May 2013

Life Annuities Health Financial

May 2013

PAGE 24

PLUS TOP GUN Secrets That Every Advisor Must Know PAGE 12

Advisors Invade D.C. in Stealthy Springtime Strike PAGE 40

Will ACA Navigator Rule Wash Out Agents?

PAGE 52

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MAY 2013 » VOLUME 6, NUMBER 5

» read it

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IN THIS ISSUE

View and share the articles from this month’s issue

online

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48

ANNUITY

24 INFRONT

8 The American Annuity Shuffle Begins

By Linda Koco A look at 2012 annuity sales figures shows an intriguing dance, combining a slump in sales numbers with some surprises among the carriers.

24 Estate Planning Failures of the Rich and Famous Part 5

By Steven A. Morelli From Ray Charles to Ted Williams, our annual roundup of folks who achieved fame and fortune during their lifetimes, yet left behind a mess for their loved ones after their deaths.

40 12 FEATURES

12 Top Gun Secrets (that every advisor must know) An interview with Lt. Col. Rob “Waldo” Waldman A military fighter pilot turned motivational speaker, Rob “Waldo” Waldman has taken the lessons he learned from flying an F-16 jet in combat and is sharing them with the business world. In this interview with InsuranceNewsNet Publisher Paul Feldman, Waldman describes why you need to surround yourself with “wingmen” who will help you to reach new heights in your career and your life.

2

InsuranceNewsNet Magazine » May 2013

46 A dvisors Can Net Big Business from $21 Trillion Protection Gap

By Linda Koco Consumers may say they need annuity products to fund their retirement, but the numbers indicate they are reluctant to act upon that need.

48 W hen Pensions End, Advisor Opportunity Begins

By Linda Koco When lump-sum distributions are taken from defined benefit plans, it opens up a “sweet spot” for advisors to offer annuities as a retirement solution.

HEALTH

52 W ill ACA Navigator Rule Wash Out Agents?

By Susan Rupe As the clock ticks closer to the implementation of health care exchanges, advisors seek more information on how the role of navigator will affect their profession.

LIFE

56

38 Buy-Sell Planning Vaults Higher Estate Tax Bar

By William P. Stark The buy-sell strategy is a great estate planning technique to use with business owners, and it may lead to other sales such as key person insurance, executive compensation and personal planning.

40 Advisors Invade D.C. in Stealthy Springtime Strike

By Susan Rupe Hundreds of NAIFA members visited Congress to do what they do best: tell the story of what life insurance means to their clients.

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56 Tax Law Offers Faster Connection for Clients’ Roth Conversion

By Gretchen Miller As more plan sponsors amend their retirement plans to take advantage of new provisions under the law, more people will have the Roth conversion conversation with their advisor.

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ALSO IN THIS ISSUE MAY 2013 » VOLUME 6, NUMBER 5

61 NAIFA: Studying for Success

60

By Ayo Mseka and Greg Gagne Belonging to a study group is like having a special “business family” where you can share support, inspiration and guidance that will help you succeed in your practice.

62 L IMRA: Employers’ ACA Uncertainty Leads to Lack of Planning

BUSINESS

58 V olunteering Pays Well

By Yuliya Babushkina The Affordable Care Act provides an opportunity for carriers to help guide employers through a changing health insurance landscape.

By Edward C. Auble Community involvement can enhance your reputation and lead to opportunities to position yourself as an expert, at little or no expense.

64 How to Hire a Hero

INSIGHTS

By Larry Barton Our nation’s veterans can provide a new talent pool of determined and mission-minded individuals for new careers in the financial services industry.

60 MDRT: GRATifying New Estate Tax Law

By Wayne D. Minich Advisors need to encourage clients to take advantage of the changes in the estate tax law because it will enable them to manage their financial portfolio better than in the past.

EVERY ISSUE 6 Editor’s Letter 22 NewsWires

36 LifeWires 44 AnnuityWires

50 HealthWires 54 FinancialWires

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13 INN 05.13 May 2013 » InsuranceNewsNet Magazine

5

WELCOME

LETTER FROM THE EDITOR

Mission First

BY STEVEN A. MORELLI

3 out of 4

pre-retirees are concerned about

InFLATIon.*

**2011 “Risk and Process of Retirement Survey”, Society of Actuaries.

When you strapped yourself into your car this morning, you were going to work.

But how about if you were on a mission?

