âť InsuranceNewsNet Magazine
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2017 MDRT Court of the Table
C. Robert Brown, CLU, LUTCF
Carl J. Buzzeo
John Elias Calles, J.D., CLU, ChFC
Juan Elias Calles, CLU, ChFC
United Wealth Advisors Group Memphis, TN
WPA Pittsburgh Financial Center Pittsburgh, PA
Miami Agency Coral Gables, FL
Miami Agency Coral Gables, FL
David R. Guttery, RFC, RFS, CAM
Frank S. Hennessey, LUTCF, ChFC
Dominick F. Impastato Jr., LUTCF
Merle D. Miller, RFC
Premier Planning Group Phoenixville, PA
Acacia Financial Group Metair, LA
Midwest Financial Solutions Iowa City, IA
Nowlin and Associates Trussville, AL
This information is provided by Ameritas®, which is a marketing name for subsidiaries of Ameritas Mutual Holding Company, including, but not limited to: Ameritas Life Insurance Corp., 5900 O Street, Lincoln, Nebraska 68510; Ameritas Life Insurance Corp. of New York, (licensed in New York) 1350 Broadway, Suite 2201, New York, New York 10018; and Ameritas Investment Corp, member FINRA/SIPC. Each company is solely responsible for its own financial condition and contractual obligations. For more information about Ameritas®, visit ameritas.com. Any agency referenced is not an affiliate of Ameritas or of any of its affiliates. DST 1423 5-17
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InsuranceNewsNet Magazine » June 2017
James R. Christensen Jr.
Justin R. Craft, RFC
David J. Fazzini, LUTCF
Raneshwar K. Gupta
inSource Benefits Group Omaha, NE
Nowlin and Associates Homewood, AL
Premier Planning Group Phoenixville, PA
Total Asset Planning Cincinnati, OH
Tony J. Ojeda
Michael C. Polin
Daniel J. Scholz, CLU, ChFC
Midlands Financial Benefits Lincoln, NE
Premier Planning Group Phoenixville, PA
Ameritas Financial Center Omaha, NE
Ameritas® and the bison design are registered service marks of Ameritas Life Insurance Corp. Fulfilling life® is a registered service mark of affiliate Ameritas Holding Company. © 2017 Ameritas Mutual Holding Company
June 2017 » InsuranceNewsNet Magazine
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LIFEWIRES
American Equity Founder Dies “Sleep Insurance” was the name he gave to the products his company sold. David J. Noble, founder and chairman of the board of American Equity Investment Life, died on April 16. He founded the American Equity group of companies in 1995 and served as chairman, chief executive officer, president and treasurer until 2009, when he became executive chairman of the board. He retired from full-time employment in July 2016. Noble believed that American Equity’s primary responsibility was to create products that helped people preserve their assets and secure a predictable return that they could not outlive. He called this Sleep Insurance. Noble’s insurance industry career spanned more than 60 years.
FIDELITY & GUARANTY ENDS DEAL WITH ANBANG
Fidelity & Guaranty Life is looking for other bidders after its deal with a Chinese insurer failed to materialize. F&GL announced it is terminating its deal with China Anbang Insurance Group and is considering other possible suitors. Anbang agreed in November 2015 to acquire F&GL for about $1.6 billion. One year later, F&GL extended the deadline for completing the deal to February 2017 to give Anbang more time to obtain regulatory approval.
DID YOU
KNOW
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Life insurers’ operating income dropped 10%, from $21.8 billion in 2015 to $19.9 billion in 2016 U.S. LIFE: OPERATING INCOME DROPS
Plunging equity markets in the first half of 2016 reversed course as the year wore on. Meanwhile, interest rates rose in the second half of the year. But those gains weren’t enough to prop up operating income for U.S. life insurers for the year. Pretax operating income for 15 U.S. publicly traded life insurers declined 10 percent to $19.9 billion in 2016 compared with 2015, Fitch Ratings reported. Net income dropped 30 percent to $14.5 billion. The old cry of “This year will be different!” is expected to be true for 2017. Income generated by insurers is expected to end 2017 “modestly improved,” as rising
Nine out of 10 millennials believe owning life insurance Source: LIMRA is important.
InsuranceNewsNet Magazine » June 2017
QUOTABLE
Almost half of millennials said they haven’t been approached by an insurance agent and that’s why they don’t have insurance. — Matt Derrick, executive vice president of programs and marketing for Life Happens
interest rates and a more favorable regulatory environment benefit the life sector, said Jamie Tucker, associate director of Fitch Ratings. The Federal Reserve, which raised its short-term benchmark lending rate by a quarter percent in March, is expected to raise rates twice more this year.
INSURERS MUST TARGET BABY BOOMERS
Could the future of life insurance hinge on selling grandparents policies allowing them to take money out to pay for genome testing on newborn grandchildren? It could, said Robert Kerzner, CEO of LIMRA/LOMA. The point is that insurers need to think in those terms if they want to survive, he added. “Stretch your thinking,” Kerzner said. “It’s not about where we’ve been. It’s about where we’re going.” Several insurers already are adapting creatively to meet market needs, Kerzner said, delivering his annual state of the industry speech at the Life Insurance Conference. Hybrid life-medical policies are one example of that creative adaptation. Whatever products insurers come up with, they must target baby boomers, Kerzner said. “The boomers and the retirees - they got the money, honey,” he said.
THE STARS HAVE ALIGNED FOR A BRIGHTER LIFE EXPERIENCE Securian’s newest IUL product, Orion Indexed Universal Life, offers: • The potential for faster coverage and compensation. • New indexed accounts. • An array of digital enhancements. LEARN HOW Orion can take your indexed life sales to new heights. Contact your Life Sales Support Team today: 1-888-413-7860, option 1.
hij abc INSURANCE | INVESTMENTS | RETIREMENT INSURANCE | INVESTMENTS | RETIREMENT
Insurance products issued by: Minnesota Life Insurance Company | Securian Life Insurance Company These materials are for informational and educational purposes only and are not designed, or intended, to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action. Securian Financial Group, and its affiliates, have a financial interest in the sale of their products. Orion IUL is designed first and foremost to provide life insurance protection. While the interest crediting options are attractive for cash accumulation, the product should always be promoted to first meet the death benefit needs of families and businesses with cash accumulation as a secondary benefit. Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender charges. One could lose money in this product. Policy loans and withdrawals may create an adverse tax result in the event of a lapse or policy surrender, and will reduce both the surrender value and death benefit. Guarantees are based on the claims-paying ability of the issuing insurance company. Securian Financial Group, Inc. www.securian.com Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Minnesota Life is not an authorized New York insurer and does not do insurance business in New York. Both companies are headquartered in St. Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues. 400 Robert Street North, St. Paul, MN 55101-2098 ©2017 Securian Financial Group, Inc. All rights reserved. F88673-11A Rev 3-2017 DOFU 1-2017 97293
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. June 2017 » InsuranceNewsNet Magazine
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LIFE
Overseas Clients: Underwriting Obstacles, Lucrative Opportunity It can be a challenge to get coverage for foreign nationals and U.S. citizens who spend extended periods abroad. But with the right kind of preparation, you can serve their unique needs. By Richard Whitbeck
F
oreign nationals and nonresident aliens with U.S. business interests are a rising target market for life insurance agents. The ability to prospect and tap into a nonresident alien or foreign national client base provides a number of advantages for insurance agents. The ideal foreign client for life insurance is a foreign national who visits the U.S. regularly or owns real estate in the U.S. either solely or together with a spouse who is a U.S. citizen. Certain life insurance products can serve as powerful financial planning instruments for such clients. The same applies to clients who are U.S. citizens and spend extended periods of time abroad. Here are some things to consider when prospecting for foreign clients. 1. Estate tax, to which nonresident aliens with U.S. assets including (but not limited to) real estate holdings are subject just as American citizens are. Such nonresidents face a relatively low estate tax exemption from federal taxes, however, compared with the tax exemption for U.S. citizens. 2. The underwriting capacity (risk) limitations within the nonresident’s native country. 3. The “stable” U.S. dollar versus the next best alternative. 4. Economic unrest or unstable government in the nonresident’s country of citizenship. Nonresidents also may fear future socialized or state-controlled fiscal policy in their country of citizenship. 5. Whether the nonresident has beneficiaries, relatives or business partners in the U.S. 52
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Foreign real estate ownership has been burgeoning for years. For example, the Executive Plaza, at 150 West 51st St., has the highest percentage of nonprimary residences of any building in New York City; 74.4 percent, many of them foreign owners, according to The New York Times. 6. Whether the nonresident is involved w ith any mu ltinationa l organizations. 7. Assets the nonresident may hold in the U.S., such as investment accounts, real estate or business interests.
U.S. Citizens Spending Time Overseas
What about U.S. citizens who live abroad or spend extended periods (months at a
time) overseas for business purposes? This presents a straightforward, ultrasmart marketing opportunity for insurance advisors. Let’s say that such an individual wants life insurance for family income protection while spending time abroad. Or let’s say that an employer wants a “key person” policy to protect their potential risk exposure for a high-earning executive who spends time overseas.
