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JANUARY 2012 • VOLUME 5, NUMBER 1
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CONTENTS
View and share articles from this month’s issue
ANNUITIES 32 A re MVAs Ready for a Comeback?
By Linda Koco Market Value Adjusted annuities are not going great guns right now, but carriers want them to protect against consumer flight when interest rates rise.
34 B uild a Retirement Income Fortress for Your Clients
By Daniel Herr A short guide for understanding the financial pain clients are enduring of late and how a guaranteed income, like an annuity, can help ease their issues.
18 INFRONT
18 Have Your Best Year Ever
8N AILBA 30: Rethink the BGA
By Linda Koco With so much uncertainty in the air— regarding the economy, the elections, taxes, unemployment, foreclosures and more–How can producers succeed in 2012?
Model to Attract Women and the Next Generation
By Linda Koco Agency succession and recruiting problems got a lot of attention at the 30th annual meeting of National Association of Independent Life Brokerage Agencies (NAILBA). And for good reason.
26
10
HEALTH 40 P rotect the Production Powerhouse
By W. Harold Petersen A company’s key person directly affects the venture’s success or failure; find the key man and unlock a suite of DI opportunities.
BUSINESS 42 On the Radar Screen By Bryce Sanders From background research strategies to utilizing a mutual friend—here’s how you can get the attention of a highprofile prospect in your community.
LIFE 26 You’re Wide Open By Kevin Kimbrough Life products have advanced significantly, offering more flexibility and features for the needs of clients today—so producers can catch the business financial advisors miss.
FEATURES
44 FINANCIAL
NEW THIS MONTH
10 S ix Principles of Powerful
28 S ifting Hard-Earned Gold
44 T he Art of Creating a Blended
An interview with Robert B. Cialdini, Ph.D Cialdini describes how insurance producers can apply his six principles to be masters of influence in order to move clients to make decisions faster.
By Brad Elman There are some lessons all producers must learn in order to strike it rich, do the right thing and have a balanced and productive career.
By Brian Tarpey A great advisor helps clients see their “life picture” by turning their passions into a sound investment strategy that paints a promising financial future.
Persuasion
2
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January 2012
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CONTENTS JANUARY 2012 • VOLUME 5, NUMBER 1
PERSPECTIVES 46 New NAIC Chair Takes Tough Annuity Stance
Advanced Lead Filtering V E R I F I E D
An interview with Kevin M. McCarty, President, National Association of Insurance Commissioners The new NAIC president discusses what should be a challenging year for the association and how annuity regulations should be tightened.
INSIGHTS 48 E xecutive Summary: the Latest on Products and Industry Issues
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By Rob Billingham Industry execs share their insight on 2012 marketing and distribution topics at NAILBA 30.
52 M DRT: Simple Imagery Helps Clients Comprehend Income-Planning Risks
By W. Thomas Spencer Jr. Boomers nearing retirement find it hard to understand how to best generate income from their savings ,but advisors can make it easier by using simple imagery in their presentations.
53 LIMRA: Who Buys DI? By Karen Terry LIMRA studied what spurred consumers to shop for DI, how they shopped and who actually bought—use these key findings to better understand this market.
EVERY ISSUE 6 Editor’s Letter 16 NewsWires 24 LifeWires
30 AnnuityWires 38 HealthWires 55 Advertiser Index
54 Ask the Sales Doctor 56 Off-the-Wall Sales Stories
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WELCOME | LETTER FROM THE EDITOR
Influence – The Power to Do Good BY STEVEN A. MORELLI, EDITOR-IN-CHIEF
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Quite the bright cover this month, eh? We figured by January we’d be slogging through post-holiday winter funk, so we thought a high-octane HEY! would be welcome. Although we were pretty sure the visual jolt might be well-received, we were not as certain that would be the case with the title, How to Influence Anybody. Headlines, articles and designs that seem amusing or significant to us might not be so funny or deep to other folks. Hey, we realize we can be a nutty bunch and we have come to terms with that. Take December’s issue, for example. One of our annuity articles featured a low interest rate atop a pair of legs in fishnet stockings. It was in burlesque style with carnival-like type meant as a joke—that it is difficult to make low interest rates “sexy.” A reader told us that it was in bad taste. It was the opinion of one out of 50,000 subscribers but she probably represented others who might have taken offense. We strive to surprise but we don’t want to shock, so we always want to make sure we’re not going too far.
purpose is to sell people things they don’t need or can’t afford. But that isn’t influence (or most marketing, for that matter). The subject of the article is Robert Cialdini, a social scientist who has made a life study of influence, which he described as “moving people in a particular direction.” How do you do that? By guiding people to what they want and need. Part of the process is having people write down their aspirations and goals. They are telling themselves what they need to do and you are merely a conduit. As Robert said at one point in his interview with Publisher Paul Feldman: “All you’re doing is informing people. You’re not coercing them; you’re not deceiving them; you’re just pointing to something that’s true about the situation they’re in. Then that moves them in the right direction.” And that’s really the highest aspiration anyone can have—pointing to something that’s true. Steven A. Morelli Editor-in-Chief
That takes us to this month’s cover. We were hesitant about How to Influence Anyone because some might think that meant manipulation. It’s an old argument about marketing in general, that its
IN MEMORIAM
The insurance marketing organization community lost a leader and a pioneer when Roger H. McCarty, 81, died on Nov. 15. Roger was founder and chairman of Brokers International and was known for his innovations in products, sales and marketing. Roger was a natural in sales. When he finished a fouryear stint in the U.S. Navy in 1955, he started as an agent with State Farm and became Agent of the Year in his first year. He formed First Farwest Marketing Co., which grew into Brokers International, one of the most successful IMOs in the country. Roger credited his friendships and relationships for his success. It was clear what was important to Roger was what he gave to others and not what they gave to him. We will miss Roger, but his example will always be with us.
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in Front
Timely issues that matter to you.
WITH
Linda Koco
NAILBA 30: Rethink the BGA Model to Attract Women and Next Generation
A
gency succession and recruiting problems got a lot of attention at the 30 th annual meeting of the National Association of Independent Life Brokerage Agencies (NAILBA) in Phoenix, and for good reason. Consider: • Nearly 40 percent of NAILBA members intend to go through agency ownership transition within the next five years, said NAILBA Chairman Christi M. Daughenbaugh and chief operating officer at Borden Hamman Agency, Dallas. That’s according to a NAILBA survey of long-term members, she said during her chairwoman’s address. • Membership at the National Association of Insurance and Financial Advisors (NAIFA) is now under 50,000— down from 145,000 in the mid-1980s (when its name was National Association of Life Underwriters), said Michael G. Keenan in a hallway conversation with us. He is senior vice president of the LIFE Foundation. Both figures bear startling testimony to a significant vulnerability in today’s independent agency system—if, that is, the BGA transitions are not handled smoothly and if the shrinking of the agency force is not slowed. Think about it. Within five years, new leaders will be at the helm at nearly half of the country’s BGAs. And, according to NAILBA research, although agency successors often have sales, marketing and tech skills, they are often weak in agency operations, business development and peer relationship-building. Because BGAs control more than half of the country’s life insurance business, the arrival of this new talent could, without suitable preparation, adversely impact many aspects of the gigantic BGA business. 8
InsuranceNewsNet Magazine
January 2012
Meanwhile, the long, steady decline in association membership is one more sign of the well-publicized lack of recruits coming into the field to replace the throng of older agents hitting retirement and those who have left the business for other reasons. Without a substantial influx of new producers, distribution of all kinds of products through the independent agency system could be seriously impeded. The breath of fresh air in all of this is that new or potential solutions got some serious attention at NAILBA 30.
Networking Groups Concerning BGA transitions, a significant move came from NAILBA itself. During the annual meeting, the association hosted the first meeting of its new Agency Successor Networking Group (ASNG) for next-generation BGA leaders. The group’s purpose is to provide networking and support for BGA successors, not existing agency owners, although BGA veterans will participate as mentors. ASNG is a self-led group that will focus on equipping new BGA owners with leadership, management and skills training, said Daughenbaugh. Not incidentally, NAILBA has also stepped up networking in another area. For the second year in a row, it hosted a “women in brokerage” program at the annual meeting. The program seeks to promote networking among female BGAs and also between the BGAs and the panelists leading the women’s program, said Joan Cleveland in an interview. She is senior vice president-business development in the individual life business of Prudential Financial and host of this year’s session. The first such networking event took place last year and many of the female BGAs did follow through, calling each
other for mentoring and support in the following weeks and months, Cleveland said.
Attracting Younger People As for bringing young recruits into the business, the speakers and hallway talk offered several ideas for on how to do this. Here are only a few examples. Make a greater effort to recruit and support female BGAs. “There are not that many women in the brokerage business,” Cleveland said. “Why is that?” A related issue is whether there are, or should be, efforts to recruit more women into brokerage, she said. This year’s women in brokerage program did touch on ways female BGAs can help one another stay, and grow, in the business, once recruited, so perhaps the group will later look more directly at recruiting more women. Learn more about the younger generation. Daughenbaugh pointed to NextDoor, a pilot project run by State Farm in Chicago as one example. The insurer has created a storefront “community space” that attracts a lot of Gen X and Gen Y visitors, she said. They come to the space to visit, ask questions about finances and insurance, get “financial coaching,” attend classes, drink coffee, use Wi-Fi and otherwise hang out. (Visitors who want to buy insurance are sent to someone else. The coaches don’t sell.) Daughenbaugh views this initiative as an innovative way not only to attract younger people, but also to learn more about what younger people—consumers as well as recruits—are thinking and saying, she said. That knowledge could help the industry reach the younger generations in a way they want to be reached, she said. Frame the producer’s work in terms that appeal to younger people. Many
NAILBA 30 SPECIAL REPORT | INFRONT
younger people don’t want to join a firm and then start selling, said Maria Umbach, managing principal-insurance and financial services at Maddock Douglas, Elmhurst, Ill. Many want to be entrepreneurs, she said, citing research that Maddock Douglas did last year for the Million Dollar Round Table. They tend to be obsessed with progress and advancement, she pointed out. In addition, they are stimulus junkies; technology breathers; and generally impatient, independently dependent, informal and easily bored. This can be off-putting to boomers’ elders, many of whom entered the life insurance business as young career or captive agents and were told, “Here is the path, get on it.” Still, Umbach said, the industry does need to take steps to reach the younger people as they are or risk seeing young recruits go elsewhere. So, rather than wait until they earn their stripes, “give them a seat at the table,” she said. In addition, “show respect for their style rather than trying to change them.”
Look elsewhere for recruits. Consider using startup distribution, suggested workshop panelist Butch Britton from ING. For example, although health insurance agents aren’t in the life insurance business, with some education, they could start offering life insurance while the customer is buying the health insurance, he said. He also suggested bringing “greenhorns” into the business and giving them leads—“for example, college kids who are sitting around with nothing to do. … Give them a start in the life insurance business.”
Some More Ideas Provide independent agency recruits with training in how to sell, suggested Kristin Merz, vice president, The Merz Agency, Bellevue, Wash., in a hallway conversation. “The career and captive agency companies do provide this support but there is no good avenue for this in the independent distribution channel,” she explained. When using social media, such as
Twitter, to attract recruits, don’t say things like “Come work for us!” “Instead, talk about what you know and what interests you,” and offer tidbits of helpful information, said workshop speaker Amanda Vega, CEO of Amanda Vega Consulting, Phoenix. “If someone wants to follow up, get out of social and into your email, where you can say what you want.” These ideas may seem scattershot. But taken as a whole, they represent a shift in industry thinking from hand-wringing over the aging field force to calls for action. That is progress. It also aligns well with a recommendation from keynote speaker Jim Collins, author of Good to Great and several other books. “Test this and test that until something starts to work,” Collins said about reaching the younger generations. “Then go big... and bring out the cannonballs.” Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.
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InsuranceNewsNet Magazine
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InsuranceNewsNet Magazine
January 2012
SIX PRINCIPLES OF POWERFUL PERSUASION | FEATURE
LEARN THE SCIENCE BEHIND INFLUENCE
Y
OU CAN’T MOVE PEOPLE to a decision unless you have pull. That magic power is influence and although it is not as easy as waving a wand to conjure it up. Influence can be found by following six simple principles laid out by Robert B. Cialdini, Ph.D. And make no mistake—no influence, no sale.
The six principles form the basis of his seminal book, Influence, considered a must-read for anyone in selling. But it’s not just for sales; the book and its concepts are important for anyone who wants to influence someone else—and who doesn’t? Among the many fans is Warren Buffet’s right-hand man, Charlie Munger, who has recommended Influence as essential reading. Part of what makes Cialdini’s ideas so engaging is the decades of science and observation that support them. And in an interview with InsuranceNewsNet Publisher Paul Feldman, Cialdini often backed up his claims with compelling evidence. Some of the principles are not surprising, but Cialdini gets under the hood and explains why things work and how to supercharge sales performance. In this interview, Cialdini discusses how insurance producers can apply the six principles to be masters of ethical influence. January 2012
InsuranceNewsNet Magazine
11
FEATURE | SIX PRINCIPLES OF POWERFUL PERSUASION
FELDMAN: How do you define influence? CIALDINI: Influence means change and moving people in a particular direction. About 16 years ago, one of my colleagues asked, “What is the single best sales strategy?” But my research found that rather than one sales strategy, there are six universal principles of influence. We would be fools if we went into every situation using the same strategy. We have to adjust our approach based on what we see in front of us: the person, the situation, the challenges. Then we employ the principle of influence that resonates with that individual to move that person in a positive direction. FELDMAN: I find your six universal principles of influence incredibly powerful. Can you describe those principles and how they can be applied? CIALDINI: The first principle is what I call reciprocation, the idea that people give back to you the kind of treatment that they’ve received from you. If you do something first by giving them something of value, be it more information, or even a positive attitude, it will all flow back to you in kind. The second principle is scarcity. People will seize opportunities that are rare or dwindling in availability, so it’s important to remember that we need to differentiate what we have to offer from our rivals. That way we can tell people honestly, “You can only get this aspect or this feature or this level of security by moving in the direction I’m recommending.” FELDMAN: As far as insurance goes, there’s somewhat limited scarcity, other than a client couldn’t qualify for it or maybe the interest rate is going down next month. What are some ways to apply scarcity to insurance? CIALDINI: You can tell people the unique features that you, your agency or your product have to offer. What are the features that can’t be matched by rivals? Often, it might not be a single feature. It might be a bundle of features 12
InsuranceNewsNet Magazine
January 2012
that together cannot be matched. Making them aware of that scarce, rare or exclusive aspect of what you have to offer will motivate them to move off the fence. The second thing is that when we describe those unique features, it’s not enough simply to say, “These are the benefits that you will gain if you choose what I’m recommendThe credible communicator who ing.” That is because the has expertise and trustworthiness is the research is clear now that single most powerful communicator that people are more motivated social science has ever uncovered. to act by the idea of losing something rather than gaining that very same thing. an influence attempt and that’s a big In the insurance industry, we can pro- mistake. vide people with the same benefits and Also, the authority principle doesn’t say, “We don’t want you to lose that secu- just involve credentials—it also involves rity for you and your family, that extra trustworthiness. To be truly credible, we margin of confidence that you have with have to convince people that not only that income in the future that you will are we providing them with authoritahave from this annuity. We don’t want tive information but that we’re also proyou to miss that opportunity.” viding that information in a straightforThis idea that loss is more powerful ward, honest way. and more mobilizing than gain actually If we get those two perceptions in the won the Nobel Prize in economics for eyes of our audience, the research shows a man named Daniel Kahneman a few no one can beat us as a persuader. The years ago when he showed that the pros- credible communicator who has both pect of losing something is more acti- expertise and trustworthiness is the sinvating than the prospect of gaining that gle most powerful communicator that very same thing. social science has ever uncovered. So that’s how we might leverage the scarcity principle into an arena where FELDMAN: Some people are afraid or the concept of insurance isn’t scarce but reluctant to talk about themselves and the particulars might be and the idea of yet you’re saying that this is the most losing those particulars is really the ulti- important thing. How do they overcome mate form of scarcity. Loss is scarcity that resistance? squared—you can’t get it anymore. CIALDINI: You’re exactly right. You can’t FELDMAN: The third principle is go to someone and say, “Before we begin, authority. What does it take to be an let me just tell you how great I really am.” authority? That goes against all the rules of social interaction. But if you are genuinely a CIALDINI: People will be most persuaded credible source of information, how do by you when they see you as having you get that across to people who don’t knowledge and credibility on the topic. know you? You’d be surprised how many people fail If you have no track record with this to inform their audiences of their gen- person, I would suggest two things. The uine credentials before launching into first is conveying your expertise and
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SIX PRINCIPLES OF POWERFUL PERSUASION | FEATURE
competence, so you should find a third party who knows both of you to do it for you. Maybe it’s someone you’ve dealt with very effectively. Ask that person to receive a call from your new prospect about your skills and knowledge. If that third party isn’t available, I would suggest another approach that works very well in other cultures but not used so much in ours. It’s the letter of introduction that precedes your first meeting with this prospect. It could be a letter or an e-mail that says, “I’m looking forward to our meeting on Thursday afternoon on the topic of annuities. My background and experience in that arena are as follows.” It’s altogether appropriate to present your credentials ahead of time in a letter of introduction. It doesn’t go over the line of social politeness. But if you wait until you’re face-to-face with that individual, it’s not appropriate anymore to talk about your own credentials, even if they’re true. You have to do it ahead of time. FELDMAN: That speaks to expertise, but how do you establish your trustworthiness if you haven’t done it before the meeting and there is not a third party to vouch for you? CIALDINI: Here’s what I suggest—and it goes against all of our human tendencies: before going into the strongest arguments for our case, we mention a drawback or a weakness in our case. That immediately establishes us as a credible source of information. Everything we say afterward is processed more deeply and is believed more fully. I’m not suggesting that we meet someone for the first time and say, “Before we begin, let me tell you all the things that are wrong with me, my company and my products and services.” I’m writing a book called Moment of Power. I contend that we are afforded a moment of persuasive power immediately after we have admitted a weakness and that’s the place for our strongest argument. People are listening differently now to the next thing you say and that’s where you want your strongest argument.