When you think of it that way, today is not the same as yesterday and tomorrow will not be the same as today. It will no longer be the same old, same old. But what will not change is the thing driving you. That was an essential part of Lt. Col. Rob “Waldo” Waldman’s message in his interview with Publisher Paul Feldman featured in this issue.

Waldo’s feature is one of the longest interviews we’ve run because it was just so hard to cut down. One of the many important points he made was “lose sight, lose fight.” That can mean a laser-like focus on a goal, but it was a bit more than that.

Waldo had dark days, as we all do. He was scared of heights and claustrophobic and yet he wedged himself into a tiny cockpit to fly as fast as 1,500 mph as high as 50,000 feet. As he did this, he had pictures of his niece and nephew in his cockpit.

That was his mission: to keep people he loved safe. It wasn’t about going fast and high and blowing stuff up. Certainly, the excitement has its draw, but that is not what sustains the best warriors. The real heroes, the real deals, are as unassuming as anyone. Waldo talks about one of the best commanders he served under. His name was Psycho, so you would think it would be full-throttle bravado that made him great. No, it was when Waldo screwed up and, instead of chewing him out, Psycho took him aside and asked him if he was OK. Waldo still had to suffer the consequences of his error but he appreciated the care. In fact, it drove him to do better – to be better.

But another commander chewed Waldo out in front of the whole squadron after he had confessed an error. That commander soured the whole squadron.

No one wanted to do the right thing and acknowledge mistakes after that. That ended learning and the drive to improve.

The heroes do the hard stuff. They shut up when they want to yell, wait when they want to rush, yield when they want to barge. There was a time when “gentleman” was an aspiration, not an ironic phrase.

6 InsuranceNewsNet Magazine » May 2013

That might seem to be an odd thing to learn from someone who used to shoot missiles for a living. It’s particularly hard to think of when we so recently had been reminded what it’s like when bombs go off. Something to keep in mind is that the hand that sets the bomb is guided, or misguided, by a sense of righteousness. People do not do things like that because they believe they are perpetuating evil. They do it because they think they are right.

But whenever we understand the other a little better, it softens our touch. When we see the enemy as people with the same hopes, dreams and families that we have, we understand how to cope with the things they do. That doesn’t excuse killing and maiming people, but maybe it helps us prevent the dynamic that drove that action. We have seen conflict after conflict escalate to utter destruction and we relearn that what we send out comes back at us with greater momentum.

When we’re in an argument with our spouse and we spit back the worst thing that we can think to say, what have we done? We’ve done our best to hurt the person who pledged to love you until you die. When we flip off someone else in traffic and cut him off, what have we accomplished? We made life just a little more miserable for someone else who is just trying to go to work.

I’ll leave you with a thought. Many Red Sox fans viscerally hated New York until 9/11. Then we were all New Yorkers. Just as many Yankees fans loathed Boston until the April 15 bombing. Now we’re all Bostonians.

We are at our best when we run toward the blast and risk our lives to help people we don’t even know.

So, as you hurtle to work on yet another death-defying commute, whose picture is on your dashboard? Who are you defending? What is your mission?

Steven A. Morelli Editor-in-Chief

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May 2013 » InsuranceNewsNet Magazine 7

INFRONT

TIMELY ISSUES THAT MATTER TO YOU

The American Annuity Shuffle Begins It’s a new company list at the top of the charts.

By Linda Koco

Y

ear-end individual annuity sales results provide plenty for annuity aficionados to ponder. There were some sorry-looking numbers, for sure, but also a few intriguing surprises.

Some would say the carriers were doing a dance, or at least a shuffle.

As for the sorry numbers, LIMRA’s latest report shows that variable and fixed annuity sales combined were off by about 8.6 percent compared to last year.

Specifically, industrywide combined sales fell to $219.7 billion from $240.3 billion.

Even the top 20 were off, swooning by roughly 8.5 percent on sales of $174.3 billion versus $190.5 billion last year.

As may be expected, the two basic lines were off: Variable annuities sold $147.4 billion industrywide in 2012, down by 7.5 percent from $159.3 billion last year, and fixed annuities sold $72.3 billion, down by about 10.8 percent from $81 billion last year.

Want more punishment? In the very same week AnnuitySpecs.com announced, that total indexed annuity sales were down by 3 percent, to $8.4 billion, in the fourth quarter from the previous quarter.