OVERSEAS CLIENTS LIFE For an insurance advisor, this type of “special circumstance client” presents both an underwriting obstacle and a lucrative opportunity. Prospecting successfully in this market segment is a matter of working smarter than your competition. Here is a case study of how to be successful in speaking to, field underwriting for and obtaining coverage for a U.S. citizen who spends extensive time abroad. The prospect is the 36-year-old head of a multinational entertainment and interactive media corporation. Following the sale of his company, he spent months at a time in Shanghai. The agent responsible for writing this policy was wrapping up a joint survivorship plan on the prospect’s parents in Boston. The prospect’s mother inquired about what kind of coverage was available for her son, who was a new father and was spending months in Shanghai on business. Twenty-year term insurance was the ideal. However, in this situation, winning the business of this chief executive of a Nasdaq-traded multinational corporation in Shanghai would require two things. The first was finding a good universal life product to modify to perform like a 20-year-term plan. The second was getting the carrier to agree and underwrite the prospect. Complicating the matter was that the prospect would be traveling back to the U.S., but would be staying in this country for only two days. Here is the swift course of action that followed: First, we filed an informal application with Health Insurance Portability and Accountability Act forms collected electronically, and attending physician statements were ordered. Upon receiving the attending physician statements and informal applications, we reviewed and assessed them to determine a tentative rate. We ruled out term insurance. So the next best option was to modify a guaranteed universal life plan to run for exactly 20 years to best reflect a term plan. The prospect traveled from Shanghai to Los Angeles for a two-day stay. Upon his arrival in Los Angeles, the brokerage general agency’s writing agent arranged a medical exam to take place early the next morning at the Hollywood hotel where the
prospect was staying. The examiner was instructed to rush the results of the exam to the carrier. The examiner also was instructed to leave the prospect with a formal application for the universal life plan that was available at the time. The prospect completed the formal application and electronically sent it — along with a foreign travel questionnaire to the writing agent in Boston. The writing agent and brokerage general agency drafted a cover letter explaining the applicant’s circumstances and objective in purchasing the insurance coverage. The writing agent finalized the application for submission to the carrier. The formal application, attending physician statements, cover letter and financial documentation were submitted to the carrier. Forty-eight hours later, the insurer had the medical exam and lab results. Within a short time frame, the policy was approved and issued at a preferred plus rate at the lowest cost available, using the permanent plan modified to mirror term insurance. The target commissionable premium was just over $24,000.
Prospecting Thoughts
Here are some further thoughts about prospecting among foreign nationals and Americans who spend extensive amounts of time overseas. A large number of nonresident alien and foreign national prospects may not be aware of their estate tax obligations. Many nonresident aliens and foreign nationals purchasing real estate in cities like Miami, for example, take comfort in U.S. insurer-backed conservative financial planning and income protection vehicles such as fixed life insurance. Finally, U.S. citizens who spend extensive time overseas often are unaware they can buy life insurance at reasonable rates if the agent is properly prepared and field underwrites with thoroughness. Richard Whitbeck, CLU, ChFC, FLMI, RHU, is chief marketing officer with Atlantic Insurance Brokerage. He also served as president of Portamedic, national sales manager at AXA Equitable and vice president of marketing for MONY Group. He may be contacted at richard.whitbeck@innfeedback.com.
June 2017 » InsuranceNewsNet Magazine
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The Bill Levinson
F CUS
Sponsored by Levinson & Associates
New Hybrid CRM Provides Leads, Fills Calendars Bill L. Levinson
T
here’s an all-too-common problem facing agents in the field. And it could be stealing your valuable time and resources. In short, your CRM software could be out-of-date, or even worse you are not using any CRM tool. While the technology for logging client details is nothing new, it’s been plagued with issues from day one. First, the data entry process takes an unreasonable amount of time. In fact, it can be so time-consuming that many agents have scrapped the software altogether, in favor of handwriting details in the margins of a rolodex. Second — and most importantly — most of the CRM software in circulation does quite little, if anything at all, when it comes to generating new business-leads. In other words, it forces agents to bounce from costly lead-software to their CRM and back again, when they should be doing what they do best — selling! Thankfully, a new generation CRM, built for insurance agents, is starting to make the rounds. It’s a hybrid that not only does all of the time-consuming data entry for you, as you turn a lead into a client; it also generates new leads every month — keeping your client data tidy and all in one place. At Levinson & Associates, for example, our agents are outfitted with CRM software so powerful that the CRM itself hands each and every one of them 1,000 new leads per month. That’s 1,000 free names, email and mailing addresses, and phone numbers at no charge for all active agents. It’s built right into the system, so there is no more wasted time. The next time you fire up your computer, see if your CRM software is automatically generating leads for you every month. If it isn’t, consider the upgrade well worth it. • Bill L. Levinson is the managing partner of Levinson & Associates, a national life and annuity IMO since 1972 found online at www.carylevinson.com.
LIFE
“We need to start viewing our products through the eyes of a more sophisticated, connected and impatient consumer.”
Focus on the ‘Life’ in Insurance For Next-Generation Clients Life insurance for the living is a way to make a product relevant to younger generations of consumers. By Ron Sussman
I
have been selling life insurance since June 1980. I am 58 years old, which is the average age of a life insurance agent in the U.S. During my career, my attitude toward the value of life insurance protection has gone through many changes. Unfortunately, the insurance industry saw every client as a nail, and every policy as a hammer, until somewhat recently. For the past several decades, the industry has been focused more on the “strategy” we used to convince clients that life insurance was important to their family’s well-being, or that the tax benefits of life insurance were so compelling to their family’s planning. But there was less focus on the actual intrinsic financial value the product delivers. The optics of many of these “strategies” create problems for the buying public, and the actual results have been even more problematic. We spent, and I would suspect most of you still spend, a lot of time trying to convince clients that they need what we sell based on one “strategy” or another. 54
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Whether it’s death benefit for taxes, or cash accumulation for retirement, our sales pitches are stale and the industry’s dismal sales results over the past 30 years prove it. If you remove 1035 exchanges from the numbers, there has been a steady decline in new sales for at least the last three decades! And the number of new agents entering the business has been in a complete freefall. Whether or not this trend is reversible is too difficult to answer. But what I do know is that we all need to start viewing our products through the eyes of a more sophisticated, connected and impatient consumer. Today’s consumers believe what they find on the Internet is the truth, that life insurance is for their parents but not for them, and that they will outlive the usefulness of life insurance because they “know” they will live longer than the generations before them. Of course, life insurance was designed for unknowable events in life, but try to convince a 40-year-old hedge fund manager that he or she doesn’t know and can’t control the unknowable. I try to see the products we sell through the eyes of the people we ask to purchase them. And lately, my attitude about what is suitable, particularly for the 30–55 age
group, has changed because of a number of occurrences. First, the almost decade-long period of low interest rates has exposed many of the illustrations we used from the late 1980s to roughly 2007 for the toilet paper they were. Second, a number of insurance carriers decided that their corporate profits and C-suite bonuses were more important than keeping their promises to policyholders and agents. So they began raising the monthly cost of insurance deductions on defenseless older policyholders, the majority of whom are in their late 70s to mid-90s. Third, and maybe most important, many of our clients who were in their 60s and 70s when we sold them policies are now in their late 80s and 90s and have outlived the possibility of a reasonable positive internal rate of return on their investment. I know that the older age market is a commission bonanza, and we always were focused on this demographic. But attitudes change, and we need to change with them. Rather than approaching the same prospects, my age and older, with the same tired sales pitches, we decided we needed to change our focus to the more under-served markets: Generation X and millennials.
Stand out from the crowd with a Return of Premium life insurance product
Unique Return of Premium life insurance from Kansas City Life Insurance Company offers: • • • • •
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For information about a career with Kansas City Life Insurance Company, call Don Krebs, MSM, CLU, ChFC, LLIF, Senior Vice President, Sales and Marketing
855-277-2090, ext. 8120 June 2017 » InsuranceNewsNet Magazine
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LIFE FOCUS ON THE ‘LIFE’ IN INSURANCE FOR NEXT-GENERATION CLIENTS Cracking this market is a lot harder than you may think. This cohort represents a huge number of very well-educated, market-savvy, internet-connected free thinkers. These people benefit from having long-living relatives with lots of insurance experience, most of which has been disappointing. We are trying to sell a 20th-century product to a 21st-century audience and the results have been unimpressive. Until now. Finally, we have discovered the one product that not only makes unassailable financial sense, but speaks to the issues every one of these potential clients faces. Let’s review the issues: 1. They all believe that long-term care is a problem that merits purchasing protection, but long-term care policies have a bad reputation for rising rates. 2. They all believe that life insurance is a bad financial decision for the long term. 3. They all believe that they will outlive their parents and grandparents. Most believe they will live beyond age 95. 4. Few of them trust insurance companies to be good stewards of their assets. These are very difficult objections to overcome, and even more difficult to solve with a traditional life insurance contract. However, there is one product that answers all of these objections perfectly. It is a guaranteed universal life product with the following features: 1. An indemnity-based chronic illness/ long-term care rider that does not require a permanent disability. Benefits are 50 percent to 100 percent of the face amount, received tax free up to the federal maximum per diem. It’s limited to $3 million of total benefits. 2. A guarantee that at the end of the 25th year you can surrender and recover 100 percent of the premiums paid. 3. A guarantee that at age 85 the full remaining death benefit is paid out to the owner of the policy in 10 equal installments. The internal rate of return on that 56
InsuranceNewsNet Magazine » June 2017
money is roughly 4.2 percent to 5.0 percent, guaranteed (return depends on age and rating). 4. Everything is guaranteed, so there are no surprises in the future, unlike standalone LTCi. 5. Payments can be made in as few as 10 years and the number of payments is guaranteed. This is life insurance for the living! The cash value is irrelevant, as the benefit base is the death benefit. It’s a no-lose proposition: The policyholder will collect the entire death benefit during their lifetime, unless they die prematurely, in which case their beneficiary receives it tax free. When we discuss this product with prospects, we refer to the death benefit as
estate. They can direct the trust to take the maximum payout from the policy. Because the rider is an indemnity-style payout, proceeds go into the trust tax free and avoid estate taxation.
If the client wants out.
For whatever reason, clients can surrender the policy at the end of the 25th year and recover 100 percent of their premiums.
Look at this as a long-term zero coupon bond.
It’s basically a bond with extremely low credit risk and a conservative but reasonable return. Every portfolio needs an anchor like this. The policy is priced very competitively with others that do not provide these options, and there are no others (that we
We are trying to sell a 20th-century product to a 21st-century audience and the results have been unimpressive. Until now. the “benefit base.” We almost never get into a discussion about death. This is a policy that insures your life. Framed this way, prospects are free to imagine how the policy can work for them. Here are a few ways.
This is a retirement back-stop.