FELDMAN: Commitment and consistency is principle four. How do they work together? CIALDINI: People feel a need to comply with your requests if they are consistent with what they’ve publicly committed themselves to in your presence. Ask people to state the true priorities, commitments and values that are most important in their situation. And then you align your proposals with those things that are on record as important in their lives. That rule for commitment and consistency will cause them to want to say “yes” to what they told you they already value. And I think their values are the most important things to get on the record, and if possible, in writing. When an insurance professional interviews me about my insurancerelated priorities, I’ve never seen that professional writing down my answers or asking me to write them. I should be writing them down. If I’m writing them down I’m more committed to them
immediately. FELDMAN: That allows the producer to show it to clients later and ask, “Is this your handwriting?” to remind them of their goals. Is that the strategy? CIALDINI: That’s right. When the clients come back for that review meeting next year, you can show them how these are the goals, values and priorities that they set for themselves and that’s why they have been taking this road. They’ll appreciate that kind of personal approach to their circumstances. The writing-down process is also important in itself. We have a business partner in the U.K. who’s just completed a study of people who go to doctors’ offices and those who miss appointments. He was able to reduce the percentage of no-shows at doctors’ offices by making a very small change. Instead of the receptionist filling out the reminder card for the next appointment, the receptionist asked the patient to fill it out. No-shows dropped by 18 percent.
6 PRINCIPLES OF ETHICAL INFLUENCE A POCKET GUIDE | BY ROBERT CIALDINI, PHD
1) RECIPROCATION
You, then me, then you, then me... Be the First to Give Service, Information, Concessions
2) SCARCITY
The rule of the rare... Emphasize Genuine Scarcity, Unique Features, Exclusive Information
3) AUTHORITY
Showing knowing... Establish position through Professionalism, Industry Knowledge, Your Credentials, Admitting Weakness First
4) COMMITMENT & CONSISTENCY The starting point...
Start Small and Build, With Existing Commitments, From Public Positions, Toward Voluntary Choices
5) LIKING & RAPPORT BUILDING
Making friends to influence people... Uncover Similarities, Areas for Genuine Compliments, Opportunities for Cooperation
6) SOCIAL PROOF
Unleash people power by showing: Responses of Many Others, Others’ Past Successes, Testimonials of Similar Others
ALWAYS REMEMBER: The ethical use of influence means: being honest, maintaining integrity, being a detective, not a smuggler or a bungler.
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FEATURE | SIX PRINCIPLES OF POWERFUL PERSUASION
FELDMAN: So it strengthens the commitment more than just by writing it down? CIALDINI: Yes, people live up to what they write down. We should be developing forms for people to fill out during those initial interviews describing their priorities, purposes and values. A very effective way to frame that question is, “What would you like to achieve from our partnership?” We can get to their priorities and values that way, by asking them about their preferred achievements. FELDMAN: As far as consistency goes, you have said that people hide inside walls of mindless consistency to protect themselves from their own thoughts. How do you disrupt consistency? CIALDINI: Very good question. The best way to do it is to say, “When you made that decision in the past I have no doubt it was the right one, but circumstances have changed.” That way you don’t say to them, “You made the wrong choice,” which makes them defensive and they’ll respond with, “Who do you think you are to tell me what is best for me? I know my own worth.” You can say, “I’m sure you knew your own circumstances and you knew what was best for you, but let me show you how things may have changed since then.” That allows them to move away from what they did earlier because it’s a new set of circumstances. FELDMAN: The request for commitment seems like a good strategy for other situations. Do you have other examples? CIALDINI: It’s useful in a job interview. When people are interviewed by a committee, the candidates typically give the committee members all the information that they ask for: background, goals and attitude. I suggest using the principle of commitment and consistency. Say, “I’m very glad to be here and I want to answer all of your questions but I wonder if you could answer a question for me first that I’m curious about—why did you invite me here today?” And let them tell you and go on record as to what your strengths are. And you know 14
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what they’ll be doing for the rest of the meeting? They’ll be finding ways to validate what they’ve just told you. FELDMAN: Or maybe some way to get out of what they said? CIALDINI: But when it’s in public, it’s very difficult to get out of it at that point. Indeed, it’s the same way that some of your sales calls could be done. You could ask a client or a prospect, “Why did you decide to come to see me? Why did you ask me to come to your office today?” Get that out. Why be in the dark about that? And now they’ve made a public commitment to you.
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The key to the liking process is not … to get your customer to like you. That’s the No. 2 rule of sales. The No. 1 rule is to like your customer or client.
FELDMAN: The fifth principle is liking and rapport building. It’s said that people buy from those they like, but it goes beyond that, doesn’t it?
CIALDINI: People prefer to say yes to your request to the degree that they know and like you. There’s no surprise there, but a simple way to make that happen is to uncover genuine similarities between you and the person you want to influence first. That person is more likely to like you and to be more willing to move in your direction. Now with social media, we have access to information about people that we never dreamed of before. When we find parallels, we can raise those before we begin the interaction and we reduce the likelihood that there will be a stalemate because they will know us and like us a little more. I saw an experiment that was done a while ago with negotiators. They were asked to communicate by e-mail with another negotiator about a scenario involving a merger of two companies and some very important decisions had to be made, such as the location of the merged company’s headquarters, who would be in which positions within the company and which people were going to be redundant and
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have to be let go. These negotiators were told if they couldn’t come to a decision that’s satisfactory to both parties then both sides lose. So they bargained by e-mail, which is the least human of all our channels of communication. Then 30 percent of the negotiations ended in stalemate and both sides lost. But the researchers did something else to another sample of negotiators. They had the same set of issues but were asked to send information about themselves to their negotiation partner, such as their hobbies, where they went to school, what part of the country they grew up in, how many kids were in their family and how many kids they had now. They gave people a reason to like one another because they seemed more human and they could also see some similarities: “You grew up in the Midwest? So did I.” Or, “You were an only child? So was I.” Under those circumstances, the stymied negotiations dropped from 30 percent to 6 percent. So we have to humanize our interactions with people before we ever try to influence them. Then the walls of resistance come down and they’re willing to accept our counsel.
SIX PRINCIPLES OF POWERFUL PERSUASION | FEATURE
FELDMAN: Besides finding similarities, how else can you get prospects and clients to like you? Is it a mistake to think you can control that in someone else? CIALDINI: The key to the liking process is not what we’ve learned at every influence and sales program, which says the No.1 rule of sales is to get your customer to like you. I think that’s the No.2 rule of sales. The No.1 rule is to like your customer or client. When they see that you like them, they feel safe. They’ll have a good reason to feel safe because you will make sure that the people you like are treated well. You’ll make sure that they’re protected and their interests are served. This is really turning that rule on its ear where clients are saying, “The best place for me to purchase insurance is not in the hands of someone I like who’s an insurance expert, it’s in the hands of someone who likes me and is an insurance expert.” Prospects can exhale a breath there and defer to the salesperson’s judgment because they know he or she is going to steer them right. FELDMAN: Also, you will be kind to somebody who’s been kind to you— doesn’t that go back to reciprocation? CIALDINI: You are exactly right about the reciprocity rule. When you have two people interacting who like each other, business doesn’t get any better than that. And here’s the other thing: You have only two choices—get that person to like you or like that person. There’s only one of those you get to control. Choose it. FELDMAN: The last principle is social proof, how important is it? CIALDINI: Very. People will likely say yes to your request if you give them evidence that people just like them have also been saying yes. I saw a study recently from Beijing that showed if a restaurant had on the menu, “These are our most popular dishes,” each one immediately became 13 to 20 percent more popular.
“YOU’RE JUST POINTING TO SOMETHING THAT’S TRUE ABOUT THE SITUATION THEY’RE IN. THEN MOVE THEM IN THE RIGHT DIRECTION.” What I like about that maneuver is that you just have to point to something and it doesn’t cost you a thing to increase the choice for those items. You don’t have to put any money into better décor in the restaurant, better ingredients in the dish or a new chef. Just point to something that’s absolutely true that people didn’t know. Also, that is a rule people follow to make correct decisions. For example, if I know that most of the people I work with are moving to a new piece of software because they’re raving about it, well, I don’t have to get smart on software. I can use that shortcut to reduce my uncertainty about what’s the next piece of software I should buy. I’ll be right most of the time and I get to conserve the mental energy for all the other problems in my day that I have to face. So it’s a very powerful rule. I think it’s actually the most primitive of all of the six principles. The one that says people will follow the lead of those around them and are like them. We recently completed a study on what will get people to conserve energy in their homes. One message we sent told residents how much money they would save if they conserved energy. Another message told them how many resources the Earth would save if they conserved energy. A third one said that future generations would have these resources available to them—so, be a good citizen and conserve energy. Those are the ones you always hear. Then we had one that said the majority of your neighbors are regularly undertaking steps to conserve energy. That was the only one that worked. What surprised us was that when we tested that message, we started out by saying the majority of Americans are choosing to save energy every day, and that didn’t work. But we had done a survey earlier that showed that the majority of neighbors were regularly undertaking
steps to save energy—so we just told people what the norm was in their neighborhood. And that worked. FELDMAN: It connected them to others facing a similar issue that overcame it by taking action. CIALDINI: Yes, it makes it personal and that’s how people decide. So, when insurance professionals provide accounts of other individuals who have moved in a particular direction, the easy thing to do is to choose one that they are most proud of, the biggest firm or client. But it should be the story of someone who is most comparable to the individual across the desk from you. If you’re selling insurance to a small business owner who has several dry cleaning establishments and you tell them how a General Mills factory is using the same benefit, they will think, “That’s not me. Tell me about a small business owner who has chosen this and has done well with it.” Or here’s the language you might use, “The majority of my clients who are in your situation have chosen this option.” It reduces their uncertainty about what they should do in this situation for them. The key is not to go in loaded with any one of them, but to use one or another as appropriate to the situation where you genuinely are an expert and authority. Not only is it effective, it’s eminently ethical. All you’re doing is informing people. You’re not coercing them; you’re not deceiving them; you’re just pointing to something that’s true about the situation they’re in. Then move them in the right direction. And that’s my definition of influence. Learn more about Robert Cialdini and the science of ethical influcene at www.influenceatwork.com.
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[ NEWS WIRES] Feds Thumb Nose At NAIC On MLR The Centers for Medicare & Medicaid Services (CMS) basically said “no way” to the Marilyn Tavenner, the acting National Association of Insurance Commisadministrator of CMS, says broker sioners (NAIC), regarding the medical loss fees will stay in the administrative part of the MLR. ratio (MLR) issue. In early December, the federal agency issued its final regulations on how MLRs should be applied under the Affordable Care Act (ACA), and it wasn’t what a NAIC resolution had sought. Passed in late November, the NAIC resolution had urged the U.S. Department of Health and Human Services to “mitigate the adverse effects the MLR rule is having on the ability of insurance producers to serve the demands and needs of consumers, and to more appropriately classify producer compensation in the final ACA.” It suggested three “options” for doing this: 1) approve state MLR adjustment requests; 2) suspend implementation and enforcement of MLR requirements relative to agent and broker compensation; and 3) classify “an appropriate portion” of producer compensation as a health care quality expense. The final CMS regulation does include several modifications to previous versions, A.M. Best reports. However, it does not incorporate NAIC’s proposed changes—changes designed to deter health carriers from cutting agent commissions in order to meet the MLR percentages that ACA requires. (Under ACA, individual and small group health insurers must use 80 percent of their premiums to cover medical costs; and large group carriers, 85 percent. If they fail to do that, they must send rebates to policyholders starting in 2012.) A battle is still not over until it’s over. And this one is apparently not over. A bill in Congress, H.R. 1206, would exclude producer compensation from MLR calculations, according to Best’s report. So, look for more skirmishes over MLR in 2012.
LACK OF RETIREMENT READINESS REACHING CRISIS
Nationwide Financial is not a company to bandy about the word “crisis.” But the company did use the C-word in a recent press release on a Harris poll of 501 small business owners. Commissioned by Nationwide, the poll found that 75 percent of the surveyed owners believe “so many Americans are financially unprepared for retirement that it has reached crisis levels.” Despite that perception, only 19 percent of surveyed owners say their firms offer a self-funded retirement plan to employees and only 11 percent say they are likely to add an employee sponsored 401(k) plan within the next two years. What’s the holdup? Sixty-nine percent say their businesses are too small. And, more than half 16
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say such plans are too expensive. Apparently, that’s not the end of the road, though. Nationwide Senior Vice President Anne Arvia says a bill in Congress—the proposed “Small Businesses Add Value for Employees (SAVE) Act”—would remove many barriers that deter small businesses from offering retirement plans. The question is: Will it pass?
AFFLUENT FRET ABOUT INTERNATIONAL PROBLEMS
That’s right. Forty-three percent of affluent investors told Spectrem Group in November that the news story most affecting their economic outlook involved international problems, up from 7 percent in August. That’s a far cry from the nextin-line issues of political environment (18
percent), unemployment (7 percent), stock market conditions (6 percent), the economy (5 percent) and the deficit (4 percent). If you’re an insurance agent, it might pay to keep this list at the ready for clients. After all, Spectrem defines affluent investors as households with $500,000 or more in investable assets—the very households that are the sweet spot for many insurance professionals. And here’s a headsup on what did not make the list at all: health care reform. Hmm … curious, very curious.
NO JOHNNY-APPLESEED HERE
Independent producers are placing, on average, 49 percent of new premium for fixed life insurance and 53 percent for fixed/indexed annuities through wholesale intermediaries such as brokering general agents (BGAs) and independent marketing organizations (IMOs). That’s according to a survey of nearly 650 U.S. producers just out from Deloitte Consulting. But these producers don’t seem to be spreading the business around JohnnyAppleseed-style. Instead, they are placing 61 percent of new business with their top carrier and 21 percent with their second carrier—even though 60 percent of these producers have appointments/contracts with six or more carriers. The cream always rises to the top, doesn’t it?
GET USED TO ‘FINANCIAL WELLNESS’
Agents might not be using this term now, but that may change. In a new whitepaper, MetLife says financial wellness is a relatively new but growing concept. So, what’s it mean? The carrier says it refers to financial well-being or “a multi-faceted concept that describes the overall financial health
“ QUOTABLE “Procrastination and a fear of making plans are the most common stumbling blocks (to effective retirement planning). Those who actually start the process will generally be the most successful.” —Kathryn B. McGrew, research fellow at the Scripps Gerontology Center at Miami University
DID YOU
KNOW
?
Forty-seven percent of entrepreneurs are optimistic about the year ahead in regards to their business, 27 percent aren’t sure and only 26 percent are not optimistic.