That’s Not All

But, that’s not all she wrote. Total indexed annuity sales for the entire year were not down but up – by 2 percent – and that made for the industry’s fifth consecutive record, says Sheryl J. Moore, president and CEO of Moore Market Intelligence, the Iowa firm that owns AnnuitySpecs.com.

“When you consider that record-low indexed annuity caps and rates have persisted, it’s hard to ignore that these sales records provide compelling evidence of consumers’ demand for retirement accumulation products with principal protec8

InsuranceNewsNet Magazine » May 2013

Indexed Annuity Sales by Quarter (In Millions) $9,000 $8,250 $7,500 $6,750 $6,000 $5,250 $4,500 $3,750 $3,000 3Q02

3Q03

3Q04

3Q05

3Q06

3Q07

3Q08

3Q09

3Q10

3Q11

3Q12

Source: AnnuitySpec’s Indexed Sales & Market Report, 4th Quarter, 2012

tion features,” Moore says in a statement.

Far from voicing discouragement at the 2012 numbers, Moore is upbeat: “If such low interest rates persist, I project that indexed annuity sales will exceed fixed annuity sales by 2015.”

What about the LIMRA results? The numbers may be down, but the picture of the industry is an eye-opener. That’s because there are changes winking through the data that suggest industry re-configuration of power players is going on.

For example, Jackson National Life jumped to first place as the top annuity seller in 2012, industrywide. For the previous two years, it was in third place. But in each year, it sold more than the previous one. For instance, in 2012, according to LIMRA estimates, it sold $22.4 billion, up from nearly 19.8 billion in 2011 and from $17.6 billion in 2010.

The Lansing, Mich., carrier also moved up the LIMRA leaderboard of variable annuity sellers. It came in second place in 2012 just behind top ranked Prudential Annuities, and with not much air between them. Prudential’s variable annuity sales came to nearly $20 billion, and Jackson’s came to $19.7 billion.

An interesting wrinkle in this is that, when MetLife was in first place for combined sales in 2011, it was also in first place in variable sales. The same was true for Prudential in 2010 – first in combined and first in variable. But Jackson’s rankings break the pattern: It is first in combined sales but second in variable.

Jackson’s Journey

Jackson’s 2012 top ranking for all annuity industry sales happened despite its controversial announcement last fall that it was suspending new sales of some variable annuities and pulling certain options.

Some producers in the independent broker/dealer community took the news hard. They had been placing quite a bit of business with the carrier, no doubt helping it make that move from third to first place industrywide, so the pullback stung. And they were not mollified by the fact that Jackson was still selling a more modest variable annuity, one more suited to current economic conditions.

Some producers were so angry that they said they were going to take their business elsewhere.

THE AMERICAN ANNUITY SHUFFLE BEGINS

U.S. Individual Annuity Sales 2012 Annual Results ($ in thousands) Rank

Total

Variable

Fixed

1

Jackson National Life

$ 22,409,432 Prudential Annuities

2

Prudential Annuities

20,644,510 Jackson National Life

19,724,094 New York Life

3

MetLife

19,467,427 MetLife

17,700,289 AVIVA

4,131,558

4

TIAA-CREFF

14,086,450 TIAA-CREF

14,086,450 American Equity

3,947,621

$ 19,973,508 Allianz Life

$ 5,474,499 4,837,618

5

Lincoln Financial

13,436,361 Lincoln Financial

10,425,920 Security Benefit Life

3,541,045

6

AIG Companies

12,029,663 AXA Equitable

8,804,850 AIG Companies

3,245,866

7

AXA Equitable

8,853,107 AIG Companies

8,783,797 Lincoln Financial Group

3,010,441

8

Allainz Life

8,798,208 Transamerica

5,273,715 Great American

2,879,739

9

New York Life

7,485,329 Riversource Life Insurance

5,517,282 Jackson National Life

2,685,338

10

Pacific Life

6,254,041 Nationwide Financial 6,073,800 Pacific Life

11

Nationwide Financial

12

RiverSource Life Insurance

13

Transamerica

14

AVIVA

5,618,970 Allainz Life 5,444,220 Thrivent Financial for Lutherans 4,131,558 Protective Life