What if your client does a great job of saving and investing but the markets tank just as they hit their 80s? No problem; the full death benefit will be paid to them in 10 equal installments, so they can feel free to be a little more aggressive with their investing style. Conversely, if the client has done so well that the payout of the policy is icing on the proverbial cake, they can feel free to contribute their individual retirement account to charity or make larger gifts to their children and grandchildren.
Make a trust the owner of the policy. If the client requires long-term care or has a serious chronic illness, they can pay for those costs out of their taxable
know of) that can provide all of them. This product has renewed my sense of enthusiasm with our industry. For the first time in our corporate history we are closing almost every sale we initiate. Granted, these are singles and doubles, not the home runs we would all like to have. But I can’t say enough about the positive change in attitude of our customers. Other than outright cost, this product answers every objection we have ever heard from prospects. I am hopeful that other carriers will get into this space and make these options even more competitive. But for now, I strongly recommend that you seek this product out and build your marketing around it. This is the future of life insurance. Ron Sussman is founder and chief executive officer of PolicyAudits.com and CPI Companies. He counsels high-networth individuals through risk management analysis and life insurance planning strategies. Ron may be contacted at ron.sussman@innfeedback.com.
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11512 El Camino Real, Suite 100, San Diego, CA 92130 Ph: (888) 543-3776 | Fax: (858) 777-5334 | Em: info@lifepro.com | www.lifepro.com June 2017 Âť InsuranceNewsNet Magazine LifePro is currently seeking acquisition opportunities. To inquire please contact 858-793-5999.
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ANNUITYWIRES
Income Riders to the Rescue!
QUOTABLE
A flood of new income riders attached to fixed annuities helped fuel a boom and powered the product segment to record sales of $117.4 billion last year. The income riders suddenly have made plain vanilla fixed annuities newly attractive to agents looking to sell the product under the Department of Labor’s fiduciary rule. In 2017 alone, several annuity companies have launched income riders on a traditional fixed annuity, according to Wink’s Sales & Market Report. The companies are American Equity Investment Life, Life Insurance Company of the Southwest, Midland National Life and North American Company for Life and Health.
IS THE FIA LOVE AFFAIR OVER?
Could 2017 break the long-running record of FIA sales? “It is entirely possible that 2017 will not be a record-setting year for indexed annuity sales,” said Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink Inc. “In the near term, we may experience lower quarterly fixed rate and fixed indexed annuity sales,” said Jeremy Alexander, CEO of Beacon Research, an annuity sales tracking company. Mid- to long-term, however, sales may pick up once again. That especially would be true if interest rates continue to rise, he said. Moore said she expects that new procedures and regulation related to DOL fiduciary rule compliance will slow sales of indexed annuities in 2017. DID YOU
KNOW
?
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LUMP SUMS BEING DEPLETED TOO QUICKLY
That shattering sound you hear is the sound of retirees smashing their piggy banks to get their lump sum payments. And those lump sums are turning into crumbs, according to the MetLife “Paycheck or Pot of Gold Study.” One in five retirement plan participants (21 percent) who selected a lump sum from either a defined benefit or a defined contribution plan said they depleted it. And it took them an average of five and a half years to burn through that money. Of those retirees who still have money in their lump sum, one in three (35 percent)
Source: MetLife
Rising interest rates have helped push payment yields for income annuities to their highest levels in nearly six months.
InsuranceNewsNet Magazine » June 2017
Source: CANNEX Payout Annuity Yield Index
There areresisted 11 companies We have havingoffering market value (qualifying adjustments in the annuity past on QLAC longevity our fixedproducts. indexedWhile annuities, contract) this is but have ourselves a smallfound and new part of the DIA to be outliers by to notsee an uptick market, we expect having them. in sales in 2016. — Ron Grensteiner, president of American Equity Investment Life
worries that the money will run out. On the flip side, nearly all (96 percent) of retirement plan participants who chose an annuity from their plan said they are happy with their choice. The majority of those who chose the lump sum also said they are happy with their choice, but they appear to have had more financial concerns. When it came to spending their lump sums, the study found 63 percent of individuals reported that they had major purchases or spending within the first year. But that spending didn’t necessarily make them happy. Nearly one-third of those who made major purchases or spending in the first year (31 percent) said they have regrets about the spending, and almost a quarter (23 percent) of those who gave money away are sorry they did so.
BANK ANNUITY SALES ON THE RISE
More large banks are increasing their annuity programs, and last year’s figures show those annuity sales are taking flight. Income earned in 2016 from the sale of annuities at bank holding companies rose 2.3 percent to $3.22 billion compared with 2015. Not only did the proportion of big banks with growing annuity sales increase from 2015 to 2016, but the rates of growth in their annuity programs increased as well. That was the word from bank insurance consultant Michael White. This could be “the onset of an overall growth period in bank annuity sales production,” White said in his Bank Annuity Fee Income Research report.
Annuity income rose 2.3% from $3.15B in 2015 to $3.22B in 2016.
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June 2017 » InsuranceNewsNet Magazine
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ANNUITY
Four Annuity Myths and How To Overcome Them When the media make annuities sound like unsafe financial ventures, clients are afraid to buy them. Here is how you can cut through the misconceptions. By Chris Conklin
I
recently saw an ad on national television with a financial advisor looking straight into the camera and saying he would never sell an annuity to a client. He then proceeded to list off numerous reasons why he would never let a client consider an annuity, saying things like annuities are “confusing” and could subject a client to tax problems. These misconceptions about annuities are rife among prospective clients. Many 60
InsuranceNewsNet Magazine » June 2017
clients have these perceptions because of ads they’ve seen that make annuities sound like unsafe financial ventures offered only by predatory salespeople. This is ironic because annuities are designed to reduce risk. Other clients who are less familiar with annuities simply may believe their hard-earned dollars are better invested with their bank or the stock market. Regardless of how clients have obtained inaccurate perceptions of annuities, it’s our job, as agents and financial advisors, to correct them. That’s because annuities can be an important tool to help with a client’s overall financial portfolio, as they offer advantages that include reducing risk and providing a
more predictable future. Annuities offer flexible payout options with guaranteed income streams if desired, and earnings aren’t taxed until the funds are used. This is especially appealing for clients interested in using a fixed annuity as a tool to secure income for the future, generally during retirement. Here are a few common misconceptions about annuities that you may hear from clients, as well as some tips on how to clear up those misconceptions.
Misconception No. 1: Annuities are confusing
Although the idea of an annuity may be new to your clients, annuities have been around for decades with the same
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1 The 8% premium bonus vests over a 10-year period. Non-vested bonus amounts will be recaptured for surrender or withdrawal amounts exceeding the penalty-free amount. Annuities with a premium bonus may have lower fixed account interest rates and lower caps on indexed accounts than a similar product without a premium bonus. 2 Rate applies to the first ten policy years, based on rate at issue. 3 The income account value is not available for withdrawal or cash surrender and is only used to calculate the guaranteed lifetime withdrawal benefit amount. The Guaranteed Lifetime Withdrawal Benefit is available at the time of application for an additional annual fee of 3/4% of the accumulation value of the base contract. Rider form GLWB210 and state-specific variations where applicable. 4 For eligible qualifying event. Not available in all states. Rider form DA520 and state-specific variations where applicable.
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ANNUITY FOUR ANNUITY MYTHS AND HOW TO OVERCOME THEM straightforward structure. Any annuity — whether it’s fixed, indexed or variable — is built to provide earnings potential as well as some measure of safety to a client. If your clients aren’t interested in guarantees of safety, then an annuity likely doesn’t fit their preferences. But in my experience, most clients consider safety to be a very important factor for at least a portion of their savings. To protect the financial integrity of the insurance carrier that is providing the safety, annuities require a time commitment. By time commitment, I mean that there would be surrender charge penalties for accessing money ahead of the scheduled time. Since annuities are available with a variety of surrender charge periods, your client should understand that liquidity isn’t free. Typically, the longer the time commitment your client is willing to make, the greater earnings potential the annuity carrier can provide. Thus, it’s important to tailor the choice of timing for an annuity based on a client’s goals and needs.
Misconception No. 2: Annuities don’t do what a client would like them to do
Overcoming this misconception requires you to set expectations with clients about the merits of the different types of annuities, and how an annuity can protect their hard-earned dollars. Consider highlighting these types of annuities and the nuances of each: • Fixed annuities have a declared interest rate, and some have an interest rate
that is fully guaranteed for the entire surrender charge period — similar to a bank certificate of deposit. • Indexed annuities provide interest credits based on a market index. They provide a portion of the index’s increase as interest credits for the client. There is usually a minimum and maximum interest credit, where the minimum provides protection against the index’s decrease. • Variable annuities have subaccounts much like mutual funds. They provide protection against loss via their death benefit feature, plus they often provide further guarantees through a guaranteed lifetime income rider.
Misconception No. 3: Annuities come with high fees
This misconception is often the result of an annuity that isn’t purchased in line with a client’s needs or financial goals, which are important points for an advisor to know before an annuity is purchased. With a fixed or indexed annuity, a client typically would only pay a fee in the form of a surrender charge, which is avoidable as long as the client abides by the time commitment. Or a client would pay a form of a fee associated with an optional rider that provides an additional guarantee, such as a guaranteed lifetime income rider. For a variable annuity, a client could run into three different types of fees: one for investment management, another for the insurance company’s expenses and a third for the guaranteed lifetime income
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InsuranceNewsNet Magazine » June 2017
rider. Because of these fees, it’s important for you to make sure a client believes the amount of safety provided by a variable annuity is worth the fees. On fixed or indexed annuities, critics sometimes will say that there are “hidden” fees. That’s because the carrier considers its expenses in setting the interest rates on its annuities. But this is no different than what customers experience with financial products they buy from banks, such as CDs or savings accounts.