[ NEWS WIRES]
SOURCE: Hiscox Small Business Insurance survey
of an individual.” The carrier also says that the following five factors influence financial wellness. They are: 1) personal characteristics like personality and societal status; 2) financial literacy or a working knowledge of financial concepts and tools to make the most advantageous financial decisions; 3) financial behavior such as planning, saving and investing; 4) financial situation, meaning home ownership, salary, benefits, accumulated wealth, etc.; and 5) financial stressors like the loss of home, personal bankruptcy or job loss. And, the company didn’t make this up. It cites experts who write for the Federal Reserve and for the Association for Financial Counseling and Planning Education. So maybe give it a try and see if it fits.
INSURANCE EMPLOYMENT LOOKS FLAT, NOT FAT
Greenberg’s Firm Sues U.S. Government for AIG Takeover The American International Group (AIG) bailout story has entered yet another round. Starr International of Bermuda has filed in federal court for class action status in a suit against none less than the U.S. government. The grounds? Starr is seeking damages for $25 billion on allegations that the federal government’s 2008 bailout of AIG was unconstitutional, according to an A.M. Best report. The charge is that the government took AIG and Starr properties in violation of the “Due Process, Equal Protection and Takings” clauses of the U.S. Constitution. The case is not hard to digest when recalling that Starr’s chairman and CEO is Maurice “Hank” Greenberg, who led AIG for many years. Where is the “class” part of the class action? Well, Starr is asking the court to give the go-ahead so it can file its suit against the government on behalf of AIG. It is also asking the court to certify a class of all registered and beneficial owners of AIG’s common stock (excluding a few people) between Sept. 17, 2008, and Jan. 14, 2011. And yes, Starr is one of those owners. The Best report says that Starr International, a private investment vehicle, owned 10.4 percent of AIG’s stock as of March 2010.
That’s our view on November’s insurance industry employment numbers. The industry, including both the life/health and the property/casualty sectors, lost just 700 jobs for the month, according to an A.M. Best report on the November numbers released by the U.S. Bureau of Labor Statistics. That was a mere 0.7 percent decline from October, not a major shift. On a yearto-year basis, it was the same story for the industry’s 2.2 million jobs; they were down 0.7 percent since the same YTD last year.
future. “Fortunately,” comments Mark Konen, president of Insurance and Retirement Solutions at Lincoln, “there are numerous products and solutions available that allow you to take control of your financial future throughout each stage of life.”
READY FOR MIXED SIGNALS?
DAVID AND GOLIATH REDUX
A COUNTRY Financial survey released in November says that 87 percent of 3,000 Americans believe a double-dip recession is likely in the next two years. And even though many Americans are reportedly saving at greater rates than in the 2000s, this survey found that only 51 percent of Americans feel financially prepared to handle another recession. But a different survey—released one month later by Lincoln Financial Group —says that 72 percent of Americans feel “very” or “somewhat” optimistic about their futures and 66 percent feel in control of their lives. However, that control appears to be compartmentalized. That is, 51 percent feel very much in control of their health, while only 27 percent feel very much in control of their financial
Small business owners might want to prepare themselves for some stiff competition from big companies in 2012. At least that’s the word from The Guardian Life Small Business Research Institute, which surveyed nearly 1,100 business owners of various sizes last October. The survey led Guardian to make this prediction: “Larger companies will aggressively market to prospects considered too small in the past.” In fact, Guardian says, the larger companies that compete with small firms will be more likely to “poach” customers they have traditionally considered outside their target market. That should be a heads-up for agents who are themselves small business owners and for agents who serve small business owner clients. Guardian’s
suggestion: Look for ways to create meaningful differentiation. Well, that’s a start.
“IT’S POPPYCOCK”
That is how New York insurance agent Robert Miller recently described complaints that National Association of Independent Financial Advisors (NAIFA) opposes new fiduciary duty regulations because it would undermine the sale of annuities. In an interview with InvestmentNews, the outspoken Miller said, “They’re saying things that are just not true. It’s like me saying that every fiduciary is Bernie Madoff. It’s ridiculous.” As the current president of NAIFA, Miller also rebuffed portrayals of NAIFA as the “Big Bad Wolf” on fiduciary duty issues. He said that the association has not seen evidence proving that what insurance agents are doing is anything other than what is in the best interests of their clients. Agents aren’t particularly scared of becoming fiduciaries, he added, “as long as we can sustain a business model that still allows us to make a living.” So what does NAIFA want? “Good, intelligent regulation.” January 2012
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Tips from the Top Experts for Royally Good Sales BY LINDA KOCO
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HAVE YOUR BEST YEAR EVER | FEATURE
I
T IS OFTEN SAID that producers can succeed in annuity and life sales no matter what else is going on. But, how can they do that in 2012 with so much uncertainty in the air—regarding the economy, the elections, taxes, unemployment, foreclosures and more? We put that question to several top producers and sales experts, and heard the same response from each: Opportunity is everywhere. The producer’s job is to identify the opportunities and go after them. This year will pose some challenges, they agree. “But don’t let anyone or anything take you off track,” advises Mark Lindsey, a producer in Canoga, Park, Calif. Bill Bachrach, chairman and CEO of Bachrach & Associates, San Diego, adds: “Your success will be affected by the environment only if you let that happen.” In that spirit, here are some of these experts’ best ideas for achieving success in the coming year. SEMINARS ROCK Some have been asking if seminars are still effective for prospecting. Our experts answered that with a firm “Yes!” “If you want to succeed in 2012—or any year—you need to do what the big producers do,” says Lindsey, who is also founder and CEO of The Revolution FMO. One way to do that is to offer seminars, he says, because that is what the big producers do to attract new prospects. “You don’t want to run seminars?” he asks with some bite to the words. “Then you probably won’t be a big producer.” You don’t know how to do seminars? “You can always work with organizations that provide proven seminar systems,” says Lindsey. Marc A. Silverman, president of Silverman Financial, Miami, also advocates seminars. He says he offers 40 workshops to the public a year. All are designed to attract and inform his target market of middle-income and older people who are interested in retirement plan services. The idea of offering seminars is not new, of course. But top advisors say it is a highly prized strategy. For instance, Silverman says his workshops consistently generate good sources of leads and actual buyers, though he also gets referrals from existing clients. In fact, his database now has more than 4,000 names. Roughly 1,300 of
them are active clients. Most are workers or former employees of local businesses—such as the phone company, electric company and the state of Florida. They buy annuities and life insurance, as well as other products for retirement. On average, the firm adds 330 to 340 new clients a year, Silverman says. Other client contacts occur when existing clients come in for annual reviews, “planting seeds” for future needs. Silverman recommends this approach because, despite the tough economy of the past few years, “business has never been better.” He expects his business will continue to grow in 2012 as well. “This is good in any environment, not just today,” he explains.
HAVE A SALES SYSTEM IN PLACE Advisors need a sales system, too, says Christi Daughenbaugh, vice president and brokerage manager for the Borden Hamman Agency in Dallas. In fact, the most successful annuity producers she sees are those who use a sales system. These are the type of producers who can “take a system and put legs on it,” she says. Unfortunately, a lot of producers don’t follow through and implement the system the way they are supposed to, Daughenbaugh says. So her
recommendation for 2012 is that producers put a lot of effort into implementing the system they buy. Producers should take care not to choose just any system, cautions Lindsey of California, who also is a strong advocate of using sales systems. It should be a “proven” sales system, he says, explaining that “the right system will help you be more efficient, so you can sell more in less time.” For instance, Lindsey says, “My system gets the job done in one and a half hours, not in four hours and four appointments.” The support of an organized and efficient staff is critical, too, he adds. In his own practice, Lindsey has found it to be a waste of time for him to set his own appointments, chase money and manage the office. “That’s not my job. My staff frees me to do what I am best at doing, which is running seminars, seeing people, helping people and doing business.” Silverman uses a system, too. When new leads come in, his staff sets up appointments. Then, in the client meetings, Silverman says he does a factfinder, develops a game plan for the person and discusses what the person can expect as he or she transitions to retirement. And, when clients call, he says that he or someone in the office makes a point of getting back to them right away. The tight scheduling and fast response system keeps Silverman extremely busy but he still finds time to squeeze in extras. He says the efficiency and high volume is what makes it all work.
STAY FOCUSED In 2012, or any time, producers should “never, ever, ever lose focus,” Lindsey says. He is talking specifics, down to the granular. For instance, he recommends setting up a system for working through emails, faxes, letters and phone calls, so it doesn’t accumulate and overwhelm. Lindsey also recommends developing relationships with “people to call who can lead you in the right January 2012
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FEATURE | HAVE YOUR BEST YEAR EVER
Ask questions and listen closely for the answers. If you don’t quit yakking and start listening, you could miss a $500,000 sale. — Al Gray, Underwriters Marketing Service, Mt. Laurel, N.J.
If new tax laws are enacted in 2012, use them as a season to get in front of CPAs. Offer them ideas on how to help their clients benefit from the changes. — Marc A. Silverman, Silverman Financial, Miami
When starting out, stay mean and lean. But if you don’t expand your staff as business expands, you will starve the business. — Mark Lindsey, The Revolution FMO, Canoga Park, Calif.
Ask if the client is interested in deferred income annuities. These are increasingly popular. They allow clients to put money in the product and defer taking income for several years. — Christi Daughenbaugh, Borden Hamman Agency, Dallas
direction” when assistance is needed. These should be other professionals who can offer guidance and mentoring in areas where the producer is not knowledgeable. Remember, he says, “You don’t need to know everything about everything.” Trying to know and do it all is a problem for a lot of agents, who then end up “doing nothing at all” in terms of sales. He says that when producers need help staying on track, they should get the help. Bachrach thinks keeping focus is important, too. “Focus on what you can deliver,” he advises. “For instance, focus on the value to your clients of providing comprehensive services and financial advice.” 20
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ESTATE TAX EXEMPTION Jean Dorrell, a certified estate planner and founder of Senior Financial Security, Summerfield, Fla., has a tax strategy for producers who are trying to help clients with state (not federal) estate-tax issues. The approach includes educating clients on changes in state estate-tax laws and possibly also helping reposition assets in response to those changes. This subject is on the table because some states are considering or changing their estate tax exemptions, Dorrell says. Last year, Connecticut lowered its exemption amount from $3.5 million to $2 million, per estate. It is one of more than 12 states that now have estate taxes. At least six other states have inheritance taxes; and a few states
have both inheritance and estate taxes. In addition, although more than 25 states have no estate taxes at all, some states are considering adding them. Illinois adopted this type of tax last year and Florida has been talking about adding one, Dorrell says. These changes could affect clients who may have never before considered factoring state estate taxes into their tax planning, which could lead to a decision to reposition assets, says Dorrell. But don’t stop with repositioning assets, Dorrell adds. Advisors should also consider inquiring about whether the client’s estate tax plan and papers are in alignment with the new state estate-tax changes, she suggests. Or perhaps offer to visit the accountant or tax attorney, along with the client, to look into this. “A lot of accountants and attorneys will perform these reviews free of charge,” she points out.
CHECK OUT HOT PRODUCTS Offering in-demand products is also on the best idea agenda for 2012. Daughenbaugh of Dallas says her brokerage sold more income annuities in 2011 than traditional fixed annuities— and the firm expects to increase these sales in 2012. This sales upturn happened even though income annuities have the image of being slow sellers. Why? “Clients want the products, especially the products that let clients defer the income for several years,” Daughenbaugh answers simply. That observation is spot-on with a recent finding in a Deloitte survey of nearly 650 life and annuity producers. A whole 87 percent of those producers identified “increased consumer interest in retirement income planning” as an opportunity that will further the growth and profitability of their businesses. Surprisingly, only 4 percent said they don’t feel well-prepared to respond to the opportunity. Daughenbaugh’s advice to producers: “Be proactive. Go around to professionals, such as attorneys and CPAs, and remind them that the income annuity could be an option for clients who want
Do MEDICAL
2012: DOOM OR BOOM? | FEATURE
guaranteed income. … Talk about it every day and you will make sales.” Another annuity product to consider is the annuity with long-term care. These products allow the client to use the annuity for income or for long-term care benefits if needed. “Only a few carriers currently offer these products,” says Dorrell of New Jersey, “but my clients love this and they are buying it like crazy.”
LOOK FOR STRATEGIES, TOO Other advisors recommend taking time to learn about new, or little-known, strategies. One example comes from Al Gray, financial services manager at Underwriters Marketing Service, Mt. Laurel, N.J. Gray says, if a client is worrying about volatility in stocks and mutual funds inside their employer’s 401(k) or profit sharing plan, consider recommending that the client take a non-hardship in-service withdrawal and then roll the withdrawal amount directly into a principal protected annuity inside an IRA. This way, the client’s money will be subject to less volatility (than if rolled into an IRA with mutual funds). And, since the rollover vehicle is an IRA, the client won’t be taxed at time of rollover, he adds. But not all plans yet offer this option, he notes. When available, it allows employees to make withdrawals, for any reason, while still employed and contributing to the plan, even before age 59.5. If a plan does not yet offer the option, a producer can recommend the employer add it with a simple amendment, says Gray. That will increase opportunities to reposition assets, which has a lot of appeal in the small employer market. Silverman of Miami offers another strategy to consider. This one straddles two generations, using annuities, life insurance and Roth IRAs. The example he gives is of a woman with $1 million in a qualified annuity IRA that is paying out $50,000 a
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year in guaranteed income which she does not need. “The woman pays taxes on the annual payouts and uses the remaining $35,000 per year to buy the most life insurance she can get,” he says. “When the woman dies, the annuity is converted to a Roth IRA for the daughter. The woman’s life insurance pays the taxes due on the conversion. The daughter can now take income from the Roth tax free over her lifetime.”
BECOME A TRUSTED ADVISOR Bachrach thinks many agents can get a leg up on 2012 by moving their practice
away from a product-focused transaction model and more towards a comprehensive financial service advisor model. “There is nothing ethically wrong with selling and being closely identified with a product,” such as life insurance or annuities, he stresses. But the product-focused model exposes advisors to “the winds,” he says. For instance, if the estate tax were to go away, what would happen to a life insurance agent who specializes in covering the estate tax exposure? A more effective business model, Bachrach contends, is to move towards becoming the clients’ trusted advisor. “Treat ‘advice’ as the product,” he
suggests, and set up a plan to earn a predictable minimum recurring revenue stream from providing this advice, regardless of what happens in the environment. “This is a way to recession-proof the practice,” he says, and it’s a better value proposition. Is that too big of a hassle? Bachrach asks rhetorically. “With all due respect, fine. But don’t be surprised if you get jerked around by external events such as tax code changes and market conditions.” Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.
Roughly 90 percent* of life and annuity producers say that competitive products, customer service support and new business processing are extremely or very important to the success of their business, according to a new survey from Deloitte. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
90% Competitive Products 89% Customer Service Support 87% New Business Prospecting 83% Sales Support 76% Planning Tools 74% Compliance Support 73% Competitive Producer Compensation 66% Training, Development and Coaching 64% Leads/Marketing Support 61% Non-client Facing Technology 55% Client Facing Technology 45% Succession Planning Support * Percent of surveyed life and annuity producers who identified these as factors that affect their business success. Source: Data extrapolated from the “Deloitte Producer Satisfaction Survey, September 2010,” published in November 2011 by Deloitte Consulting LLP, a subsidiary of Deloitte LLP. The survey sampled views of almost 650 life and annuity producers. 22
InsuranceNewsNet Magazine
January 2012
100%
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[ LIFEWIRES] The Star Keeps Rising For Whole Life
open, right alongside the online option. Either way, the coverage is underwritten.
10
HARTFORD REVERSES LIFE SALES PROCESS
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The biggest driver of individual life insur% ance growth in 3Q was whole life (WL), WHOLE LIFE according to LIMRA. And, get this: WL premiums jumped 10 percent, both for the TOTAL LIFE quarter and year-to-date (YTD). LIMRA says it’s the only product to produce posiSOURCE: LIMRA, Year-Over-Year tive growth in each of the past five years and through the first nine months of 2011. What’s more, WL policy count was up, too—5 percent for the quarter and 6 percent YTD. By comparison, total individual life premiums grew just 6 percent in 3Q and 5 percent YTD. And, the total policy count was up just 2 percent for the quarter and 2 percent YTD. Why’s WL so hot? The product is “likely benefiting from premium and cash-value guarantees along with lifetime coverage,” suggests Ashley Durham, LIMRA senior research analyst. Those are leading concerns for buyers today, especially in view of the prevailing economic uncertainty, she says. So, if customers have guarantees on the mind, try floating the whole life idea in front of them. That goes for producers of stock and mutual insurance companies. The mutuals are still the industry’s WL sales leaders, accounting for more than half of new WL premium, according to LIMRA. But the researcher says, the stock companies are moving up on the WL score charts, too—WL sales are up 11 percent. And, by the way, independent producers sold 18 percent more WL premium in the first nine months of 2011 than during the same time the previous year.