Misconception No. 4: Annuities can cause tax problems
An annuity isn’t taxed until a client makes a withdrawal or starts taking regular distributions. If a client has money in a corporate retirement plan — such as a 401(k), 403(b) or 457(b) plan — or in an existing individual retirement account, those funds can be transferred into an annuity tax-free. What’s more, as an annuity earns interest, that interest can stay in the annuity tax-free. However, as with all non-Roth IRAs and corporate retirement plans, when your client ultimately takes withdrawals, the withdrawals will be taxed as ordinary income. In a Roth IRA annuity, as long as your client keeps the money in the annuity for at least five years before taking a withdrawal and doesn’t take any withdrawals before age 59½, the withdrawals and interest credits can be completely tax-free. For regular savings — or, in other words, nonqualified money — annuities offer tax deferral. The advantage of tax deferral is that your clients can control when they are taxed by controlling when they take withdrawals. Unlike direct stock investments, however, annuities do not qualify for capital gains tax treatment. Educating clients about the timing and fee structure of annuities is important to help overcome the common misconceptions many have about their merit as a financial tool. By doing so, you can help make sure your clients are meeting their financial goals and position yourself as a trusted advisor. Chris Conklin is vice president of individual annuities at The Standard. Chris may be contacted at chris.conklin@ innfeedback.com.
June 2017 Âť InsuranceNewsNet Magazine
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ANNUITY
Not Too Late: An Annuity Can Help Clients Who Need LTC Now
P
aying for expenses later in life can be challenging, given consumers’ overall lack of preparedness for retirement. Compounding the problem is the risk of needing costly longterm care, and that risk increases as people live longer. Along with that risk comes the concern that retirement savings may not be enough to cover these expenses. A wide range of financing solutions is available for younger people in good health who want to protect their retirement assets from the risk of extended long-term care. But for people in their 70s and 80s who are in poor health and find themselves in immediate need of long-term care services, the options are much more limited. That gap in long-term care coverage is the impetus behind a new financing solution for older Americans in poor health: a medically underwritten single-premium immediate annuity (SPIA). This product is designed for an older demographic in immediate need of care, especially those who didn’t plan ahead or couldn’t qualify for long-term care insurance for age or health reasons. A medically underwritten SPIA converts assets into guaranteed, monthly income that begins immediately and is paid for the rest of the care recipient’s life. The income can be used for any purpose, including care, medical expenses or living expenses. Depending on the carrier, the underwriting process may include a review of medical records and an in-person nurse assessment of the applicant’s health status. Lab tests may not be required. Because they are medically underwrit64
InsuranceNewsNet Magazine » June 2017
ten, these types of SPIAs may generate a larger monthly payment than a traditional SPIA if the care recipient is less healthy and needs care at the time of purchase. The purpose of the underwriting is not to exclude anyone, but rather to determine the amount of income the care recipient will receive based on age and health. A medically underwritten SPIA is different from long-term care insurance products on several levels. For one thing, the guaranteed income is not tied to performing activities of daily living (ADLs), so there are no claims to file and no ongoing health evaluations required. And, unlike long-term care insurance, the income can be used for any purpose. It’s also important to note that medi-
62%
living expenses. Death benefit options are designed to protect a portion of the premium paid into the annuity upon the death of the care recipient. Because of the age and health conditions of the care recipients, carriers have built consumer safeguards into the underwriting process. For example, if there is any evidence of cognitive impairment, a carrier may require a power of attorney to purchase the product.
How the Product Works
To illustrate how the product works, let’s look at a hypothetical case study featuring James, 80, a recent widower who just suffered a stroke and needs help preparing meals and getting around. He has
of family caregivers used their own savings and retirement funds to pay for their loved ones’ care
38% cally underwritten SPIAs are not investment products and there are no charges or fees. Medically underwritten SPIAs may offer optional benefits, including enhanced death benefits or cost-of-living adjustments. A cost-of-living adjustment increases the income payment each year to help offset the potential increase in future
of family caregivers reduced their contributions to their savings and retirement to pay for care been living in an assisted living facility, where he feels comfortable and receives excellent care, and he recently was diagnosed with dementia. Due to these unexpected medical expenses and the prospects of even greater costs for care as his dementia progresses, his three children have become concerned that his savings may not be suffi-
Source: Genworth
A medically underwritten single-premium immediate annuity converts assets into guaranteed, monthly income that begins immediately and is paid for the rest of the care recipient’s life. By Debapriya Mitra
NOT TOO LATE: AN ANNUITY CAN HELP CLIENTS WHO NEED LTC NOW ANNUITY cient to cover the added expenses. They fear he may need to move into a lowercost facility to stretch his savings. In an attempt to avoid moving him from a facility he loves, they consult a financial professional, who recommends a medically underwritten SPIA. This would provide a guaranteed stream of income to help pay for James’ care or other expenses for as long as he lives. The children decide to combine the money each had set aside to help their father and purchase a medically underwritten SPIA. They select an annual cost-of-living adjustment to help protect against potential increases in the cost of his care and other living expenses. They also choose an optional enhanced death benefit to help protect a portion of their money should their father pass away earlier than expected. The children were relieved to know that the medically underwritten SPIA would help provide their father with the financial resources necessary to continue living in a place with which he is familiar and comfortable.
Relief for Families
When families who haven’t planned ahead are suddenly faced with a parent, grandparent or spouse needing immediate care, the financial implications can come as a shock. This can be particularly true when family members realize that their loved ones’ health insurance or Medicare does not cover the care they need. Some of the financial burden of caregiving frequently falls on families. According to Genworth’s Beyond Dollars Study, 62 percent of family caregivers surveyed used their own savings and retirement funds to pay for their loved ones’ care. An additional 38 percent of family caregivers said they reduced their contributions to their savings and retirement to pay for care, jeopardizing their own retirement plans. In addition to providing care recipients a guaranteed source of income that they cannot outlive, a medically underwritten SPIA gives care recipients’ families a sense of security, helping delete alleviate the financial strain of caregiving. As in the hypothetical case study
above, family members also can pool their resources to pay for the single premium needed to purchase the medically underwritten SPIA.
An Immediate Solution That Lasts a Lifetime
Although a medically underwritten SPIA is not a silver bullet for the retirement income and care-financing challenges our country faces, it does help provide a potential solution for a segment of consumers who have limited funding options. It’s an innovative use of annuities that uniquely addresses the long-term care financing needs of older Americans who have adverse health conditions. This is especially true of those who are seeking a source of income to help offset the potentially significant cost of care — now and into the future. Debapriya Mitra is senior vice president, product and business strategy, at Genworth. He may be contacted at debapriya.mitra@innfeedback.com.
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For Producer Use Only - Not For Use in Solicitation to Consumers Form numbers: API-1018 (06-11), ACI 1018 (06-11); et al. Annuities have charges and limitations. Please see the applicable product brochure and Statement of Understanding for a detailed description of this new crediting option. The annuity does not participate in any stock, bond or equity investments. Clients aren’t buying shares of stock or an index. Dividends paid on the stocks on which the indices are based don’t increase annuity earnings. “FGL” when used herein refers to Fidelity & Guaranty Life, the marketing name for Fidelity & Guaranty Life Insurance Company issuing insurance in the United States outside of New York. Life insurance and annuities issued by Fidelity & Guaranty Life Insurance Company, Des Moines, IA. The guarantees provided by annuities are subject to the stability and claims paying ability of Fidelity & Guaranty Life Insurance Company. “Barclays Bank PLC and its affiliates (“Barclays”) is not the issuer or producer of Fixed Indexed Annuities and Barclays has no responsibilities, obligations or duties to contract owners of Fixed Indexed Annuities. The Index is a trademark owned by Barclays Bank PLC and licensed for use by Fidelity & Guaranty Life Insurance Company as the Issuer of Fixed Indexed Annuities. While Fidelity & Guaranty Life Insurance Company as Issuer of Fixed Indexed Annuities may for itself execute transaction(s) with Barclays in or relating to the Index in connection with Fixed Indexed Annuities. Contract owners acquire Fixed Indexed Annuities from Fidelity & Guaranty Life Insurance Company and contract owners neither acquire any interest in Index nor enter into any relationship of any kind whatsoever with Barclays upon making an investment in Fixed Indexed Annuities. The Fixed Indexed Annuities are not sponsored, endorsed, sold or promoted by Barclays and Barclays makes no representation regarding the advisability of the Fixed Indexed Annuities or use of the Index or any data included therein. Barclays shall not be liable in any way to the Issuer, contract owners or to other third parties in respect of the use or accuracy of the Index or any data included therein.”
17-0513
June 2017 » InsuranceNewsNet Magazine
65
HEALTH/BENEFITSWIRES
QUOTABLE
Feds Shrink Open Enrollment Period Call it “the incredible shrinking open enrollment.” In an attempt to stabilize the individual health insurance marketplace, new federal regulations are slashing the open enrollment period to six weeks from three months. The 2018 open enrollment period will be adjusted to align more closely with open enrollment for Medicare and the private market. The next open enrollment period will start on Nov. 1, 2017, and run through Dec. 15, 2017, encouraging individuals to enroll in coverage prior to the beginning of the year. Previous open enrollment periods extended from Nov. 1 through Jan. 31. In addition to shrinking the open enrollment period, the new regulations make it more difficult for consumers to gain coverage outside of that period. Insurers had complained that consumers were misusing special enrollment periods, often enrolling in coverage after they realize they will need medical services and then dropping coverage soon afterward. Starbucks Caring Unites Partners Fund in China to provide financial assistance to employees and their families in times of need. Since then, company officials learned that more than 70 percent of workers were concerned about their parents’ health as they age.
STARBUCKS TO HELP WITH AGING PARENT CARE
Workers are just as concerned with caring for aging parents as they are with making sure their children are cared for. Starbucks announced that it will offer a critical illness insurance plan for the parents of its eligible full-time employees in company-operated stores. There’s a catch, though – this workplace benefit is offered only to Starbucks employees in China. The Starbucks China Parent Care Program will benefit more than 10,000 parents of its Chinese employees, said Howard Schultz, Starbucks executive chairman. In 2010, the company introduced DID YOU
KNOW
?
66
— Centene Chairman and CEO Michael Neidorff
Why is this happening? The problem is that insurers contract with hospitals and emergency room doctors separately. So even if a hospital is in-network, the doctors in the ER might not be. This is a more widespread problem than many realize. More than one in five patients who visited in-network ERs were treated by out-of-network physicians, according to a study published in the New England Journal of Medicine. Their average bill was over two-and-ahalf times higher than what they would have paid for an in-network physician. For some patients, surprise out-ofnetwork ER bills can run as high as $19,000 for a single visit.
CENTENE’S EXCHANGE ENROLLMENT UP
HIDDEN ER COSTS ZAP CONSUMERS
Even when consumers are careful to make sure they receive emergency care in a hospital that’s part of their insurer’s network, they still can receive a nasty surprise — a bill of four figures or higher for out-ofnetwork charges.
Rep. Jason Smith, R-Mo., has introduced a bill that would allow people to use their health savings accounts to purchase fitness and sports equipment — including golf clubs. Source: Kansas City Star
InsuranceNewsNet Magazine » June 2017
We have the agility and the ability to adjust.
For all the weeping and wailing among health insurers over the Affordable Care Act, one is finding the ACA to be good for its business. Centene said that its exchange enrollment has grown 74 percent since last year, up to nearly 1.2 million people. While some of the major players in the health insurance world are shrinking their exchange presence or abandoning the exchanges altogether, Centene said it is eager to get into the exchange business. Centene sells coverage under its Ambetter brand on exchanges in 12 states, including Florida, Texas and Ohio. Eighty percent of Centene’s 2016 exchange customers renewed their plans in 2017. Centene has added some new exchange business through its acquisition of fellow insurer Health Net.
CREATING
IMPACT WITH
ANNUITIES
Helping Clients Have a Successful Retirement June has been designated as National Annuity Awareness Month to inform Americans about the important role of annuities in a secure retirement savings plan. An array of educational resources and tools are available to NAFA members to help educate consumers and showcase the many advantages of annuities. Access materials at AnnuRetirement.com to help your clients build financial confidence and take steps toward creating a successful retirement.
NAFA IS YOUR VOICE‌to protect your business and the future of our industry. You work hard to serve your clients’ needs. NAFA is fighting hard to protect your independence, your business and the future of fixed annuities. There is no better time than RIGHT NOW to take advantage of being a NAFA member!
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HEALTH/BENEFITS
How to Make Shopping for Insurance More Like Online Buying Five ways brokers can simplify health plan shopping and enrollment for consumers By Jeff Surges
T
he health insurance world is shifting, creating new variables for brokers and their customers shopping for and enrolling in health plans. Helping consumers make the right choice from among dozens of health plans and ancillary options is one of the most important services brokers and agents can offer their clients. And the best way to help someone is by first understanding them. Last year, Connecture conducted an extensive survey of more than 2,100 health care consumers (both men and women of 68
InsuranceNewsNet Magazine » June 2017
different ages and income levels) to find out how people shop for health insurance, what they prioritize in that search and what they expect from their health plan investment. Not surprising, we found that many Americans think shopping for and enrolling in health insurance is a stressful and dissatisfying experience. » 55 percent said they are frustrated that they can’t afford any of the plan options available to them. » 51 percent said that they don’t understand what certain plans would really cost them over the course of the year. » 43 percent experienced stress over the number of plan choices.
With sobering statistics like these, it’s no wonder that employers, employees and other consumers have cited brokers as one of the most trusted stakeholders in health insurance. But as our industry continues to transform, so must brokers. And there are several ways brokers can ensure that consumers are happy (and stay happy) with their health benefit choices.
1. Invest in decision-support technology
According to our survey, 87 percent of consumers prefer to shop and enroll in health coverage on their own — but only 20 percent actually complete the process by themselves. What does this tell us? Shopping for health insurance online is not like
HOW TO MAKE SHOPPING FOR INSURANCE MORE LIKE ONLINE BUYING HEALTH/BENEFITS shopping for airline tickets. It’s much more complex, and the health insurance industry must continue to evaluate opportunities that help people become more informed and confident shoppers. Access to information is not necessarily the problem; understanding the information is. What can brokers do to help? Brokers can leverage technology and intuitive platforms that interactively walk consumers through the decision-making process so they can make informed decisions based on certain key factors, such as their age, family status, health history, risk tolerance, etc. By offering technology that helps consumers not just make a choice but also make the best choice for their personal situations, you will add immeasurable value to the process.
2. Put yourself in their shoes
Only 23 percent of consumers who enrolled in a health plan were first-time visitors to a carrier’s website. This under-
At the same time, recent market developments have focused on offering health plans with narrow networks. As a result, there have been concerns about consumer adoption, identifying those consumers who consider this particular arrangement important and the significance of provider ties within the shopping experience. Being able to answer questions about doctor availability, providing favorable financial options as a trade-off for moving to another plan and making these decision points transparent are all important.
4. Go mobile, leverage data
Tablet and mobile usage is on the rise. In fact, 51 percent of all smartphone users are likely to obtain a health insurance quote using their phone. Providing the tools necessary to help the consumer research and purchase health insurance using mobile devices will better optimize the overall experience. Moreover, establishing a robust set of
Leveraging drug comparison technology offers consumers a meaningful solution for curbing the costs of prescription medications. These tools go beyond onefor-one generic substitutions. They include therapeutic alternatives, over-the-counter medications with the same level of effectiveness, alternative dosages and drugs that stay in the system longer so they don’t have to be taken every day. And this is more than just identifying cost-savings opportunities. Drug comparison solutions also help consumers make more informed decisions. For example, many consumers don’t realize prescription costs can differ because they see only their own copay or always go to the same pharmacy. Understanding cost differences can help clients find more affordable alternatives. Health insurance is already complex and intimidating enough on its own for most people. By creating a customized strategy that leverages the latest in deci-
The key is to make the digital experience as easy as ordering a book online. Consumer expectations for ease of use and service have been set by their experiences with online retailers. So, if the technology you offer doesn’t match that experience, they will quickly dismiss it. scores the importance consumers place on research and education. However, 43 percent of respondents said they would spend no more than 15 minutes online providing information about themselves. The key is to make the digital experience as easy as ordering a book online (recognizing that buying health insurance is a more complex decision, of course). Consumer expectations for information availability, ease of use and service have been set by their experiences with online retailers. So, if the technology you offer doesn’t match that experience, they will quickly dismiss it.
3. Recognize that sometimes doctor preferences matter less
Sixty-two percent of consumers who took our survey identified a willingness to switch doctors if the price is right for them.
analytics to view and understand the entire consumer journey (whether or not that person is using a mobile device) will result in further advantages for the broker or agent. Why? Because the more you understand about your customer, their preferences and the way they shop for health care, the more you will be able to deliver on their needs over time.
5. Make sure engagement is part of your strategy
Shockingly, only 7 percent of survey respondents considered prescription coverage a key factor in selecting a health plan. This could be a costly mistake in the age of narrow networks and tightening drug formularies. Misunderstandings about the differences between “in-network” and “preferred pharmacy” tiers can also add to the eventual sticker shock of higher copays or co-insurance.
sion-support and mobile technology, data and analytics, and engagement tactics, you’ll help your clients (consumers or employees) find the health benefits that suit them best. It will also help your clients gain greater customer satisfaction that will create loyalty throughout the year — well beyond the point of enrollment. It’s a win-win for everyone. Jeff Surges is president and CEO of Connecture. Jeff may be contacted at jeff.surges@ innfeedback.com.
Like this article or any other? Take advantage of our award-winning journalism, licensure and reprint options. Find out more at innreprints.com.
June 2017 » InsuranceNewsNet Magazine
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NEWSWIRES Consumers Want Fiduciary Advice, Don’t Want to Pay Here’s a conundrum for advisors meeting fiduciary standards: roughly two-thirds of investors say they really want good, conflict-free fiduciary advice, yet few are willing to pay extra for it. That begs a serious question for the financial services sector: How can they convince investors it’s worth more money for fiduciary investment advice? The two-thirds figure comes from a new Spectrem Investor Pulse report, a monthly survey of 1,000 investors on key money management issues. In it, Spectrem reports that many investors still can’t define the term “fiduciary.” Even among respondents who know the term, the majority won’t pay extra for fiduciary advice. to $1,009,275, according to Timothy Wiedman, a finance professor at Doane College in Lincoln, Neb.
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NOT MUCH GENERATION GAP IN FINANCES When it comes to spending and saving, the younger generation of consumers isn’t that much different from their elders. That was the finding in a First National Bank of Omaha study. The study found that when faced with certain “financial firsts” in life, the outlooks and actions of those in each generation were generally the same. Across the generations, the majority of people achieved financial independence between the ages of 18 and 22. When asked what was the first thing they would plan to pay down when facing debt, the largest percentage of peo-
Only 54 percent of baby boomers have any retirement savings. Source: Renaissance Capital
THE AVERAGE RETURN ON AN INITIAL PUBLIC OFFERING was 20 percent this year. The average increase in the first day (or “pop”) is 13 percent. Source: Insured Retirement Institute
InsuranceNewsNet Magazine » June 2017
QUOTABLE We’re going to be very responsive … to make sure that we fix everything that was broken and build a better Wells Fargo. — Wells Fargo CEO Tim Sloan, as the bank tries to make amends for a scandal on its sales practices
ple in all four generations would pay off their credit card bill first. The majority of those in each generation said their first “big ticket” purchase was a car.
IRA ROLLOVER MARKET CHANGING QUICKLY
While the rollover market is facing regulation pressure and other hurdles during a difficult transition period, business will likely remain strong, according to one analyst.
$515 BILLION IRA ROLLOVERS
FOUR IN 10 SAY THEY NEED $1 MILLION TO RETIRE
Is $1 million really the magic number for a happy retirement? Four in 10 career professionals say it is, according to a new Employee Benefits Research Institute study. But it’s going to take some magic to bring their retirement accounts to that special number. The average 401(k) balance at Fidelity-administered retirement plans is only $92,500 in 2017. Younger workers have a better shot at hitting $1 million than their older counterparts — if they realize that investing in relatively safe, low-cost stock index funds will allow compound interest to do most of the work. If a 23-year-old fresh out of college puts $3,000 per year into a Roth IRA (individual retirement account) that earns a 7.8 percent average annual return, 44 years later at retirement that $132,000 of invested funds will have grown
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$150 BILLION INTO ANNUITIES
LIMRA has projected the individual retirement account rollover market to expand to $515 billion by the year 2018, and approximately $150 billion will be in annuities. Those forecasts are unchanged by regulation led by the Department of Labor fiduciary rule, said Matthew Drinkwater, assistant vice president, LIMRA Secure Retirement Institute. While low-fee options like Vanguard are generating a lot of publicity, Drinkwater said LIMRA research found the attractiveness of those options might be overblown. People generally stay with their current account provider, he said.