CHALLENGES AHEAD
That’s the life and annuity industry outlook profile for 2012 from Ernst & Young’s (E&Y’s) Global Insurance Center U.S. Outlook. Carriers will be challenged to find ways to manage capital and risk amid economic and political uncertainty, low interest rates and volatile equities markets, the New York firm says. And about those low interest rates, E&Y is predicting that rates should stay low until at least 2013. That will hamper efforts to increase sales of universal life insurance and fixed annuities, the firm continues. Such a scenario may not be music to an individual producer’s ear, but E&Y does offer one possible reprieve on the rate front. “While interest rates are likely to remain low through 2013, they could climb rapidly after the Federal Reserve’s Treasuries buying spree comes to an end,” says Doug French, 24
InsuranceNewsNet Magazine
January 2012
financial services and insurance and actuarial advisory services leader at E&Y LLP (U.S.). But don’t hold your breath because no one knows when that might happen.
LOOK WHO’S ENTERED ONLINE SALES
Two life insurance units of Allstate have joined the handful of U.S. carriers now offering an online “quote-and-buy” option for life insurance. The company says that customers who view a quote for its TrueTerm policy on its website can do one of two things: click further to fill out a simplified application and purchase the policy, subject to approval by Allstate; or take the application to an Allstate agency to complete the purchase. It also offers an option to talk to a local Allstate agent. So it looks as if the carrier is keeping on-ground distribution options
The Hartford says it can deliver permanent life insurance to consumers in just five days as opposed to the industry average of 48 days. The carrier says it is using a patent pending sales approach called Issue First. This approach reverses the traditional issue process order by asking the consumer eight critical questions up front, before completing normal underwriting. Customers who can honestly affirm all eight questions receive coverage on the spot that cannot be revoked because of an unforeseen medical condition, the carrier says. Only then does full underwriting start. And how does that affect sales? In a pilot test last year, more than 90 percent of applicants using this process bought the policy, the rollout announcement says. “That compares with just 68 percent who purchased a policy using the traditional selling approach.”
N.Y. REVIEWING MORE POLICY CLAIMS PAYMENTS
Life insurers doing business in New York have paid $52.6 million to almost 8,000 life insurance beneficiaries following the state’s requirement that carriers match life policies against the U.S. Social Security Administration’s Death Master File to find benefits due but not yet paid. “That is just the beginning,” said Benjamin M. Lawsky, superintendent of the N.Y. Department of Financial Services, in commenting on the first month of the matching program. Claims processing for payments to 27,889 other matches are still in process, the department reports. Plus, carriers have reported finding 2.68 million initial matches after cross-checking approximately 79.22 million policy records against death data, the department says. But while some of those matches were found invalid and eliminated, there were still 950,000 initial matches needing further checking for validity. The largest benefit payment made so far is $673,485 (Not exactly chump change).
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YOU’RE WIDE OPEN Insurance producers can catch the business financial advisors miss BY KEVIN KIMBROUGH
A
re you still using the same phone or computer you had five years ago? Chances are, however, you’ve updated your electronics to ones that can do much more than they could a few years ago. While it might not be quite as dramatic, life insurance products have also advanced significantly and offer more flexibility and features that address the needs of clients today. For example, long-term care (LTC) riders, which were not widely available a decade ago, are now a popular alternative to standalone policies. With the availability of new and more versatile products and the huge boomer population offering a receptive market, life insurance agents have a great opportunity to update prospects and clients on innovations. Agents are likely to be the primary—or only—source of this information. Just under half of adults with a financial plan have discussed life insurance with their financial advisor, according to a survey conducted by Saybrus Partners. Among these, just under a quarter (24 percent) said their advisor had recommended adding life insurance. Fifteen percent of those who spoke to their advisors did so more than 10 years ago. Significantly, even those with life insurance are eager to learn more. More than four out of five (83 percent) said they would be interested in adding additional features to their existing policies such as coverage for LTC needs, a feature 26
InsuranceNewsNet Magazine
January 2012
that would allow them to receive a life insurance payout if they were diagnosed with a terminal disease or a waiver of premium payments if they became disabled. Only 10 percent said their advisors recommended LTCi. They also appreciate the value of life insurance itself. Of those surveyed who had life insurance, 81 percent said the primary reason they had it was to protect their family and heirs. Only 17 percent said it was for wealth transfer and 15 percent cited cash accumulation. The survey, which was conducted in July 2011 by Harris Interactive, polled 2,410 adults, 786 of whom had a financial advisor. Life insurance can be a solution to some of today’s biggest challenges: providing financial protection, tax efficiency, potential for cash accumulation, wealth transfer advantages and many more. Guaranteed death benefits, downside protection (but the potential for upside gain) and LTC riders are all attractive now. With the financial markets in turmoil, people value a non-correlated asset such as life insurance with a guaranteed death benefit. An LTC rider can help address the common fear that a LTC event could devastate a person’s finances and make it difficult to get needed care. With expanded insurance options— combined with changes in the macroenvironment, such as new tax laws and very low interest rates—agents are in a perfect position to open the life
insurance conversation with their clients. The following three strategies can help them better serve their clients and expand sales.
Assess the needs of the individual and family. Whether agents are working with prospects or clients, it’s essential to understand their current and future goals. Are they still in their prime earning years and interested in wealth accumulation or are they retired and seeking wealth protection or a tax-efficient way to leave an inheritance? Perhaps, they’re worried about outliving their assets. Each person’s situation is unique and being a careful listener and probing for information will provide the agent with valuable information. Once agents are familiar with their clients’ goals, family dynamics and resources, they can “solve for the need” with appropriate life insurance products.
Update the policy to be sure it meets current needs and performance expectations. An annual review is critical. It’s not uncommon for people to buy a policy, stick it in a drawer and not think about it again—sometimes for decades. This “set it and forget it” practice can result in serious consequences and unwelcome surprises. The policy may be underfunded or it could be in danger of lapsing. It could fail to meet the policyholder’s current needs or have the wrong
YOU’RE WIDE OPEN | LIFE
beneficiary—such as a former spouse, rather than a current one. The policyholder’s employment or health situation may have changed. The policy may also be vastly underperforming. Many people who bought variable life insurance policies 10 or 15 years ago were expecting market returns of 8, 10 or even 12 percent. Clearly, those polices have not been performing as expected. Similarly, many fixed interest rate policies that adjust periodically based on interest rate assumptions have been
Typically, their income is secure and they’re concer ned pr i ma rily with wealth protection and transfer. Agents may find that these wealthy families can take underutilized or under-performing assets and convert them to a permanent life insurance policy, often with the added advantage of
OPPORTUNITY STATS FINANCIAL ADVISORS
Match the client with the right policy. While many people could benefit from life insurance, there are specific categories of clients that provide clear opportunities. WEALTHY FAMILIES: The first is wealthy families where the older generation has retired or is nearing retirement.
Are interested in adding features such as LTCi
Want it to protect their family
83%
81%
Never reviewed existing life insurance Recommended adding life insurance
47% battered by the prolonged low-rate environment. While inertia is one reason people don’t revisit policies, they may also assume that since they bought the policy when they were younger, making any changes could be costly. In fact, with an infusion of cash from the original policy, updating it could save the client money or provide enhanced coverage—such as an additional death benefit or LTC rider, at little or no additional cost. Of course, deteriorating health or other negative factors may mean the holder’s current, locked-in policy offers the best coverage at the best price. Another important question to consider as part of the review is whether the policyholder has used the cash value and accumulation capabilities of the policy to the fullest. The review should also include the tax ramifications of any strategy.
CLIENTS WITH LIFE INSURANCE
24%
Recommended LTCi
10%
SOURCE: Harris Interactive survey, July 2011
a LTC rider. This strateg y helps secure their wealth and makes it possible to pass on their assets to heirs in a tax-advantaged way, as well as assuring their long-term security if they need care. BUSINESS OWNERS: Business owners often use life insurance for succession planning, among other uses. Partners can take out life insurance policies on each other. If one dies, the other can use the proceeds to keep the business running. A business owner may also want to pass the business to a designated heir. In that case, the heir is named as the beneficiary and can use the proceeds to buy all or part of the business. Business owners also may have a need for key person insurance. HIGH-INCOME EARNERS: The third category of likely life insurance buyers includes individuals who are still in their prime earning years and want to make sure their family has financial
security if they die. They may also be looking for a tax-efficient way to set aside money for retirement, having possibly maxed out their Roth, 401(k) or similar plans. An indexed universal life policy with
a guaranteed death benefit and downside protection could be a good choice for these highincome earners. Policyholders can later withdraw the cash value tax-free for planned or unforeseen events. A current, tailored life insurance policy can offer major benefits to people at all stages of life. Significant product innovations have made life insurance more versatile than ever. Insurance agents, with their up-to-the-minute knowledge, are their clients’ most important resource and advocate.
Kevin Kimbrough, CLU, is a principal at Saybrus Partners, where he manages Saybrus’ sales training and advanced planning teams, business development functions and external sales force. He can be reached at kevin.kimbrough@innfeedback.com.
January 2012
InsuranceNewsNet Magazine
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SIFTING HARD-EARNED GOLD FROM EXPERIENCE LEARNING In HOW TO By Brad Elman
STRIKE IT RICH BY DOING THE RIGHT THING, FINDING THE RIGHT BALANCE 28
InsuranceNewsNet Magazine
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the 25 years since I started my career in the life insurance business, I have learned a lot about human nature, running a business and myself. Upon reflection, a number of lessons have led to a balanced and productive career, including 20 years of MDRT qualification and 10 years of Court of the Table. Here is a brief summary of the lessons that have helped me during my first 25 years in the business. Some of these are old chestnuts that developed real meaning for me through experience.
If it were as easy as you wanted it to be, it wouldn’t pay well. Each year, thousands of fifth-grade children in the San Francisco Bay area take a field trip to the Eastern Sierra where gold was first discovered in 1849. They learn about the men who came to seek their fortunes panning in the fast moving run-off from the melting snow pack. Every day, the ‘49ers would wade into the freezing rivers, sifting through tons of granite and quartz looking for a small nugget or two of gold. Needless to say, if gold were plentiful and easy to find, its value would be low. The life insurance business, like the gold-panning business, often requires that you do difficult or unpleasant tasks that not everyone is able or willing to do. Develop a process in your practice to “sift the rocks” and the gold will come.
SIFTING HARD-EARNED GOLD FROM EXPERIENCE | LIFE
It feels personal, but it’s not. If your girlfriend or boyfriend breaks up with you, it’s rejection. If your dog doesn’t greet you at the front door, it’s personal. But if a stranger doesn’t want to meet when you call him or her out of the blue to talk about life insurance, that’s not rejection and it’s definitely not personal, so let it go! Very few people like talking to strangers, and even fewer want to talk to them about highly personal matters. If a car mechanic called you at home in the evening and asked if he could come by and tune up your car, you would probably resist. Not because you had a personal dislike for the mechanic, but rather you just didn’t want to be bothered. It’s not personal. Rejection is just part of the process (at least early in your career), so think of yourself as a ‘49er and dig your pan back into the river to try again. As an aside, the good miners knew which rivers were best, and what part of the best rivers was most likely to lead to gold. You can significantly reduce your prospecting efforts by developing referral relationships, focusing on markets that are more likely to need your help.
Someone to run with. My dad once pointed out that everyone in the workplace is an example of something. If you see people who are successful, copy what they do. If you see someone who is less successful than you want to be, consider what that person is not doing that might be holding them back. You can learn from all examples. Everyone in the financial services business today had a first year in the business. In the beginning, it helps to have someone to share experiences with. I have had great friends in my office from the very beginning of my career and I still talk to them daily or weekly to share victories and vent about challenges.
Your prospective clients will mirror your sense of urgency. If you are late to meetings, your clients will think the meeting isn’t important to you. And if the clients think the meeting isn’t important to you, then they aren’t likely to feel it’s important either. If you
are slow to send a form out, the client will be slow to send it back. If you take a long time to order an exam, a client will be slow in getting it done. Clients will mirror your sense of urgency. We send everything to our clients through Fed Ex with a prepaid Fed Ex return slip. I get every piece of paperwork back in two days. Your client’s financial well being is important. Show a sense of urgency and your client will, too.
The financial services career is so much more than financial services.
People love to buy and hate to be sold.
Coaching my kids’ sports teams in the afternoon.
Our profession has too many acronyms, too much jargon and too much sales language. Words matter, so use them carefully. Never call an unassigned policy owner an orphan, never close someone, never handle objections, never call someone a prospect, and never tell a client you want to do a fact finder on them. We call unassigned policy owners clients; we find they like that better than orphans. We don’t close, we help our clients find solutions to their complex financial situations. We don’t handle objections. If a client isn’t ready to implement a solution to a problem, most often it’s because the client doesn’t understand something. We never call prospective clients prospects, and when we do get the opportunity to sit down and find out about their current financial situation and their goals and objectives, we call it a meeting to find out about their current financial situation, and their goals and objectives, not a fact-finder. Lastly, and most importantly, we never sell insurance; we help our clients buy it.
If you want your practice to run like a business, you need to run it like one. The transition from sole practitioner to business owner is a huge one—even if it’s only a mental shift. Think about how you would advise someone who wanted to start and run a financial services business. Make a list of all the things you would tell them to do. And then, make sure you are doing them, too. Stated differently, write a business plan.
I love the opportunity to help my clients with their financial needs, but many of my favorite things about the business are unrelated to financial services, such as: Having breakfast with my family every morning and dinner with them every night.
Never missing any of their games, plays, meets or recitals. Volunteering in the community, followed closely by volunteering within our profession.
Don’t forget those who matter most. My wife Julia has raised two amazing sons and made a career out of caring for our family. This is not an easy job to do well. She does it with total selflessness and grace. There is no ribbon or award to mark her accomplishments. There are no trophies or banquets in her honor. No one is asking her to write articles or give speeches or to be on television. But every day she cares for our family as if it’s the most important thing in the world. And, because of her, it is. Hold close those who matter most, because none of “it” is worth it without them.
Brad Elman, CLU, is a financial representative of The Northwestern Mutual Life Insurance Co. Brad’s practice focuses on helping closely held businesses with their employee benefits and business continuation strategies. Brad’s office is in Los Altos, California, and he can be reached at 650-209-5743 or Brad.Elman@innfeedback.com.
[ ANNUITY WIRES] Annuity Buyers Still Going for Guarantees
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3
%
Income Annuity Sales Year-to-Date
Fixed Annuity
Third-quarter 2011 annuity sales statistics have Sales hit the streets, and while the figures aren’t all up or all down, together they suggest that consumers are still hot on the trail of guarantees. Consider this: year-to-date (YTD) fixed annuity sales fell 1 percent, to $58.3 billion, compared to last year, according to Beacon Research. But, look at how it played out … There were only “small declines” in YTD indexed annuities (down 1 percent to $24.6 billion) and fixed rate non-MVAs (down 1 percent YTD to $23.2 billion). But income annuity sales actually increased, by 3 percent, to $6.3 billion. If it weren’t for a 15 percent drop in fixed rate MVA results, that 1 percent YTD loss might have been a YTD gain. Quarterly comparisons provide a sharper look. For instance, 3Q 2011 income annuity and indexed annuity sales were both up over 3Q last year by 5 and 0.4 percent, respectively. Indexed annuity sales were also up by 7 percent from 2Q, Beacon says. However, at $19 billion, total 3Q 2011 fixed annuity sales were 7 percent below results in both the year-ago and prior quarters. That’s not a clear shot to the moon, but the bright spots are clearly visible. “Many would predict that historically low rates on indexed annuities would be fodder for sales declines, but one should not underestimate the power of guaranteed lifetime income that the purchaser cannot outlive,” comments AnnuitySpecs.com President and CEO Sheryl J. Moore in a statement on her firm’s 3Q indexed annuity sales data. The 3Q numbers from AnnuitySpecs.com came in at $8.7 billion on an estimated basis —up by over 5 percent from 2Q 2011 and down less than 1 percent from the same period last year. “This was the second-highest quarter ever in terms of indexed annuity sales,” Moore says. She also points out that indexed annuities now account for one out of every two fixed annuity sales. As for variable annuity (VA) sales, LIMRA reports those sales reached $40.2 billion in 3Q 2011, up 16 percent from 3Q 2010. Although 3Q came in 2 percent lower than 2Q 2011, Joseph Montminy, assistant vice president for LIMRA annuity research, points out that those VA results were “significantly better” than the stock market, which was down 15 percent in the same period. He attributes the 3Q results to consumer demand for — guess what? Guaranteed lifetime income. When VA sales are measured on a net basis (total premium sales minus surrenders, withdrawals, inter/intra-company exchanges and benefit payments), 3Q sales totaled $8.8 billion, adds the Insured Retirement Institute (IRI), Washington. That’s the highest level in fourteen quarters, according to IRI. As for guarantees, over 60 percent of new VA sales include the lifetime guaranteed minimum withdrawal benefit feature, IRI says.