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IOVAs Present a New Take on Tax-Advantaged Investing A new category of investment-only variable annuities has been designed specifically to maximize the power of tax deferral. • Laurence Greenberg
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axes are top of mind for advisors and their clients. Not just during tax season — but all year long. Taxes rank consistently among investors’ top three financial concerns. Taxes also are the No. 1 financial concern of the ultra-high-net-worth, according to Jefferson National’s Advisor Authority study of more than 1,300 registered investment advisors, fee-based advisors and individual investors nationwide. Likewise, in our recent survey on the impact of Washington’s proposed policies, tax reform is the topic clients want to discuss most — almost twice as often as other policies such as trade, deregulation and infrastructure investment. The single biggest investment expense your clients face? It could be taxes. Tax rates can be as high as 40 percent or even 50 percent, when federal and state taxes are combined. And with the market’s rise in 2016, many households could pay more in taxes. High earners and the highnet-worth are likely to be hit hardest. To minimize taxes paid on investment gains and income, it’s important to help clients achieve “tax diversification.” This means controlling for different tax rates, different types of taxes and when those taxes are paid.
Tax Deferral Helps Clients Keep More
Tax deferral is the key to helping clients keep more of what they earn during peak earning years, when they are taxed at a higher rate. They potentially can accumulate substantially more over time through tax-deferred compounded growth. And when withdrawing income in retirement years, they are likely to be in a lower bracket — and pay less in taxes. The first step is investing in tax-deferred qualified plans. Yet the high earners and 72 72
InsuranceNewsNet Magazine Magazine »» June June 2017 2017 InsuranceNewsNet
high-net-worth, who can easily max out the low contribution limits of individual retirement accounts and 401(k)s, have had limited options for accessing additional tax deferral. The challenge has been solved by a new category of investment-only variable annuities (IOVAs) designed specifically to maximize the power of tax deferral. With low fees, or even flat fees, no commissions, no surrender charges and an expanded lineup of underlying funds — including liquid alternative strategies like those favored by hedge funds — low-cost IOVAs are a tax-advantage investing solution with virtually no contribution limits. There are many effective strategies to tax-optimize your clients’ portfolios using low-cost IOVAs with a broad lineup of funds, once qualified plans are maxed out.
Asset Location
Locating clients’ assets between taxable and tax-deferred vehicles based on tax-efficiency is a strategy known as asset location. Research shows that asset location could help increase returns by 100 basis points or more — without increasing risk. The tax savings and additional wealth created can be substantial, especially for clients in high tax brackets and those with portfolios of $1 million or more. Start by evaluating the tax efficiency of assets — those taxed at lower rates for long-term capital gains versus those taxed at higher rates for short-term capital gains and ordinary income. Locate tax-efficient investments such as buy and hold equities, index funds, exchange traded funds, and tax-exempt muni bonds in taxable accounts. Locate tax-inefficient investments such as fixed income, real estate investment trusts, commodities, actively managed strategies and liquid alternatives in IOVAs, to pre-
serve all of the upside without the drag of higher taxes.
Minimize Capital Gains Distributions
Experts say 2016 was one of the worst years for capital gains distributions on mutual funds. And that also could mean a bigger tax bill for your clients. When a fund generates income or has capital gains from selling its underlying holdings, it is required by law to pay investors distributions of the income and gain, minus the fund’s operating expenses. Funds that trade actively and funds facing heavy redemptions are more likely to make substantial capital gains distributions. But when these funds are held in a tax-advantaged IOVA, distributions won’t be taxed and can be reinvested to compound and grow.
Tax-Efficient Rebalancing
Rebalancing helps return a portfolio to proper allocations by periodically selling assets that have gains and reinvesting in assets that have losses. When done in taxable accounts, your clients pay taxes on capital gains. But tax implications can be minimized through tax-efficient rebalancing. Take the total portfolio and divide it across a taxable account and a low-cost IOVA. When rebalancing means taking gains, do it inside the IOVA, where selling winners won’t generate a tax bill. When rebalancing means taking a loss, take it in taxable accounts and use it for tax-loss harvesting.
Unique Approach to Tax-Loss Harvesting
To create greater value for clients, harvest losses from their taxable account, then immediately buy those same categories of assets in an IOVA. It’s a little-known fact that by moving these assets into a tax-deferred vehicle, your clients can avoid washsale rules and still remain invested in the same asset classes. This allows clients
IOVAS PRESENT A NEW TAKE ON TAX-ADVANTAGED INVESTING
to participate in future upside potential while cutting their tax bill to maximize future growth. Even over a short time horizon, the benefit can be meaningful for certain tax-inefficient assets and tactical strategies.
Preserving a Windfall
Many high-net-worth clients are likely to be entrepreneurs. When it’s time to sell their business, IOVAs are an effective tool to help optimize that windfall. After-tax profits from the sale can be used to build a diversified portfolio and invested in a low-
Accumulating Wealth Assumptions
Distribution Age........................... 65 Initial Contribution........ $248,000 After-Tax Dollars Withdrawn Per Year........$50,000 Distribution Income Tax Rate........................................28% Horizon............................................. 95 Portfolio Type.................. Moderate Income Tax Rate.................... 39.6% Inflation Rate..............................2.0%
1,500k
Tax-Diversified Withdrawal Strategy
One of the biggest challenges is how to draw retirement income so that clients don’t creep into a higher tax bracket unintentionally. It’s important to plan a tax-diversified withdrawal strategy by employing a range of income sources with differ-
Investment-only Variable Annuity Taxable Account
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cost IOVA, where those profits can grow tax-deferred. Depending on the client’s age and liquidity needs, locate the most tax-inefficient assets in the IOVA — or invest the entire amount.
Legacy Planning and Wealth Transfer
the potential impact on every client, from the least affluent to the highest net worth. Yet history shows that tax reform comes and goes, a political poker chip leveraged by nearly every new administration. While taxes may be cut in the coming year, there are no guarantees — and current gridlock in Washington could create real roadblocks. Even if passed, these potential tax cuts could be short-lived if another administration takes office in four years. When it comes to tax planning, there are many unknowns. While current tax policy is a known quantity, future tax
Source: Jefferson National
IOVAs Deferring Taxes While
for clients in high tax brackets and special needs trusts. Or for a simple wealth transfer solution, use a nonqualified stretch with an IOVA to generate a lifetime income stream for heirs.
Trust income in excess of $11,950 is taxed at 39.6 percent — the highest income tax bracket — plus the 3.8 percent net investment income tax. By funding a trust with a low-cost IOVA, you can minimize, delay or even eliminate the current tax. This will maintain more wealth for the next generation of family members — and the next generation of clients for your firm. IOVAs work well with many types of trusts: credit shelter trusts or bypass trusts to save more for future generations; net income with makeup charitable remainder unitrusts (NIMCRUTs) to reduce taxation of highly appreciated assets; revocable trusts to shelter income
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ent tax treatments. Diversify more strategically using Roth IRAs and traditional IRAs, fixed or immediate annuities, and systematic withdrawals from an IOVA. Nonqualified IOVAs are especially attractive because they have no minimum distribution requirements, offering tax-deferred accumulation beyond the age of 70½.
Creating a Personal Pension
Defined benefits plans and pensions continue disappearing. But wealthy clients can use low-cost IOVAs to create their own personal pensions. Grow these assets at market returns without the drag of taxes. Generate income at a later date as part of a tax-diversified withdrawal strategy, or annuitize when interest rates are more favorable.
More Wealth for Clients — More AUM for Your Firm
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policy is not and it is likely to change many times. Further, we have no idea what tax rates will be when clients retire. This ongoing cycle of change and uncertainty impacts clients’ ability to reach long-term goals. So control what you can. Take a holistic approach to planning, keep costs low, and invest for greater tax-efficiency over the long term, including innovative IOVAs. The value proposition for using more tax deferral is simple and powerful. There’s a clear relationship between minimizing taxes and increasing returns without increasing risk. This means more wealth for your clients — and more assets under management for your firm. Laurence Greenberg is president of Jefferson National, now operating as Nationwide’s advisory solutions business. He may be contacted at laurence. greenberg@innfeedback.com.
Tax reform makes headlines because of June 2017 2017 »» InsuranceNewsNet InsuranceNewsNet Magazine Magazine June
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BUSINESS
The Top 3 Prospect Attractors Prospects consider several characteristics when choosing an advisor, but some qualities particularly stand out. By Dave Vick
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’ve spent years leading prospects to sound financial decisions. But the question that I’m asked most often is: Why do prospects choose me over other advisors? I believe prospects consider several important characteristics when choosing an advisor, but the most influential characteristics are trust, likability and competence.
1. Trust
Obviously one of an advisor’s key characteristics — if not their most essential quality — is integrity. You must be someone prospects can trust with their most personal financial information, as well as with detailed family matters that impact their finances. Prospects must be able to trust your ability to keep their personal information confidential and not share it with other prospects or those outside your practice who might profit from the information. More than half of Americans believe financial advisors put their company’s interests above the client’s interests, according to a 2015 survey by the Certified Financial Planner Board of Standards. That’s not surprising with the current state of affairs, including Sen. Elizabeth Warren’s investigation and the proposed Department of Labor (DOL) fiduciary rule. And with memories of extreme cases of fraud still lingering in people’s minds (Bernie Madoff, anyone?), it’s no wonder that a few bad apples have tarnished the reputation of the financial services industry. Although the government is trying to increase regulation to protect consumers from these types of charlatans, I also believe it’s up to us to instill trust in all our clients and prospects, and I believe we can do that. We know trust in a relationship is something that is earned over time. Business is relational from top to bottom. Trust in a relationship is earned when people do what they say they will do, when they say they will do it. One of the keys to being a 74
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trustworthy advisor involves the method and amount of communication you have with your clients and prospects. How you communicate in a personal manner on an individual basis and what initiates that communication are incredibly important to building trust. If trust is earned over time, how do you overcome the trust issue with new clients
inaccurate or inappropriate content on your own.) You may not be able to remove all the reputation-damaging material you find about yourself online, but you can make things better by raising your online profile in a positive way so that anything bad is pushed further and further down in search results. You can do this with content on
This is Tim Templeton’s description of four business temperaments in his book The Referral of a Lifetime. Relational/Relational: R/R folks start and end with the love of relationships. They are people persons inside and out. Somehow business just happens. Relational/Business: R/B people have an easy time developing relationships, but when the topic turns to business, they quickly get into tactical mode. Business/Relational: B/R people may be a little uncomfortable with relationships upfront and use “business talk” as a way to get started. However, once these people become your clients, the relationships are long and fulfilling. Business/Business: B/B people are those who are not relationally motivated on the front end or the back end of a business relationship. They are business all the time, and somehow relationships happen. When a B/B prospect needs financial advice, an R/R advisor irritates them to no end!
and prospects? I suggest you “borrow” some trust. One way for prospects to check on your credibility is to have them call a couple of your current clients and ask about their experience in working with you. What is your style of communication? How do your clients feel when you are leading them through investment options? Do you communicate regularly? The answers to these questions will give prospects a feel for how much your current clients trust you. What is the Internet saying about you? If you’re not doing it already, you should Google yourself on a regular basis. If prospects don’t know you, chances are they’re using the Internet to conduct some preliminary research on you. What is your online presence telling prospects about you? Are there unfair reviews from past clients or other potentially embarrassing posts? In most cases, you can have these items removed. (Facebook and Google have procedures for removing
your own website or blog, or by contributing content to industry publications or websites as well as your local publications.
2. Likability
Most salespeople understand that being likable is important to their career. After all, most customers prefer to work with those salespeople they know, like and trust. Being positive and enthusiastic will go a long way toward making you more likable. But there are other things you can do to boost how a customer sees you, such as having good manners and being authentic. Your customers probably already like you. But are you being as sincere and polite as you could be? Are you showing customers that you care by using good manners? The most important question is: Are you the kind of person prospects would want to work with? You don’t want your clients or prospects to dread communicating with you. If prospects feel that calling you with a question is like setting up an appointment
THE TOP 3 PROSPECT ATTRACTORS BUSINESS for a root canal, you have work to do. How do your prospects determine what kind of person they would like to work with? First, you must know a little about your prospects. To this end, I think Tim Templeton’s description of four business temperaments in his book The Referral of a Lifetime might be helpful. What type of business temperament do you think you have? You must determine what temperament type you are and work with prospects accordingly. Be aware that you typically will be a good fit with two out of the four temperament types, and probably can reach for a third.
3. Competence
Competence means having acquired enough experience and knowledge to do what your prospects need you to do. Hosting workshops and client events are ways of communicating your philosophy and financial planning techniques. How do prospects determine an advisor’s competence? There are varying levels of financial planning in the industry. The Certified Financial Planners Board of Standards considers three types of financial planning. Each type requires different levels of information and training, yet all require advisors to be diligent in their
efforts and knowledgeable about the tasks. The first type of financial planning is a single-issue plan. In other words, a prospect needs only one facet of their finances — such as life insurance or an annuity — dealt with. Prospects will find a planner with expertise in that area and use them for their planning needs. Second, you have a multistrategy approach combining several types of assets in a financial plan. The plan may include life insurance, health insurance and an annuity. Finally, prospects might need a comprehensive plan that involves everything they do financially. Life insurance, annuities, health insurance, property/casualty insurance, tax planning, mutual funds, stocks, bonds and even a revocable trust might be needed to realize their planning desires. For this, prospects need an advisor who would quarterback a team of professionals. The CFP Board considers all of these valid types of financial plans. Obviously, these three types of planning require varying degrees of competence. Although certifications don’t necessarily equate to competence, they are perceived positively by consumers. Certification matters to most people when it comes to working with a financial advisor,
according to a 2013 Financial Advisor Consumer Survey conducted by the CFP Board. More than eight in 10 respondents (84 percent) believe that certifications are important when choosing a financial advisor, and 87 percent reported that they would feel more confident working with an advisor who has a financial planning designation. Whether you’re a new advisor building your client base or you have been in the business for decades, it never hurts to evaluate whether your clients and prospects are finding what they’re looking for. Are you being transparent with them? Are you providing a fair value for what you’re charging? Financial advisors are some of the most trusted professionals, so make sure to give your clients what they need. After all, prospects are looking for someone who, like the famous football coach Vince Lombardi, is chasing perfection and catching a little excellence along the way. Dave Vick is the executive vice president for Dressander|BHC, a billion-dollar financial marketing organization. Dave may be contacted at dave.vick@innfeedback.com.
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THE AMERICAN COLLEGE INSIGHTS
With over 90 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.
Help Abused Women Reach Financial Freedom Victims of domestic abuse may find their abuser also has damaged their financial life. By Jocelyn Wright
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ast month, I was honored by InvestmentNews as one of their 2016 Women to Women. One of my fellow honorees was Stacy Francis, founder of the nonprofit organization Savvy Ladies. While Stacy was growing up, she witnessed her grandmother endure an abusive relationship, which lasted from when she was 18 until her death, because she feared she could not support herself financially. Her grandmother did not believe she could survive on her own given her lack of understanding of money. Having watched someone so close to her suffer in this way, Stacy made it her life’s mission to “help other women have the resources, the education and the support to make sure that they can live the life that they truly deserve.” Her remarks made me remember a situation with a former client when I was just a few years into my financial planning career. After an hourslong conversation and some tears, this educated, married professional woman shared that she thought her husband was mismanaging her accounts and she did not know what was going on. Now she wanted to open a new account for herself to start saving for retirement without his involvement. I also thought of a widow I was recently introduced to. She lovingly revealed that her late husband controlled the family finances, had used her name to open accounts and had even liquidated her retirement account. She said she was not fully aware of what happened to the money. While these women show no outward scars or bruises, what they experienced may have been a form of financial abuse. The National Network to End Domestic Violence (NNEDV) explains that financial abuse is a powerful tactic used by an abuser to entrap their victim in an abusive 76
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relationship. Common tactics of abusers include employment-related abuse that results in the victim being unable to earn a living; coerced debt, when the victim is forced into transactions that affect their credit; and refusal to give the victim access to their own money. This can occur regardless of the age, ethnic or racial identity, education, or socioeconomic background of the person involved. Survivors of this type of abuse indicate that their fear of being unable to provide for themselves and their children caused them to return to or stay in the abusive relationship. The statistics are staggering. One in three women has been a victim of some form of domestic violence in their lifetime. According to the National Coalition Against Domestic Violence:
» Between 94 and 99 percent of domestic violence survivors have also experienced economic abuse. » Each year, victims of domestic violence lose a total of 8 million days of paid work, or an estimated 32,000 full-time jobs. » The cost of intimate partner violence exceeds $8.3 billion per year — $2.5 billion in lost productivity and $5.8 billion in medical costs. Those who have never been in this situation should not be quick to pass judgment. It is not enough for us to ask the victim, “Why don’t you just leave?” Walking away is not easy when you are embarrassed and often isolated from friends and family. Without a viable plan in place, a victim of financial abuse faces the threat of homelessness and an uncertain future if they end the relationship with their abuser. And the situation is even more complicated when children are involved. The president and CEO of Urban Resource Institute, Nathaniel Fields, said that
financial abuse victims find themselves in a “Catch-22” because a large percentage of victims also suffer from domestic violence. In addition, he said, “Seven out of eight women who leave an abusive relationship will go back because of financial abuse. It’s a double-edged sword. If I do leave, it may be more difficult to maintain independence because I have poor credit or because I can’t find my own apartment or because I had a sporadic work history because he showed up at my job with the intention of getting me fired.” Here are a few tips that experts recommend for what to do if you or someone you know is involved in a financially abusive relationship:
» Reach out to the local domestic violence agency for help. » Put copies of personal and financial records in a secure place. Consider giving copies to a friend or relative you trust. Or get a safe deposit box that only you can access. » If you are considering leaving, figure out how much it will cost to support yourself and begin to put away money, regardless of the amount, in a safe place that only you know about. » Request a copy of your credit report and review it for accuracy. Be sure to report any errors, and dispute all fraudulent accounts. As Stacy said, it is important that women have access to resources, because financial education can make all the difference in financial freedom. And based on the statistics, there are likely more people who experience financial abuse than we realize. Jocelyn Wright is the chair of The State Farm Center for Women and Financial Services at The American College. Jocelyn may be contacted at jocelyn. wright@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.