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InsuranceNewsNet Magazine January 2012
STILL LOOKING FOR VA OPPORTUNITIES AHEAD
Buzz is circulating about how some variable annuity carriers are throttling back their VA sales. Or they’re coming out with “sensible shoes”— i.e., VA structures built for the persistently volatile, uncertain and low interest rate environment. But it’s a mistake to think the carriers no longer are looking for annuity opportunities. For example, Genworth Financial, which announced early last year that it was stopping new sales of VAs, launched two fixed deferred indexed annuities just last month — a product suite “designed for consumers weary of investment volatility and eager to protect their money from unpredictable market fluctuations,” the company says. In the same month, The Hartford Financial Services Group — still a VA player but no longer the top seller—also launched two fixed indexed annuities. It was a move the carrier says is “part of a strategy to create an ‘all weather’ product portfolio to meet a wide range of consumer needs.” The Insured Retirement Institute (IRI), Washington, sees product movement on the VA side, even though VA filings “slowed significantly” in 3Q as compared to 2Q. More than one-third of 3Q 2011 filings represented either a new VA or a new VA benefit, IRI says, citing Morningstar data.
IN-PLAN ANNUITY EXPANSION
Prudential Retirement is flexing its inplan annuity muscle. The company has been offering a guaranteed minimum withdrawal benefit (GMWB), called IncomeFlex Target, for the defined contribution (DC) plan market for the past few years. The product provides a guaranteed lifetime income stream to plan participants who invest plan assets in certain target-date or life-cycle funds— like Prudential Retirement’s EasyPath funds and Goalmaker with IncomeFlex Target offerings. Now, the firm is making its GMWB available in DC plans that include target date funds from T. Rowe Price and
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Vanguard. Independent individual annuity professionals might consider this expansion to be ho-hum news for now, since most independent advisors do not deal with benefits plans or in-plan annuities. Still, it’s a heads-up. After all, chances are that clients will show up one day with an in-plan feature in their DC plan. And then the advisor will need to know what the features are and how to factor them into the client’s overall retirement plan.
NO KIDDING, VOLATILITY REALLY IS HAVING AN IMPACT
It’s not a figment of the imagination. Market volatility is definitely impacting the financial advisor’s practice around the country, according to Russell Investments. Sixty-three percent of 313 U.S. financial advisors —from national, regional and independent advisory firms — told the Seattle firm that market volatility has been a primary topic of client-initiated conversations in the three months prior to Oct. 31. As a result of recent volatility, advisors say they’ve been making increased outbound phone calls (78 percent), having more client meetings (52 percent) and receiving more inbound calls from clients (49 percent). Are advisors changing the portfolio mix, though? Not by much, apparently.
GETTING ON THE SMALL BUSINESS RADAR
Lincoln Financial Distributors, a Philadelphia subsidiary of Lincoln Financial Group, says it has started a strategic alliance for indexed annuity sales with Primerica, distributor of financial products to middle-income families. The pact is bound to affect sales if for no other reason than that the Primerica distribution channel is huge. Lincoln says approximately 82,000 of Primerica’s 92,000 licensed representatives will soon DID YOU
KNOW
?
[ ANNUITYWIRES] 2012: The Year for Annuities? Annuity carriers have unveiled new products over the course of 2011—but certain product lines got most of the attention while others fell flat. We are fresh into the New Year. And there’s no better time than now to reflect on what happened in 2011 to make 2012 even better. The best way to prepare for the future is by studying what happened before so you can either replicate the successes or avoid any failures from happening again.
So…what happened with new annuity products in 2011? 1. Hardly any rollouts of traditional fixed deferred annuities. No surprise there. Due to prolonged low interest rates, these products didn’t sell as well as in years past. That is because their interest rate advantage over bank certificates of deposit is slim. (A five-year fixed annuity may pay 1 percent or so higher, for instance.) 2. Lots of “tools.” A lot of carriers, in all product lines, have been providing web-based tools, training programs and services to help producers in one way or another. It’s not the same as offering a new product, but since the carriers say the tools should help increase efficiency, effectiveness and knowledge, producers who use them might see an impact on the bottom line. 3. A bashful group of variable annuities. Bashful because the products—either newbies or upgrades—that debuted were not show-stoppers. Some did include interesting subaccounts (including gold bullion, mortgage and exchange-traded funds) and share classes (I-share and O-share), but the lion’s share of the attention was on new or changed guaranteed living benefit (GLB) features. Customers really like the GLBs; some producers even say that VAs won’t sell without them. 4. Indexed annuities moving right ahead. That’s right. On the index side of the annuity house, product development was alive and well in 2011. Depending on the carrier, the products included designs with multiple index crediting options; living benefit guarantees; inflation features; designs for exclusive distribution; and various income riders. 5. Income products are getting ready. This says “income products,” not “income annuities,” because a lot of the development in this area involved GLB riders and options being added to VAs or indexed annuities, not income annuities as such. In addition, several players from the wirehouse/securities side of the financial business added income funds or options to their products to beef up their retirement solutions.
be able to offer Lincoln fixed indexed annuities. “Pre-selected” Primerica representatives are already out there offering the products and early next year, the alliance will go national, it adds. As might be expected, Lincoln says it is setting up a “dedicated Primerica team” to coordinate things on its side.
Visit AnnuityNews.com for exclusive sales ideas:
How to Escape ‘Annuicide’
By Sheryl Moore If your client is looking to avoid the handcuffs of annuitization or doesn’t appreciate the structure of an immediate annuity, try exploring GLWBs on fixed or indexed annuities... http://bit.ly/annuicide
Twenty-nine percent of pre-retirees and 35 percent of retirees believe they will live a very long time, with many expecting to make it into their 90s.
@AnnuityNews
Source: “The Age of Opportunity,” GfK Roper survey for The Hartford and MIT AgeLab
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BY LINDA KOCO
A
gents who don’t sell or know about annuities with market value adjustment features might want to start boning up on them now. That’s because carriers that don’t yet offer them on their annuities are scrambling to add them. A market value adjustment (MVA) is a provision in fixed annuities. It says that, if the policy owner surrenders the contract during the surrender charge period, the owner may get back less than the original amount invested if current interest rates are higher than the contract guaranteed rate. On the other hand, if current interest rates are lower than the original amount, the owner may get back more. “A lot of annuity carriers already have MVAs, but those that don’t are busy adding them to their products right now,” says Danny Fisher, president of the Fisher Agency, a Dallas brokerage general agency. One carrier he knows has been 32
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working on the approval in Texas for six months, and other carriers have had similar timelines.
Interest Rate Concern The carriers are persisting on securing MVA approvals largely because of concerns about the interest rate environment, Fisher says. Today’s fixed annuities are paying very low interest rates, he explains. But carriers are concerned that if rates go up substantially, today’s annuity owners may want to move their money out of existing policies with the low interest rates and into products that credit higher rates, Fisher says. The thinking is that the MVA adjustment will, in those circumstances, deter many policyowners from making those moves. If rates go up by a small amount, say to 4 percent from 3 percent, it is unlikely that many annuity owners will bother to move the money, Fisher allows. “It
would depend on where the owners are in their surrender charge period as well as on other factors,” he says. But if rates go up to 7 percent or 8 percent, a lot of annuity owners would want to move the money, he says. “The companies are tr y ing to protect themselves against that eventuality.” The MVA would work like a killer rate in such situations, because policy owners would need to pay not only the MVA but also the surrender charge, Fisher says. If an owner is, say, in the middle of the policy’s surrender period, the two charges together would likely cause most people to wait until the surrender period is over before surrendering the contract, he says. The MVA feature also makes a big difference in reserves, Fisher says, explaining that the reserves are “absolutely more favorable” on these products than on non-MVA annuities. The companies like that, he says.
ARE MVAS READY FOR A COMEBACK? | ANNUITIES
Competitive Rate Another factor is competitiveness. “The MVA enables the carrier to credit a slightly higher interest rate than comparable non-MVA products,” explains Judith Alexander, director of sales and marketing at Beacon Research. It is true that, in today’s low-interest rate environment, many annuity carriers do not want to write a lot of annuity business, so they are not all that concerned about offering the most competitive rates, Alexander says. “But other carriers do want to compete on rate in today’s environment. In fact, 43 percent of companies in the Beacon database did increase their fixed annuity sales in the third quarter. Some of these carriers want to be in the top quadrant in rates, and the MVA enables them to do that.” To i llustrate, A lexander shows some examples from her firm’s AnnuityNexus database. A multi-year guaranteed (CD-type) annuity with an MVA, written for a three-year interest period, could be crediting 1.129 percent interest today versus a fixed annuity with no MVA (a “non-MVA annuity”), which today would be crediting 1.05 percent. (See accompanying chart.) That’s a 0.79 percent uptick—or “MVA bonus”—to the policy owner who buys the MVA product, she says. Buyers who choose the eight-year MVA annuity would get an even larger bonus of nearly 1 percent. The MVA product would credit 2.071 percent interest, whereas the non-MVA annuity would credit only 1.112 percent. Overall, the MVA annuities have an average bonus to interest of 0.269 percent interest (roughly 27 basis points), Alexander says.
Low Rates Mean Low Sales, For Now Bonus notwithstanding, MVA products are not big sellers this year, because of low interest rates. The Beacon database says MVA fixed annuity sales are down 15 percent yearto-date, and down 33 percent in third quarter 2011 versus the same period last
year. The sales are even down by 15 percent compared to second quarter 2011. Numbers from LIMRA corroborate the trend. MVA annuity sales are down 33 percent in the third quarter, to $1.2 billion, and down 15 percent year to date, the Windsor, Conn. researcher reports. A lot of the time, the MVA sales track with overall fixed annuity sales, Alexander points out. And, because the MVA base is small, the percentage shifts tend to loom large. These factors may help explain some of the decline noted this year. In addition, she says, what is happening in the distribution channels can affect the sales trend. MVA annuities tend to be sold through marketing firms, such as brokerage general agents, independent marketing organizations, and broker/dealers (B/Ds), Alexander says. The biggest sellers in third quarter were the independent producers and marketing organizations, who took a 45 percent MVA market share. The B/Ds came in second with a 28 percent share
and banks were in third at 20 percent. There was a time, several years ago, that banks absolutely hated to sell MVA products, Alexander recalls. But they’ve changed their tune due to the economic downturn. In the first quarter of this year, their MVA market share was 28 percent. “I think the banks have found that customers are desperate for yield, even if it means taking an annuity with an MVA.” It’s not just banks. Fisher sees the same thing in his independent agency. He tells of a woman who just bought a five-year fixed annuity with an MVA that does not allow penalty-free withdrawals during the surrender charge period. He says he tried to talk her out of it, but she insisted. “She said she intends to keep the contract for the full period, and she doesn’t care about the liquidity. She wants the rate.” Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.
January 2012
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Build a Retirement Income Fortress for Your Clients BY DANIEL HERR
It
seems like every day a new headline adds to the pain that many clients are experiencing in retirement, especially those who are planning to retire. These articles trumpet the stock market’s stomachchurning volatility, stubbornly low interest rates, lengthening life expectancies and possible raging inflation because of the government debt and other reasons. No wonder there is a lot of wincing going on out there. People are unsure they even have a hope of being able to maintain the lifestyle they are accustomed to living. Even as far back as April 2010, the “EBRI Employee Retirement Confidence Survey” showed that only 20 percent of Americans report that they are “very confident” they will have enough money in retirement to last their lifetime. That number has probably dropped even further since then. Here is a short guide for understanding the pain clients are enduring and how a guaranteed income, such as annuities, can help them:
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MARKET VOLATILITY—No one can predict what the market will do or when it will do it. The market has experienced annual returns, ranging from increases of more than 50 percent to declines of 40 percent or more. Your clients’ income in retirement must be predictable and sustainable to remove the angst of having to drastically alter their lifestyle when markets are down. Making sure you’ve guaranteed that your clients will sustain a minimum level of lifetime income in retirement is critically important. Guaranteed income solutions will enable your clients to convert their accumulated retirement dollars into guaranteed lifetime income dollars, even long before they are ready to retire. INFLATION—Core expenses that cost $50,000 today will likely cost two or more times that in 20 to 25 years. People will need to work hard to maintain their purchasing power. The average annual inflation rate since 1980 is nearly 3.5 percent.
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If that continues, the costs for goods and services will double in 20 years, according to a June 2011 report from the U.S. Bureau of Labor Statistics. It’s important to plan for their income to keep up with inflation or buying power could erode over time. Guaranteed income solutions on variable annuities have the potential for growth. Clients are able to sustain and even have the potential to grow their guaranteed income, before and well into retirement. Your clients’ minimum level of income in retirement needs to be able to increase and lock-in growth in order to combat inflation. LONGEVITY—A retirement can last 20 to 30 years or more. One member of a 65-year-old couple today has a 50 percent chance of living to age 92 and a 25 percent chance of living to age 97, according to the Society of Actuaries 2000 Annuity Tables. Your clients’ income needs to be guaranteed to last as long as they do. Their worst fear is being in good health but having to drastically change their lifestyle to reduce their income needs in order to make their retirement nest egg last. Variable annuities with guaranteed income features can turn a portion of their assets into an income stream that is guaranteed to last the rest of their lives. HEALTH CARE—Everyone needs it, and it can be expensive—the costs are rising faster than inflation. Based on the findings in the January 2010, “LifePlans, Long-Term Care Market Summary,” conducted by Lincoln Financial Group, approximately 70 percent of Americans age 65 or older will need some type of long-term care in their lifetime. People need to consider the unexpected and protect their assets from being decimated by a critical healthcare event or the need for long-term assistance with activities of daily living. Changes in the tax law with the Pension Protection Act of 2006 now allow longterm care benefits to be made available within annuities, enabling your clients to protect their income against a future longterm care need with an annuity with long-term care coverage.
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TAXES—It can take a big bite out of their income. The top marginal tax bracket is currently 35 percent. And that’s only likely to go higher in the future—so minimizing their tax burden can help stretch their savings. For non-qualified accounts, there are variable annuities with guaranteed income solutions that qualify for the annuity tax-exclusion treatment, affording individuals additional tax advantages while keeping the control, access and flexibility that historically had been forfeited for such benefits.
Five Basic Steps
Annuities with guaranteed income features have been helping individuals find security in protecting their lifestyle in retirement for more than a decade. When these various innovations first came to market, they filled a need to help clients accumulate, protect and provide for guaranteed retirement income. Over the years, these offerings have evolved to solutions that allow for control and access to assets while providing a lifetime income with protection from inflation and longevity, nursing home benefits, flexibility and tax-efficiencies. Providers are offering guaranteed income solutions that don’t require your clients to give up total asset control. These solutions offer equity exposure to provide growth potential, while providing an effective hedge against inflation (although it should be noted that providers may have restrictions on the percent of equity exposure allowed with guaranteed income solutions). Clients retain control and access to assets—even after income is drawn—while mitigating longevity risk through a guaranteed lifetime income stream. Additionally, more customized income features provide minimum income guarantees, but also provide for better upside potential for the income. This benefit can be even more important as today’s retirement accounts may be lower due to the fluctuating market. Keep in mind, there are costs associated with these features, but the value is there for those who need this type of protection.
3 Weigh the costs associated with these guarantees against the benefits they offer.
The market is now so cluttered with information about guaranteed income features in variable annuities that it can be overwhelming and confusing for clients. Take the time with them to understand five basic steps: 1 Learn about the core value that these solutions can bring. 2 Understand the basics of how all of the features work so clients can get the most out of these solutions as they continue to evolve.