Finding Success by Serving Main Street America Start by going above and beyond what is expected, acting as a resource, and playing an active role in the community. By Juli McNeely
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s advisors work on the Main Streets of America, they become deeply rooted in the communities they serve and soon start playing an important role in planning for their clients’ financial security. Main Street advisors understand the culture of their communities — or even the subculture within larger communities. They often have a finger on the pulse of what’s important at the present time or what might be the burning issue within the community because of what has occurred either recently or in the more distant past. To serve Main Street America successfully and build a great practice with long-standing client relationships, advisors should: » Be visible. Regardless of whether you have a storefront on Main Street, being visible in your community is a must. It can take time to build a strong reputation, but being consistently visible will begin the process today. » Be a resource. Advisors often are asked to educate students, senior adults, parents, church groups or any gathering of individuals seeking to learn. The more you can put yourself out in the community as a resource, the better off you will be. On many occasions, these opportunities are offered gratis, but being seen as a community resource is priceless. » Get involved in the community. Advisors often get involved by serving on community boards, participating in fundraisers or community events, or financially supporting causes important to them or their clients. Whether you are providing financial resources or human (brain or physical) resources, many in the community will take note of your skills and ability to serve. This is a great quality to project,
as all of us seek to serve new clients in our own businesses. » Connect others. When we are wellconnected in the community, we know who we can go to and who we can refer others. Clients often ask me for a referral to a great local electrician, for example. I know exactly where to send them because I’ve worked with that electrician for years. Clients appreciate your knowledge of other resources within the community. » Build relationships. Clients of Main Street advisors often become like friends or family. Long-lasting relationships involve sharing significant information about ourselves — details about our fears, financial struggles, goals, hopes and dreams. Being there for each other in happy times and in sad times is part of that relationship. It’s far from just a product sale. » Meet the needs of individual clients. There’s no better way to be an asset to your community than to continue to go above and beyond the call of duty in serving individual clients. Meeting people where they are on their financial journey is critical. That may mean discussing budgeting or debt consolidation, researching and assessing old insurance policies, or assisting clients with filing claims and completing paperwork. These are things that advisors often do for no charge, and the financial reward may come later. I completely enjoy seeing clients make progress, and then we can become more proactive with their financial matters. Financially speaking, planning for the future is much
more fun than dealing with the past. » Meet the needs of small-business owners and their employees. Just as for individual clients, going above and beyond the call of duty for the business owners you encounter is always good for the community. Business owners are typically great at their trade, but at times they struggle with running their business. Advisors can become an incredible resource and provide referrals to other professionals. Advisors can become a sounding board on running a business and assist in ensuring financial stability going forward. They also can help business owners address issues such as assessing risks the business may face, business continuity, or attracting and retaining great employees by offering an attractive benefits package. Strong small businesses mean jobs and economic security for the people within your community. Main Street America is a great place to work and live. Advisors who are fortunate to do so can find great success and build incredibly fulfilling relationships with those they serve. I personally wouldn’t have it any other way. I wish you great success! Juli McNeely, CFP, CLU, LUTCF, is president of McNeely Financial Services and past president of NAIFA. Juli may be contacted at juli.mcneely@innfeedback.com.
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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.
Why Financial Literacy Should Start at Home Help clients’ children understand the four key areas of personal finance: saving, spending, investing and donating. By Thomas J. Henske
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was chatting recently with an associate who said, “Kids don’t appreciate money nowadays; they think money grows on trees!” This is something I often hear, whether from my friends, colleagues or clients. If you put a group of parents together in the same room, I think 90 percent of them will complain about the same thing: Kids don’t manage their money well or appreciate the value of a dollar. The topic of financial literacy and kids is a common denominator across all clients, and it’s imperative that we start teaching about this topic at a young age. Despite the abundance of advisors in the marketplace, there aren’t many who hit the mark when it comes to helping clients handle their children’s relationship with money. Ideally, we should help children understand the four key areas of personal finance: saving, spending, investing and donating.
Why Financial Education Matters
Everyone deals with money. Whether you have $1,000 or $10 million, it’s essential for everyone to learn money management skills at some point in life. Unfortunately, when consumers don’t have the level of financial literacy that they need, they lack confidence and get stressed about finances. This eventually leads to consumers making less-than-ideal money decisions. In fact, a recent study from the Million Dollar Round Table (MDRT) proved this by looking at the financial confidence of Americans who have hired a financial planner versus the confidence of those who haven’t. People who never hired a financial professional were fairly confident about simple terms such as “life insurance” (51 percent) and “401(k)” (52 percent). However, they felt unsure about 78
InsuranceNewsNet Magazine » June 2017
You can help your clients guide healthy, age-appropriate conversations about saving, spending, investing and donating within their homes.
more advanced terms such as “long-term care insurance” (31 percent) and “annuities” (28 percent). Unsurprisingly, the more confident consumers feel, the better are the financial choices they make. The study also shows that only 19 percent of Americans who never hired a financial professional have a long-term financial plan for the future. On
money being a taboo subject in the home when we were younger. This is probably why many of my clients and I are so passionate about educating kids about money and personal finance. However, because our parents avoided these types of conversations, adults in my age bracket, 40 to 50, aren’t as well-versed in financial information as we might like to be. The
Whether you have $1,000 or $10 million, it’s essential for everyone to learn money management skills at some point in life. the other hand, 50 percent of those who have hired a financial professional have a long-term financial plan for the future. Evidently, financial planning and education are keys to feeling confident about your financial decisions and ensuring that you have the best financial future possible. The parents I’ve worked with actually seem to know this better than anyone else. Many adults my age remember
good news is that today’s parents are getting smarter and opting to have a more open dialogue about money and finances within their households.
Our Method: Provide Resources, Let Parents Teach
Unfortunately, very few places are equipped to handle these types of money conversations. While many believe that
MDRT INSIGHTS early financial education should begin in school, the reality is that school budgets are stressed and teachers may not have the correct expertise to instruct on the subject matter. Most financial advisory firms are already stretched thin, so it would be impossible to schedule meetings with every client’s child. Even if we could, we might not want to. I believe the best lessons to teach about money happen within one’s own household. Our method is to encourage our clients to be ready to discuss these topics as they come up naturally over time instead of our trying to provide expertise one-on-one. For example, children may start financial conversations when they ask how much money a parent makes, when they can start receiving an allowance, for a gift without looking at the price, or how much their house costs. You’ll notice that many of these conversations are more about family money values, which is why it’s important to learn these lessons from parents. I believe it’s better to educate your clients and provide them with resources to have those conversations in their own homes. Naturally, the types of resources you provide will depend on the age of the client’s child and the financial subject matter that interests the child. This way, you can help your clients guide healthy, age-appropriate conversations about saving, spending, investing and donating.
A Win-Win Solution
We are the stewards of our clients’ financial lives. Many of the decisions and recommendations we make have an impact on our clients’ family money values. Because of this, having conversations about their kids’ financial futures can only enhance our relationships with our clients. It is a subject that matters deeply to them and allows us to foster great connections beyond normal financial planning. Ultimately, it’s not so much the content of these financial conversations as it is having the dialogue. Much of the financial planner’s job revolves around providing a solution to a problem. However, in working with my clients and their children, I came to realize that they are not looking for a solution as much as they are just looking to talk. What clients really need is someone who can simplify the complex and make them feel good about the decisions that they’re making. This philosophy extends to financial education as well. If you manage to help clients feel good about their financial future and their children’s financial future, you all win. Thomas J. Henske, CFP, ChFC, CLU, CLTC, CFS, CTS, CES Partner, is a partner at Lenox Advisors. He developed a program called Money-Smart Kids that provides tools and information to foster independence, good judgment and responsible habits in children of all ages. He is a 16-year member of MDRT with two Court of the Table qualifications. He may be contacted at thomas. henske@innfeedback.com.
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LIMRA INSIGHTS
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.
Small-Business Perspective of Big Ideas for Retirement Small-business owners in Connecticut showed guarded interest in a state-run retirement plan for their employees. By Alison Salka
80
InsuranceNewsNet Magazine » June 2017
appealing messages was that the plan offered payroll deduction. Few would say that giving more employees access to a retirement plan is a bad thing. The real debate is in determining the best way to accomplish that. In general,
the unsatisfactory experiences some have had with the health insurance exchanges. 4. After learning more about some of the plan’s basic features, most employers are mildly positive about it. Favorable features include having an investment lineup that will use private market options and the fact that employers don’t need to contribute. 5. Business owners would equally prefer the Connecticut state plan or a private option, but fewer would choose the Multiple Employer Plan (MEP). Although some business owners like the idea of sharing cost and responsibility, most were not comfortable with MEPs. However, those who are already part of a private association were more likely to view MEPs favorably. 6. Business owners also were asked to review potential employer-oriented communications about the plan to see which messages were most compelling. The most appealing messages were those that emphasized the program provided an opportunity for their employees to have a retirement plan. One of the least
people express less confidence in government versus other entities when it comes to administering a retirement plan. Onethird of people said they are not confident in their state or the federal government when it comes to administering retirement savings, according to recent LIMRA Secure Retirement Institute research. Like many small-business owners, Connecticut’s employers are largely unaware or not very knowledgeable about the state program. For those who are aware, their perceptions are mostly a function of their personal attitudes and experiences. States and employers alike have a vested interest in helping workers save for retirement. Educating them so they can make the best decision for their business and employees will be critical to the success of the plan they implement. Alison Salka, Ph.D., is senior vice president and managing director of research, LIMRA Secure Retirement Institute. Alison may be contacted at alison.salka@innfeedback.com.
Source: Pew, “How States Are Working to Address The Retirement Savings Challenge.” April 2016 and LIMRA analysis
W
orkers highly value employment-based savings plans and opportunities. That consensus was shown by workers recently polled in a LIMRA Secure Retirement Institute study. About six in 10 workers have gone as far as supporting the idea that states and federal governments should mandate that employers offer retirement plans. In May 2016, Connecticut passed legislation to establish a statewide retirement system. It would require all businesses with five or more employees to offer a retirement plan, either privately or through a state-run program. To gain further insight into the impact of this plan, the LIMRA Secure Retirement Institute commissioned a series of four focus groups in Hartford and Stamford, Conn. Small-business owners who do not currently offer retirement plans participated in the focus groups. Although it was a small sample, responses from these business owners can offer some insight into how small-business owners across the nation may react to the mandates of the new legislation. Here is what they had to say. 1. Most small-business employees without a workplace retirement plan do not save for retirement. Employers believe many employees cannot afford to save, rely on a spouse or a partner for retirement, or do not prioritize saving. 2. Small-business owners find it inconvenient and costly to offer a plan, especially with low employee demand. Employers prefer to focus on their business rather than on administering and paying for a plan they believe will not be used or appreciated. However, some employers believe offering a retirement plan would help attract and retain workers.
3. Views on a state-run retirement plan are mixed. Those with a positive view of the plan like the idea that the state is addressing the retirement crisis and providing employers with a new benefit. One issue fueling a negative predisposition is
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