4 Understand which of your clients can benefit the most from a guaranteed income solution that can help maintain their lifestyle through retirement. 5 Recognize that a valuable benefit of a variable annuity lies in the strength of its investment line-up and the potential for their assets and income to grow.
Other Considerations
When talking with your clients about guaranteed income solutions, go over some additional considerations they need to be aware of: // Discuss the importance of finding an insurance company with a history of financial strength. // Have clients read the product prospectus before investing in any variable annuity with a guaranteed income rider. // Make sure they understand the expenses, commissions, applicable fees and surrender charges.
Daniel Herr is vice president, product research & development, retirement solutions, Lincoln Financial Group. He can be reached at Daniel.Herr@ innfeedback.com.
XXX | ANNUITIES
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InsuranceNewsNet Magazine
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[ HEALTHWIRES]
Couldn’t understand...
32%
SOURC
Adults Need Some Basic 30% Health Difference between plans Insurance (such as PPOs and HMOs) Education
E: Aetna
Plan’s total cost
26%
24%
More than half of insured adults are confused about choosing a health insurance plan, Which providers are “in-network” If referrals are needed according to Aetna. The carrier says a telephone survey, commissioned by the insurer in October, found that 32 percent of over 1,000 surveyed insured adults had trouble understanding the plan’s total cost (premiums plus out-of-pocket expenses). And 30 percent were stumped over grasping the differences between types of plans (such as PPOs and HMOs). Two other challenging areas for adults are: 1) understanding which providers are “innetwork” (26 percent), and 2) whether referrals are needed (24 percent). Aetna is responding to the concerns by offering a variety of online tools and resources. No doubt, savvy health insurance agents might want to touch on those critical areas while speaking with clients, too. Couldn’t hurt; but it just may help.
NO TELLING HOW THE SUPREME COURT WILL HANDLE ACA
By now, news has been widely circulated that the U.S. Supreme Court has agreed to review and rule on the constitutionality of the Affordable Care Act (ACA). That review will look at whether the federal government has the power to mandate that Americans buy health insurance. Many Washington wags are expecting a ruling before this summer’s Congressional recess, and certainly before the November elections. But here are a couple of things about that agreement that are not widely known. First, the nation’s high court is planning to hear more than five hours of argument. That’s “unprecedented in modern times,” according to an Associated Press report, which points out that the justices normally allow only one hour. That is surely an indication of the importance that the court is putting on the case. Second, the justices “left themselves an opening to defer the outcome if they choose,” as AP puts it. They did this by requesting arguments on an appellate court ruling in Richmond, Va., which said that a decision on ACA must wait until 2015, after 38
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January 2012
the ACA’s penalties for not having insurance have gone into effect. Put those things together, and it’s clear that what the high court will do with this case is basically not clear at all.
NAIFA PUTS NUMBERS ON MLR HIT TO AGENTS
Eighty percent of health insurance agents and brokers have seen their commissions drop since the new medical loss ratio (MLR) rule went into effect last January, according to a survey by the National Association of Insurance and Financial Advisors (NAIFA). The MLR rule is a provision in the Affordable Care Act that requires insurers to spend at least 80 percent of individual and small group health premiums and 85 percent of large group premiums on medical or quality improvement expenses. Agent groups predicted that carriers would cut commissions in order to comply, and NAIFA’s survey numbers indicate that’s exactly what has happened. Fifty-two of the surveyed agents said their compensation has dropped by 25 percent or more. And an additional 12 percent said they’ve heard from carriers
that commissions will be going down in the near future, according to NAIFA. The survey covers 378 NAIFA members who sell health insurance. One out of five said they’ve had to lay off employees or reduce the hours of customer-support staff. Consumers aren’t faring any better, according to the survey. Ninety-four percent of the agents said client premiums either have gone up or are set to go up this year—while 22.4 percent said they’ve had to reduce customer service due to the lost compensation. Another 29 percent say their firms will cut back on customer service if their commissions remain depressed.
CDHPs ON THE RISE, BUT WITH MIXED RESULTS
Fifty-one percent of employers now offer a Consumer Driven Health Plan (CDHP), up from just 9 percent in 2005, according to a November report from Aon Hewitt, Lincolnshire, Ill. That could be a good thing or a bad thing, depending on how you look at it. On the plus side, perhaps, is that more employees are willing to try CDHPs if the immediate cost savings are apparent, says Aon Hewitt. [And employees with a choice do select a CDHP because of the lower premiums (63 percent) or because their employer contributes to an associated account, such as an HSA or HRA (39 percent), the firm says.] But there is a dark side to this bright moon of happiness. The survey found that, although 42 percent are getting more preventive care and 40 percent are looking for lower cost health services options since choosing their CDHPs, 35 percent say they are sacrificing care and 28 percent say they are postponing care, in order to avoid having to pay out-of-pocket costs. Here’s a suggestion from Aon Hewitt Managing Principal Cathy Tripp: “Employers need to make sure workers aren’t sacrificing health and the future costs of poor health for lower costs today. Giving employees the tools and advice to decide what is the most appropriate plan for them is critical.”
@InsNewsNet
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FIND THE KEY MAN AND UNLOCK A SUITE OF BUSINESS BY W. HAROLD PETERSEN
A
SIMPLE DIFFERENCE between a corporate key person and an industrial machine is that the person has a soul. The physical body has the disadvantage of having virtually no salvage value for its working parts. And on top of that, it must periodically halt production and rest in order to continue functioning. Both machines and bodies occasionally break down. It is important, however, to get them repaired quickly and back into production. Mechanics may charge a significant fee to fix a machine, but the human body is far more complex and replacement parts are not readily available. Therefore, we must hire the most expensive mechanics on Earth to get the body productive again. They are called Doctors. As a society, we have learned to fear the cost involved in this treatment. And, as a result, more than 85 percent of the American population has sought out insurance to help pay for these services. This is called Medical Insurance. Those who own production machines may insure against the costs or repairs, but are also likely to insure against the loss of production due to forces of nature that adversely affect the productivity of the machines. This is called Business Interruption Insurance. The loss created by fire, windstorm, flood or any other production interruptions may create a burdensome loss to the owners, but buildings can be rebuilt and machines can be repaired. The firm may experience interruption, but not necessarily destruction. The key people in the firm can recreate its mechanical facilities. The loss of a key person is of greater concern because within this person is the knowledge, experience and creativity that are the soul of the business. When accident or sickness affects the key person, repair may be impossible. Financial protection in case of such a dilemma is certainly just as logical as business interruption insurance. 40
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PROTECT THE PRODUCTION POWERHOUSE | HEALTH
This is called Key Person Disability Insurance. The key person at work, directing the productivity of the physical components of the business, leads to the venture’s success. The key person, disabled and ineffective, leads to the venture’s failure. Statistically, disability is the most likely peril that will negatively affect the venture (Acts of Nature — 1/1250 vs. Disability — 1/30).
Identifying a Key Person A definition of what constitutes a “key person” has evaded standardization over the 40-year plus evolution of business disability insurance. It is appropriate that this important coverage not be restricted by a tough, inflexible definition, for key persons come in many shapes and sizes. Most needs for key person indemnity are typically found in smaller-sized businesses or professional firms. Take this case for example: a recently insured law firm with 24 attorneys. If attorney No.6 failed to show up for work, the cases in progress would not stop but would be reassigned. If attorney No.6 happens to be the primary person
software system; an engineer holding a patent in which the financing company is investing millions of dollars; a farm manager who selects and retains productive workers; a television news anchor with a loyal following.
What’s at Stake? Beyond the recognition and indemnification of key persons comes the task of quantifying the potential damage to the firm in the event of the disablement of a key person. Our job as underwriters is to help brokers and their clients determine how much insurance is desired and justifiable. The yawning financial chasm created by the disablement of a key person is exacerbated by a number of negative forces that impact a firm’s profitability and possibly its mortality. Obvious is the loss of productivity, creativity, customer relations and supplier confidence. But overhead can also increase as temporary staff is hired, all while continuing to compensate the disabled key person for fear of losing a vital employee. Key person disabi lit y coverage should be established as indemnification to the firm by naming the
“Being disabled could ultimately ruin the years of hard work put into building their company.”
that develops new clients for the firm, the disablement of attorney No.6 could easily cause the firm’s collapse. Here are but a few examples of people who fit the description of key persons and whose disablement could inflict losses on the firm: a thoracic surgeon whose reputation attracts business to a medical group or hospital; a programmer who is developing an attractive
employer as the premium payer and the loss payee. Premiums are not deductible, but benefits are tax-free. Benefit durations should be kept to a reasonable term such as 12, 15, 18 or 24 months. Anything longer could be construed as a salary continuation plan. The firm would be expected to solve its loss of a key person in a reasonable amount of time by hiring and
training a replacement if the disability is one of a permanent nature.
A Value to Business Owners Key person disability plans can open doors to prospective business clients. As a component of business disability insurance, it contributes to the ultimate strategy that should be involved in any business’ financial planning—that of protection against disability by way of insurance. Owners or principals of a business are not excluded from qualifying as a key person. It is important to remind them that, while their personal income may be insured, the financial strain put on their business as a result of their being disabled could ultimately ruin the years of hard work put into building the company into what it currently is, or cripple its ability to reach its future goals. Other business disability insurance products include: • Business Overhead Expense • Buy/Sell • Buy-In • Loan Indemnification • Contract Guarantee • Severance Disability Gaining a foothold in the business disability insurance markets allows for vast earning potential because it can create leads in both the business markets and the individual markets. And, it can allow for agents to be of greater value to their clients. When one gains an understanding of business disability insurance products, it’s easy to see the need for them and the world of possibilities they create for building a business. W. Harold Petersen is a 63-year veteran in the insurance business. He founded the firm Petersen International Underwriters(PIU), which insures special risks using their proprietary disability, life, medical and contingency insurance plans for individuals, groups and businesses. For more information you may contact PIU at 800-345-8812 or WHarold. Petersen@innfeedback.com.
@InsNewsNet January 2012
InsuranceNewsNet Magazine
41
A
bi g n a me lives in your town, the t ype of client who could make your career. Maybe it’s a corporate “celebrity” or wealthy entrepreneur. You don’t know them or run in the same circles—so how do you get on their radar screen? You’ve taken the logical steps. You have written them an introductory, personalized letter as well as called their office and left polite messages. You’ve sent an occasional e-mail and never received a response. A pessimist would say: “Why bother? You don’t have a chance. Those people are already looked after.” But years ago, I heard an anecdotal story—I think it was about John D. Rockefeller. Someone approached him to buy insurance. He did. Later one of his friends approached him and said, “You know I sell insurance! Why didn’t you come to me?” And Rockefeller replied, “He asked.”
Background Research Do some background research and 42
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you’ll realize the way we communicate has changed. If you believe all the news stories, you’ll think everyone communicates by Facebook, e-mail, texting and an abundance of cell phone applications. Many people don’t even have a landline anymore and the post office is in trouble because people aren’t writing letters. Today, there is a colossal amount of information about a person available online. LinkedIn, Facebook and other websites can be a goldmine. Other sources even tell you where they attended college, charities they support and outside interests. You can find their photo so you recognize them in a crowded room and, most importantly, find people you know in common. The information is out there—honest, ethical people leave trails. They
are involved in the community. They win awards. Their children go to local schools. Very few people are vampires and get put into a box when their work is done. If that were the case, you’d have serious problems. Insuring the undead is tricky at best.
Someone You Know May Know Them Let’s assume you got lucky. A social networking website has identified people you know in common but your firm has compliance rules about communicating through these sites. So, use the old fashioned “call-them-up-and-talk-withyour-mutual-friend” approach. If you and the mutual connection are close, you might ask your friend to introduce you to the person you want to meet over dinner. Maybe they are having a party and could add you to the guest list. Or maybe your friend doesn’t know your ideal prospect that well. Well, how do they know them? Members of the same country club? Children attend
ON THE RADAR SCREEN | BUSINESS
the same school? Could they introduce you socially? But how do you ask your friend for the introduction? Saying, “If I could land this guy as a client it would make my career! Please introduce me,” is too direct. They see the risk in a business introduction that doesn’t work out. A more tactful approach would be, “This is the type of person I would like to know.” Or, “I may be able to help,” followed by, “would you introduce me socially?”
No One You Know Knows Them “Y. O. Y. O.” is an acronym for “You’re On Your Own.” If that describes you, go back to the background research. Have you tried these following techniques? • Send Hard-Card Seminar Invitations—They stand out. They look and feel different. People often open them, especially when neatly handaddressed. Even if they don’t attend, they see your name, topic and assume you have expertise in this area. • Hearing You Speak—You did research: do they belong to the Chamber, service club or professional association? From time-totime, do you present at meetings? A business topic is helpful but not critical. You want to establish yourself as a competent professional who clearly communicates. • Meeting Face-To-Face—Maybe they don’t belong to the Chamber. Perhaps they are a donor to the local museum, belong to your country club or attend services at the same religious organization. You share something in common. Walking up to the person and introducing yourself would not be out of place.
• Sideline Parents—Do your children go to the same school? Are they involved is sports or the performing arts? Your prospect may attend the same events. Your children may know theirs. This is an ideal opportunity to tactfully introduce yourself. A few complimentary words about their child should go over well.
Others Talk About You Let’s assume you’ve done the first three steps: letter, e-mail and phone message. Maybe they’ve heard you speak. They’ve gotten a seminar invitation. It’s possible they will approach someone in the community and ask, “What do you know about this guy?” W hat wou ld your f riends and acquaintances say? They probably won’t deliver your elevator speech. First, it would come across as canned. Second, if the person asked a technical followup question and your friend didn’t know the answer they would be certain it was canned. Ideally, you want your friend to tell them your profession, firm name and a few virtues. “He’s an insurance agent with (firm). Been doing it forever. Extremely ethical and honest. He’s true to his word.” A financial advisor in Northern California was contacted by a person who wanted to become a client and asked, “Why did you come to me?” The person replied, “I asked around. Your name is the only one that came up twice.” Obviously, if you did online research ahead of time to learn about them, they will probably return the favor.
Other Strategies To Get On the Radar Let’s assume you’ve met and shaken hands. They’re not dumb. They realize
You need to touch a person at least SIX times before you get on their radar screen, meaning they recognize your name.
they’re a potential prospect; however, you’ve kept things social. Here are some additional ideas: • Clipped Articles—You know their personal and professional interests. An interesting article turns up. Clip it and send it with a note: “Thought you might find this interesting.” Or something similar your compliance officer would approve. The tactile feel of a clipped original article says, “Of all the people he could send this to, he chose me.” • Get Published—Many advisors have a hobby. It could be bicycle touring, travel or restoring an old house. Would your local paper be interested in a regular column? Although advisors are usually prevented from writing on financial subjects, non-business topics may be possible. Because of full disclosure, your article bio will probably list your name, profession, phone number and e-mail address. This positions you professionally while writing about an outside interest.
The Rationale for Cultivation Years ago I learned two valuable lessons in tactfully getting on the radar: 1. Six Is the Magic Number You need to touch a person at least six times before you get on their radar screen, meaning they recognize your name. 2. Find the Right Channel People have a preferred way of receiving information. Some send e-mails. Others make phone calls. There are a lot of options. Try three or four channels to learn which work best. Then, armed with that information, focus your efforts where you get the best response. Bryce Sanders is president of Perceptive Business Solutions. His book “Captivating the Wealthy Investor” is available on Amazon. com. He can be reached at Bryce. Sanders@innfeedback.com.
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THE ART OF CREATING A
BLENDED FINANCIAL PLAN BY BRIAN TARPEY
ood financial advisors help their clients diversify their holdings and explore alternative investments that might bump up the yield and spread the risk. But a great advisor will help clients see their “life picture” and fit their investing strategy to what they truly value. Financial planning, especially in regards to retirement, requires consistent evaluation and review. Investors should continually analyze how a portfolio is performing, making tweaks as necessary. Flexibility in investing is not only essential to the strength of one’s retirement portfolio, but also to the 44
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individual’s happiness and comfort. Before getting started, it’s critical that clients take the time to assess their current financial condition. When creating a financial plan, it’s important to set realistic goals that clients can achieve upon retirement. If clients need to adjust their savings and investment plans, always be sure they’re doing it for the right reasons—such as if you foresee a change in your clients’ long-term position.
What is a Diversified Portfolio? In its simplest form, financial diversification means reducing risk exposure
by investing in a variety of assets— it’s all about balance. A diversified portfolio includes assets with returns that do not correlate perfectly in sync. Diversification works best when the individual assets are reduced. This means that if an individual starts with a chunk of capital in one stock and then invests that same amount of collateral in another stock, they would actually be incurring more risk, not less. Think of it as spreading the “financial love” among investments that may rise and fall at different times. This, most importantly, helps avoid those hard hits that could hurt an entire portfolio.
THE ART OF CREATING A BLENDED FINANCIAL PLAN | FINANCIAL
Although you can always expect the market to rise and fall over the long term, stocks have considerably outperformed other asset classes. You can also try investing in something your client is passionate about. Unique, alternative investments are quickly becoming some of the most prominent and profitable assets in a retirement portfolio.
Sectors Identified As BEST CHANCE For BIGGEST GAINS In Following Year “PNC Wealth and Values Survey— Investors’ Outlook”– A survey conducted among a nationwide cross section of 1,105 adult millionaires.
54% 57% 49% 49%
44%
49%
2011 2010
Transforming Clients’ Passions into an Alternative Investment Alternative investments have made quite a mark in the wealth management world. These unique options stray from the three traditional asset types—stocks, bonds and cash. It’s important to remember that a blended financial plan goes beyond stocks, annuities and life insurance —which is why many of today’s investors are taking into consideration real estate and commodities such as gold and silver. Real estate especially offers opportunity for big gains, but investing in property is often a lot more complicated than investing in stocks or bonds. Clients can immerse themselves in real estate investment in many ways, such as real estate investment groups, real estate trading or simply investing in acres of land. Land is highly attractive for individuals looking for long-lived assets. And now is a good time to buy, as global demand is steadily increasing. There are land “classifications” as well, depending upon what you are looking for—farmland, timberland or better-use land, commonly used for development—have all seen the potential for value appreciation. Another alternative investment growing in clout is high-end collectibles. Collectibles are a physical asset that will appreciate in value over time and most often these assets are rare or coveted by niche groups. What are your clients passionate about? Do they enjoy fine wines? Consider investing in a winery or building a collection of distinct vintages that can increase in value over time. Are they lovers of antiques or classic art? Auctions occur all across the country and
19%
29%
21% 11%
11% 16% 7%
Technology
Energy/ Utilities
Health Care
Financial
many investors—both young and old— are using these as prime opportunities to turn something they love into a significant piece of financial security. Because the maturity for a collectible can vary widely, it makes the act of acquiring them that much more exciting and personal for the individual.
Invest Like a Pro in 2012 Although the unsteady economy over the past few years has left some weary of true investment, taking hold of financial planning now is the first step toward efficient wealth management. Many of our country’s wealthiest people aren’t letting the ups and downs of the economy scare them away from investing, according to the 2011 “PNC Wealth and Values Survey—Investors’ Outlook”. In fact, when the American millionaires surveyed were asked what changes they’ve made to their investments over the past three months, 69 percent said that they “left their investments largely as they were,” while 20 percent said they “moved money into cash or cash equivalents.” And, interestingly enough, another 8 percent said they “invested in gold.”
Socially Responsible/ Green Investments
Manufacturing
10%
Transportation
13% 7%
Retail
When these affluent investors were asked what sectors they expected to see the biggest gains over the next year, the top three stocks remained the same as those identified to be the best the year prior: technology, energy/utilities and health care. While at the same time, on a year-to-year basis, the retail and socially responsible/green sectors lost the most investor interest. Clearly, advisors have many options for customizing a client’s portfolio. Being flexible and continually evaluating how the investments are performing, however, are crucial to turning a client’s passion into a sound investment strategy that paints a promising financial future. And, remember, the most important aspect of effective wealth management is to craft portfolios that complement each client’s unique life picture.
Brian Tarpey, president of The Tarpey Group, is a widely recognized insurance and financial professional, having been awarded Top of the Table honors by the MDRT. He can be reached at Brian.Tarpey@innfeedback.com.
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PERSPECTIVES | WITH KEVIN MCCARTY
New NAIC Chair Takes Tough Annuity Stance Kevin M. McCarty faces a challenging year as he takes over as president of the National Association of Insurance Commissioners (NAIC) this month. Among the many issues the NAIC is dealing with, it is also trying to preserve state-based regulation itself, amid growing demands for a national system. McCarty is the insurance commissioner of Florida, which has become known for high-profile legislation and regulation of annuities. In this interview, he discusses the NAIC’s challenges and whether rules should get even tighter for annuities. INN: What do you see as the biggest challenge for the NAIC next year? McCARTY: The NAIC is at a crossroads, not only as a national standard-setter of solvency regulations, but also in international standards as we move to more global participation. I think with those activities, the financial stability board and the concern about cross-border and crosssector companies, the NAIC is going to play a bigger role in establishing standards for internationally active groups. INN: Do you think that it’s going to be more difficult for life insurance agents to operate without a securities license? McCARTY: There’s such a huge array of products out there today that in order to provide the full menu of options you’re going to need to have a securities license, especially if you want to sell certain variable products. There may be a lot of agents who believe that there are enough products on the menu that they can sell with their insurance license. But, it seems to me, the product lines are so diverse that it may behoove you to have a securities license. INN: Do you foresee fiduciary standards superseding suitability standards at some point, requiring a securities license? McCARTY: I don’t think so. Congress has been fairly clear about the role of the states in the sale of annuity products. There is some cross-over with federal regulation 46
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and state regulation with some products, but I don’t think we’re concerned with any encroachment in regard to that issue. INN: Do you see the optional federal charter coming up again? McCARTY: It’s clear that Congress has shown little interest in insurance issues after the passage of Dodd-Frank (financial reform regulation). Dodd-Frank is extremely circumspect with regard to insurance. The global meltdown in 20072008 was primarily a bank-centric problem and that was basis for regulation. There is always going to be a contingent that thinks an optional federal charter will be more efficient for their purposes. But efficiency does not necessarily lead to quality regulation. You can be efficient and that leads to a bad outcome. Certainly a single regulator in some European countries has been efficient, but we can also see from the outcomes that it has not necessarily been effective. INN: Some critics point out that states haven’t been able to get together on uniform standards, such as the Interstate Compact [an agreement between states to adopt uniform standards]. Many key states, including Florida, haven’t signed onto it and critics say, well, here’s a case where the NAIC can’t get its act together. McCARTY: I’m not so sure I would agree
with that. I do think there’s a tradeoff. We can strive for efficiency but I don’t know how important it is to get to total uniformity. I’m not so sure that total uniformity is necessarily desirable. There are wide variables in a large nation with diverse populations and diverse products and standards. The interstate compact has been a huge success in the number of states that have joined and there has certainly been a significant increase of participation by the insurance industry with regards to that. But Florida has been part of a memorandum of understanding (MOU) and has been doing a multiple state review process and included in that is California so the companies that wanted to do filings could do them through our system and get approved in five or six other jurisdictions. We have some prohibitions in joining the Compact. We had some issues with delegation of authority and privacy in dealing with our public records exception. We’re looking into joining and I know other states are as well. But there are large states that are in the Compact and we anticipate that will continue to grow with regard to products. With regard to other issues, I’m not so
WITH KEVIN MCCARTY | PERSPECTIVES sure that we haven’t made sufficient strides in that regard as well.
by 2013, as was required by the Harkin Amendment?
INN: Some insurance agents who sell annuities undoubtedly look to Florida as a state that’s been pretty tough on annuity producers, so they might anticipate your chairmanship with some trepidation.
McCARTY: That again is an area that’s going to require a focus and concentration of effort by the NAIC leadership team. We see this as where we need to be more assertive in ensuring that there are suitable sales and there are appropriate protocols in the states. Does it have to be absolutely identical from state to state? I don’t think so. I think there are varying degrees of enforcement that can be tailored with regard to a specific marketplace in that area. But I do think that we have a commitment to step up our efforts to get a version of the suitability law passed in every jurisdiction.
McCARTY: I don’t know why. Florida certainly has a reputation of being open for business. I mean we’re also a state that has been subject to a great deal of abuse, particularly of our seniors in a very small subset of agents who have taken advantage of the lucrative marketplace in Florida. And we tend to look very harshly on those who take advantage of our seniors. Having said that, I think the overwhelming majority of agents are of good character and have the best interest of their policy holders in mind and Florida remains a robust, competitive marketplace. And it is certainly one of the largest markets in the country for life and annuities. INN: Do you think the annuity suitability model will be adopted by all states
INN: Do you see a need to strengthen annuity oversight even further than that? McCARTY: Well, I have to tell you, we’ve seen over the years a number of companies’ sales abuse. We’re looking critically as to what we can do in our state. Let’s just say that more needs to be done and tighter regulation, tighter laws may be necessary
to protect our consumers, but I think we need to strike a careful balance so that we make sure we’re not overly burdensome and, at the same time don’t stifle the creation of new products and the entry of new products in the commerce stream. INN: What do you see that needs tighter oversight? McCARTY: Our concern is primarily with what we sometimes see as abuse of our senior population. We have special sensitivity to that in our marketplace and we continue to look at that to ensure our seniors are properly protected. Over the years, through our market conduct investigations, we have come across a number of cases where sales were not suitable. And we think that the more that we do to encourage suitable sales, the better off we are. That goes to our agent community in terms of their training and education and also getting our insurance industry to provide the best products, at the best prices to their policyholders. If you have questions or comments, Kevin can be reached at Kevin.McCarty@innfeedback.com.
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EXECUTIVE SUMMARY: THE LATEST ON Insights on Marketing and Distribution Topics from NAILBA 30 | By Robert Billingham The National Association of Independent Life Brokerage Agencies (NAILBA) annual meeting is always the must-attend event of the year for top companies and distributors. We took the opportunity to sit down with some influential people for the latest news about products and issues that producers should be aware of. In these interviews, these experts discussed not only these subjects but some also threw in some pretty interesting sales strategies.
worked well for our producers. The concept allows couples to retain ownership of the policy until the first person’s death and then transfer the policy into a trust to keep the life insurance protection in place. This avoids having substantial wealth tied up in an irrevocable trust if the estate tax laws change before the first death.
Michael Herron
Executive Vice President, AXA Equitable Our best-selling product is our new indexed universal life product. Through the third quarter of 2011, we catapulted to the third largest writer of indexed UL in the industry. Simplicity is the key to the success. We studied the market and found a hesitation around indexed UL because it can be complex. So, our product is simple in design and approach and it has been received quite well. Is fee-based compensation inevitable over commission-based? Well, you can take fee-based trail or levelized commissions for example. The market today generally sells “heaped” commissions. By moving to either fee-based (RIAs) or levelized commissions similar to P/C, there are advantages for the producer – a constant stream of income, advantages to customers through different cost structures and companies can manage capital better. The challenge is getting producers to migrate to fee-based planning. If they are in growth mode where they need cash flow, transitioning to fee-based becomes very difficult.
Senior Vice President, Marsh Private Client Life Insurance Services No-lapse UL has been our best-selling product. But, indexed products are becoming more relevant. Carriers don’t have the same type of booking requirements as they do with guaranteed products. What’s fascinating is that linked, hybrid products (a UL chassis with LTC rider) have been creating a lot of interest as the awareness around LTC is increasing. Why is reaching the middle market a challenge? First, it’s an economic issue. Insurance is an important risk management tool. Somehow that gets lost in financial-planning translation. The challenge is emphasizing the importance of insurance versus it being a discretionary purchase. To date, products have been focused around concepts like estate planning. Fundamentally, however, the carriers really haven’t adapted to write products that attract the middle market. But we are seeing more movement here, whether it be guaranteed issue or simplified issue—in time, we will see even more of a move in that market. One issue the industry is seeing is a shift from no-lapse products to more current-assumption products, which has to do with reserving issues. At the end of the day, I don’t see no-lapse going away but it will become more expensive.
Benjamin Roth
National Sales Vice President, Minnesota Life Eclipse Indexed Universal Life has been popular with advisors because many clients looking for life insurance protection have concerns about protecting their cash value and they continue to shift away from the potential downside of the equity markets. Then there’s the upside opportunity with one of the highest indexed caps in the industry. But the client must understand the tradeoffs between the upside benefit and the downside protection. Also, our “Wait and See” estate-planning concept for high-net-worth couples has 48
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David O’Leary
Jeff Berson
President, ISN Network
One idea that has worked well for us is an annual review stamp that agents can customize with their name and date for each client letter. This makes the mailer timely and professional since it has their name customized. Here’s another innovative sales strategy that we do for agents and have seen a 10 percent response rate on a single mailer— we send out a popcorn bag with a “seminar disk.” The seminar disk is highly popular—we call it an “in-home movie.” It has an entertainment feel to it and we can track whether they’ve put the disk into their computer because it takes them to a website for more information. It essentially replaces an in-person seminar on indexed UL. Then the agent can follow-up with these warm leads with an appointment.
PRODUCTS AND INDUSTRY ISSUES Bill Levinson
Managing Partner, Cary Levinson and Associates
Our biggest products selling right now are ROP Term and our college scholarship program, as well as final expense. Basically it’s $60 per year with a free $40,000 college scholarship program—it’s a great door opener with clients. It’s a free 20-30 year term and the tuition is a great sell. One product that is getting a lot of attention is indexed UL, but it is challenging. A lot of agents are showing current interest rates at about double what today’s interest rate is paying. Clients can come back a year later and complain about the real rates. That’s why we prefer fixed UL, which emphasizes cash value accumulation and shows a more realistic interest rate. Why are we not hitting the middle market like we could? I think we are all guilty of not training agents to target the middle market—years ago that was the job of the captive agent, with training, etc. The industry is not training the agent enough. The best sales idea I’ve seen this year is a book handout. The field force purchases the books, and they use the book as a business card. They put their sticker inside the cover and give the book to clients as a business card. Agents can say to their prospects, “Here’s my card. Do me a favor, this book talks about preparing for the future, and it’s easy to understand. Take the book home, see what you think, I’ll call you in a week.” It works.
Bruce Burak
National Sales Manager, Foresters
Final Expense, a low-face, whole-life chassis product, has been our best seller. When you think of it, the fastest growing demographic is baby boomers and having this product earmarks it for their final plan. Really, it’s the simplest product from point A to issue. In response to the question of why producers are not penetrating the middle market—it’s education. We no longer have discussions about what we really need. When I was in the field, there was a perception that selling insurance was like selling cars. I would say: Let me ask you four questions: do you have car insurance? They’d say yes. Do you have renters/homeowners? They’d say yes. Do you have health care? Yes. Do you have life insurance? They’d say no. So let me get this straight—you have all these insurances but you don’t have life. Are you guaranteed to use car, or renters or homeowners? No. But you are guaranteed to use life insurance.” And with cost objections I say “can you look into your crystal ball— you know, whether it’s 10-30- or 50 years, you are going to need it.” Yes, times are tough. When people struggle, they look to cut
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costs. This may be an expense for them. They don’t want to get rid of it, but they just can’t afford it. One key idea when selling is: don’t change the product, change the packaging. Today’s successful agent is addressing issues across the board and selling to the need, customizing to the need.
IMPAIRMENTS
Pat Foley
for Life Insurance
Make Your Head Spin?
President of Distribution and Marketing, Genworth Financial Focused on the broad middle market, BreastinCancer with Lacunar Strokes our best-selling product the life insurNegative Receptors ance area is Colony Term Universal Life. EBCT Score in the Its appeal is the affordability and the proRegurgitation 95th Percentile cess—Life Quick Request. Cycle timesofare the Tricuspid Valve 22-24 days, and we handle the underwriting details. Right now, LTCi has a great NT-proBNP of 400 value proposition for the middle market. The reason we’ve seen success in this marHypertrophic ket is Genworth’sCardiomyopathy long history (30 years) of experience selling LTCi has allowed us to understand the marketplace from purchase to claims. Education howwith you frame the conversation Sleep and Apnea Bi-Pap are vital to LTCi. We had a campaign called “Let’s Talk”—there’s a choice to self-fund allStress the wayImaging up to a lifetime benefit. Study One program that has worked wellDefects for us recently is “Lifewith Apical Jacket”—it has an analysis component that is tied to a quick request process. It’sBicuspid a simple, turnkey package to help producers Aortic Valve sell life insurance. The industry is struggling to reach the middle market because there are not enough producers focused on Positive CDT this marketplace. All the statistics show there’s a need, and even a desire to buy life insurance, but people in that market don’t Remitting Relapsing MS know where to turn. For the most part, the foundation of the life industry—security and protection for families—is coming back Hepatitis C with to the forefront in the wake of the financial crisis.
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Aortic Insurance Root Ejection President, Eugene Cohen Fraction Agency, Inc. Elevated There’s a difference between best-selling GGT, products and those thatSGOT create the most Episodes of DVT interest. Low-costand termSGPT products are the top seller, but right now linked products are creating a lot of interest, for example life insurance withYou’ve long-term-care heard theriders. health It provides producers a way to above sell LTCi impairments without selling LTCi a sense. do from in your clientsBut and hybrid products offer the most value? underwriters. Don’t In some cases, it’s very valuable and in others, know what they mean? not. We do find though that the more peoThat’sproducts, okay, wethe do! ple that present hybrid more LTCi is getting sold. From impaired risk clients, Contiued on next page to low-cost term, to jumbo sized cases, we have the experience to help January 2012 InsuranceNewsNet Magazine 49 you find the right company for your client.
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EXECUTIVE SUMMARY: THE LATEST ON PRODUCTS AND INDUSTRY ISSUES Insights on Marketing and Distribution Topics from NAILBA 30
Is a fee-based compensation system for insurance inevitable? Well it’s misleading to think that if you don’t have commissions you get the best value products. The value of a product is more complicated than that—it’s based on the underwriting, whether a company has hit critical mass, and what the competition is doing. For instance, you can have identical products and one may offer less commission than the other, and be more competitively priced at preferred plus rates but at standard rates it’s priced differently. Fee-based planners a lot of times don’t realize how competitive the life insurance industry is. The intense cometition allows value to the cleint to be foremost. There’s too much emphasis on commission.
Victor Paz
Senior Vice President/Principal, Leisure, Werden and Terry Our biggest-selling products are term and no-lapse UL. There’s a shift, however, where carriers are starting to replace the no-lapse with current-assumption products. Reserving requirements from the states on nolapse products are becoming higher and higher while returns on their investments are getting lower and lower. Carriers can lessen the reserve requirements with strong guarantee assumption products that have more competitive interest rates. We will see more product innovation in that area into 2012. For next year, indexed UL promises to be a big product and will be the product that has the buzz. It has the upper potential for cash value growth (as a supplemental retirement product) but you can also dial it as a death benefit product—so it fits both. Some products have a “dialed” rider where you can guarantee the death benefit just like a traditional no-lapse product. The traditional insurance agent is sort of a thing of the past, although there is still a place for pure producers. If I were getting into this business, I would be more well-versed in different areas—including getting a securities license. There’s always a possibility that products like Indexed UL may be regulated—and you’d have to make a quick shift if it ever became a security.
John Felton
President, Tennessee Brokerage Agency Term continues to be the best-selling product in the industry but there’s been a shift to indexed products as more carriers enter the marketplace. When people think life insurance, they think death. Indexed UL is one of the fastest growing product lines because it gets people thinking about savings. Despite the fact that the illustrations are a bit unrealistic, you’re not going to lose money; it’s 50
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guaranteed. The middle market will remain a challenge because it used to be served by an industry field force that is pretty much gone. It comes down to doing the right thing. If an agent calls me up to do business and the first thing he talks about is commission I know that he’s not right for us. Following up to that, a fee-based compensation system for life insurance is not inevitable, although it could be probable. But I absolutely do not think fee-based systems are good—it’s kind of like social medicine. You want to just get paid for what you do. In 2011, we’ve seen some good sales ideas. For example, in this economy there’s a lot of money sitting on the sidelines. Low CD rates have opened up the opportunity to reposition those assets into a SPIA—it kicks out an income stream that pays for life insurance—putting more money into the pocket than they would ever get from their CD. The biggest problem we see in life insurance is conversions. They sell a term policy but they never convert them.
John Oliver
Vice President of Field Development, TransAmerica TransTerm is our best-selling product this year. It’s a very flexible term-like product built on a UL chassis. It offers fixed premium periods and the benefit is that at the end of a level term period, they don’t have a conversion since they are already in a permanent product. It offers levelized premium and accepts 1035 exchanges. It has benefits over traditional term, offers more flexibility, an income payout option and protection at an affordable cost. It gives the policy owner the ability to dictate how it will pay out when they die. From an initial lump sum, to monthly payments up to 25 years, and can change those as long as they are alive to something like an income stream. It’s a true income replacement stream generated from the payout. Problems hitting the middle market stem from compensation levels, technology advancement and economics—I think you will see more carriers offering simplified issue and more easy, back-office technology so agents spend less time touching the policy. Producers should be keenly aware of the tax debate. What we may think is simpler or better for our products may get swept up in tax reform and may not be what we expected and challenge our own products. Robert Billingham is vice president of marketing for InsuranceNewsNet. He has more than 14 years of experience as a business writer, editor and strategic marketer for the insurance and financial services industries. To his role, Rob brings a history of developing marketing and PR campaigns for one of the largest distributors of life insurance in the industry. He can be reached at Rob@innfeedback.com
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Simple Imagery Helps Clients See Income-Planning Risks Ahead
B
aby boomers are nearing retirement or, in many cases, have already entered retirement. They’ve completed the savings phase of their financial lives, having spent most of their working years as accumulators. As the income phase approaches, boomers are finding it challenging to understand how to best generate income from their savings. Naturally, economic concerns are affecting their peace of mind. As trusted advisors, we need to make the transition as easy as possible. Many retirees assume if they need $100 to buy groceries, they will have to withdraw a portion from each of their buckets: stocks, bonds and cash. This is, in effect, a systematic drawdown of assets. Unfortunately, withdrawing this way during a declining market in the early years of retirement is a risky approach. This can be devastating to a portfolio. If retirees liquidate all of their buckets, including equities, there is a significant risk they will fall so far behind that it becomes virtually impossible to recover. Imagine a hypothetical client with a $1 million portfolio who wants to draw 5 percent to meet their income requirement. What if their first $50,000 distribution occurred simultaneously in a year 52
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January 2012
with a 25 percent drop in the market? Their savings could decline so far that they might never recover—and that’s just year one of retirement. To prevent this type of unfortunate result, advisors can help their clients visualize a more appropriate retirement income strategy. Being a member of the Million Dollar Round Table (MDRT) has taught me that clients respond best to simple and logical imagery. We encourage our clients to picture their retirement income as if it were a conveyer belt moving toward them. On this belt are three buckets of money. The first bucket is cash. When this bucket gets to the end of the belt, it drops off into their checking account, becoming spendable income. Because this money will be used in the near future, it needs to be cash or a cash equivalent. This money can’t be subject to any significant fluctuations due to market volatility, because it has to be readily available. The second bucket is known as the low-volatility bucket. This bucket is a bit further out on the belt.
The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.
It will be needed soon, but not immediately. The third bucket may not be needed for several years which allows for more volatility and employs a more traditional asset allocation. This bucket becomes our hedge against inflation. We won’t be too concerned if there are some ups and downs due to market fluctuations. Over time, as the first cash bucket is depleted, we will use the second low volatility bucket to replenish the first, and then the third more traditional bucket to replenish the second. This gives us flexibility. For example, after a run-up in a bull market, we can go straight to the third bucket and liquidate some of it to fill the first cash bucket. On the other hand, if the stock market is down or stagnant we can liquidate some of the second bucket to create cash. By using this strategy we have the flexibility to look at actual market conditions and determine how best to manage a client’s retirement income. Conceptualizing three buckets on a conveyer belt is a simple visual approach. It allows clients to understand the risks inherent in retirement income planning and to ultimately make decisions that will help ensure the sustainability of their retirement income. Because our clients put their trust and faith in our firm, giving them the reassurance they have planned well and will be comfortable in retirement is our main objective. This concept has helped clients to prepare and to use their savings in a safe and sensible way. W. Thomas Spencer Jr., CLU, CHFC, is a Life and Qualifying member of MDRT with 19 Court of the Table (COT) and five Top of the Table (TOT) distinctions. He can be reached at Tom.Spencer@ innfeedback.com.
Who Buys DI? M ore than one in four of Americans in their 20s will eventually become disabled before they retire, according to the Social Security Administration. As a result, many of them will have trouble meeting their basic living expenses because they don’t have disability insurance (DI). In fact, 71 percent of Americans say they would find it very difficult or somewhat difficult to meet their current financial obligations if their next paycheck were delayed for one week. And yet, very few have individual DI. LIMRA recently conducted a study to figure out what spurred consumers to shop for DI, how they shopped and who actually bought DI—and following are a few of the key findings.
Who Shops for DI? The short answer is: not many. Less than a quarter of U.S. households said they have been approached to buy DI or initiated shopping on their own in 2010 and 2011. Of that group, one-third was contacted about DI, with only one-quarter being a personal contact by an advisor in a face-to-face meeting or seminar. Digging deeper, LIMRA found that insurance carriers and advisors were more likely to reach out to men more than women; the more affluent than middle or lower-income households; and older rather than younger consumers. Why is this important? Shoppers who were approached were more likely to buy DI than those who weren’t. With 70 percent of U.S. households relying on two incomes to make ends meet, our industry needs to do more to reach women to help them protect their families in the event they become disabled and lose their income.
What Triggers Consumers to Think About DI? In the past, personal health concerns and the disability of the relative or friend were the most common reasons consumers shopped for disability income insurance. With 61 percent of all nonbuyers and 52 percent of buyers citing
LIMRA INSIGHTS | BY KAREN TERRY
Emphasized by advisor/rep
Most important for shopper
Why shopper purchased
63%
61%
72%
To continue paying mortgage
29
12
29
To supplement an employer-offered disability policy
32
17
27
To continue saving for retirement
18
4
13
To continue saving for children’s education
11
2
8
To replace another disability policy
3
1
12
Business purposes such as buy-sell
4
1
2
What spurs DI purchases? To replace income if unable to work
health concerns, it remains the top reason people shop for DI. The second highest category of shopping triggers relates to the inadequacy or lack of benefits at work. With unemployment staying steady at 9 percent and employers struggling to cover basic medical benefits, it is not surprising that consumers are worried their employee benefits like DI may be in jeopardy. Advertising catches the attention of some shoppers but it has far less impact than the other reasons for shopping. Nonbuyers are more likely to say they shopped because they saw advertisements or saw DI mentioned by advisors in the media. These shoppers most likely have reacted to recommendations by financial media personalities by searching for information (perhaps online) and abandoned their attempts at that point. In fact, nearly half of shoppers citing media issues use online sources to search for information. This group is also more likely to cite TV or radio programs as sources of information.
Who Buys DI? More than half (51 percent) of buyers purchased their DI through a face-toface meeting with an advisor or agent, LIMRA’s study revealed. One quarter bought DI at their workplace. Twentyfive percent bought directly (via telephone, mail or Internet). Obviously, the face-to-face experience is the most rewarding for the customer and the trust
they have in their advisor has a lot to do with it. More than 85 percent of buyers believed their advisor provided good information about the policy and was knowledgeable about DI. The number drops 15 percentage points when asking non-buyers. According to our study, consumers are most interested in how DI can replace their income if they are unable to work. Other benefits, such as providing funds to continue paying their mortgage or supplementing their employer-sponsored policy, are not top of mind. When advisors emphasize these other goals, however, buyers are more likely to recognize their value and consider them among their reasons for buying a DI policy. With only a quarter of the population having the opportunity to buy DI in a given year, a lot of market potential is currently untapped. Our research suggests that advisors should try to engage prospects by using seminars, the Internet, phone and workplace contacts—all of which can bridge the trust gap with consumers, but is still less costly than oneon-one meetings. Karen Terry, manager of LIMRA product research, joined LIMRA in 1995, is a manager in the individual product research area and supervises various research studies on life insurance and disability and health products. She received a bachelor’s degree in marketing from the University of Maryland. Karen can be reached at Karen.Terry@ innfeedback.com.
Over 850 financial services companies in more than 70 countries turn to LIMRA first to help them build their businesses and improve their performance. January 2012
InsuranceNewsNet Magazine
53
ASK THE
ADVANCED SALES DOCTOR Q:
I hired an assistant to handle service calls. She told me that a couple of my older clients made a remark, saying that I must have gotten too successful to give them the personal attention they used to get from me when I was new in the business. Should I go back to handling those service calls myself?
Rx:
This is not an uncommon comment from clients that when you started your business you had “wined and dined”. But naturally, as you’ve become busier with doing what you should be doing to grow your business, you simply won’t have the time to indulge them the same way. You can prevent them from perceiving your team handling their calls now as being relegated to a lesser status, however, if you position it as a way of improving your responsiveness to them. You might want to send a letter to them, saying something like this: “Mr. /Ms. Client, we have improved our availability for answering your questions or resolving your concerns. Rather than having to wait when I am not able to immediately return your call, we now have someone who is in charge of promptly taking care of your requests. After your concern has been addressed, of course, and you still wish to talk to me personally, I will be delighted to do so—as always.”
Q:
Occasionally, some of my prospects seem irritated or become more confrontational during the close even though they seemed OK with everything beforehand. I just don’t understand. Why is this happening?
Rx:
Making a decision can be stressful. So your prospect will deflect some of that stress they’re experiencing to you. You just happen to be there and that’s why it seems like you’re the one who is responsible for them to be in this position, feeling stressed. When you detect discomfort or negative behavior, you may want to retreat and reduce the pressure or After more than 30 years of coaching and studying insurance professionals and the insurance sales process, Hungarian-born clinical psychologist Dr. Csaba Sziklai (pronounced Cha-ba Sick-lie) has become known throughout the life insurance industry as “The Advocate’s Advocate.” As the author of the “Advocacy System,” Dr. Sziklai has been asked to speak at numerous insurance industry events and has conducted hundreds of sessions for many of America’s top life insurance companies. 54
InsuranceNewsNet Magazine
January 2012
urgency for them to act on your recommendations. This will delay everything and may even prevent the final decision you are after. Don’t lose sight of the fact that your prospect’s behavior is normal under the circumstances. But, once they have reached a responsible decision, they will feel good again.
Q:
We are told that, in order to develop an outstanding relationship with our clients, we need to go the extra mile to make them feel special—even being there for them when they have issues not related to insurance. How far should one go with doing this?
Rx:
Your clients will have certain expectations of you as to what constitutes good service. Your way of behaving toward them from the outset will influence these expectations that will form a baseline for their “expectation level.” If you perform to this standard, your clients will be satisfied with the service you are providing them. And, of course, if you fail to live up to this level, they will be disappointed. You may gain points for going that “extra mile” for them, being their confidant, helping them to find the right car or whatever favor you may do for them. But you’ll soon notice that their expectation level will increase—what was extra attention is now an expectation. You may find it difficult to live up to these high expectations on a sustained basis. Remember, excessive “sucking up” is like taking too may pain pills: after a while it stops working!
Need a prescription for success? Send your sales psychology questions to SalesDoctor@innfeedback.com.
Advertiser Index
For more information on an advertiser, use the contact information below or visit www.InsuranceNewsNetMagazine.com/spotlight
Advertiser Website
Phone Page
AgencyIntel
www.agencyintel.com
800-898-7212
23
American Equity
www.american-equity.com
888-647-1371
5
Brokers Alliance
www.maxretirementreport.com
800-290-7226 ext.147
1
Datalot
www.datalot.com/insurance
888-718-1991
47
Eugene Cohen Insurance Agency, Inc.
www.cohenagency.com
800-333-4340
21
Fairlane Financial
www.888fairlane.com/2299
800-327-1460 33
Financial Independence Group
www.figmarketing.com
800-527-1155
39
Gradient Financial Group
www.gradientroundtable.com
800-407-4137
Back Cover
Imeriti, Inc.
www.myindexguru.com
866-899-5764
3
Insurance Mavericks
www.freesafebook.com
800-393-2054
Inside Back Cover
InsureMe
insureme.com/10freelead
800-414-9476
51
Levinson & Associates
www.yourfreecollegescholarship.com
800-375-2279
Inside Front Cover
Life Sales, LLC
www.lifesales.net
800-486-5400
35
M&O Marketing
www.reducetaxestoolkit.com
800-228-5964
9
NetQuote
newquote.com/15leadsfree
877-415-5153
4
Ohlson Group
www.ohlsongroup.com
877-844-0900
37
Petersen International Underwriters
www.piu.org
800-345-8816
25
Prudential
worklife65.com/keepsworking
866-599-2871
7
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off-the-wall sales stories
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InsuranceNewsNet Magazine
January 2012