4,220,900 Pacific Life

2,263,851

3,990,190 Midland National

1,928,661

3,323,709 Nationwide Financial

1,852,900

2,746,408 MetLife

1,767,138

2,734,056 Fidelity & Guaranty Life

1,612,247

15

American Equity

2,647,711 EquiTrust Life

1,585,154

16

Security Benefit Life

3,858,446 Fidelity Investments Life

1,887,325 Massachusetts Mutual Life

1,476,530

17

Protective Life

3,325,766 Guardian Life of America

1,447,201 Symetra Financial

1,421,458

18

Thrivent Financial for Lutherans

3,215,032 Northwestern Mutual Group

1,426,838 Genworth Financial

1,407,476

19

Great American

2,925,903 Principal Financial

869,837 North American Co. for Life and Health

1,363,452

20

Massachusetts Mutual Life

2,277,787 Hartford Life

814,610 ING

1,207,996

Top 20 Total industry Top 20 share

3,947,621 New York Life

174,281,631

136,038,689

51,640,588

219,700,000

147,400,000

72,300,000

79%

92%

71%

Source: U.S. Individual Annuities Sales Survey, LIMRA

Industry watchers wondered if that would be curtains for Jackson in the never-ending battle for shelf space at the distributors. But the observers forgot to ask, where would these producers take their business? The No. 1 seller in 2011, MetLife, had announced mid-year that it was scaling back its variable annuity sales, and the industry’s No. 1 seller in 2010, Prudential Annuities, had earlier announced a suspension of its own. A number of other carriers were pulling on the reins too, as coping with the fierce winds of prolonged low interest rates and continued market volatility became the uppermost concern.

Now, at year end, it looks as if whatever happened with all that anger, it was not of sufficient magnitude to keep Jackson out of first place.

It’s worth noting that the Michigan

company got there with the help of fixed annuity sales, where it ranked in seventh place on LIMRA’s list of top 20 fixed annuity sellers. Neither of the company’s two closest contenders, Prudential or MetLife, placed in LIMRA’s top 20 on the fixed side.

Other Winks

The LIMRA data is winking in other ways, too. For instance, the top 20 list with variable and fixed annuities combined, now includes Security Benefit Life in 16th place, on sales of over $3.8 billion.

Last year, it was not on that list at all, nor the year before. Most of this carrier’s production came from fixed annuity sales of about $3.5 billion – production that put it in fifth place on LIMRA’s fixed annuity top 20 list, up from 19th place in 2011.

(A lot of that production came from

INFRONT

indexed annuity sales. In fact, according to AnnuitySpecs, Security Benefit Life took fourth place among indexed annuity sellers in 2012, on indexed sales of more than $2.9 billion.)

Meanwhile, Massachusetts Mutual Life joined the combined list of variable and fixed annuity sellers in 2012, coming in 20th on sales of nearly $2.3 billion.

It didn’t have a place on that list in the previous two years, so if it takes a bow, you’ll know why. This carrier’s fixed sales of nearly $1.5 billion is what helped put the company in the top 20 group.

The top 20 list of variable annuity sellers shows Guardian Life of America in 16th place, on sales of nearly $1.5 billion in 2012. That’s up from 20th place in 2011, on sales of $1.1 billion.

On the same list, Northwestern Mutual Life ranked in 18th place in 2012 on sales of more than $1.4 billion. That’s up from 19th the year before. Neither of these carriers made the top 20 variable annuity list in 2010, so they’re gathering some steam.

On the top 20 list for fixed annuity sales, the lead carrier was Allianz Life of North America, at nearly $5.5 billion.

It returned to the top spot after being there in 2010. It also took 12th place in variable sales and eighth in combined.

Allianz was also the top-ranked carrier in indexed annuity sales, on production of $5.4 billion for the year, according to AnnuitySpecs.

By the way, in 2011, Allianz took second in fixed sales when AIG’s fixed sales passed it by a hair. But this year, AIG dropped to sixth place in fixed annuity sales, seventh place for variable annuity sales, and seventh place for combined variable and fixed sales.

There are a lot of switcheroos like that this year, as well as a few notable absences. These few should help paint the picture, though. The year 2012 just might be the year of the Great American Annuity Shuffle. Back home, or in the board room, the sales results won’t get a lot of oohs and ahs, but the repositioning of carriers probably will. Or maybe ouches.

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.

May 2013 » InsuranceNewsNet Magazine

9

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With 65 missions in Iraq and Serbia under his belt, Lt. Col. Rob “Waldo” Waldman is as comfortable in managing sales as he is in the cockpit.

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InsuranceNewsNet Magazine » May 2013

TOP GUN SECRETS (THAT EVERY ADVISOR MUST KNOW)

L

FEATURE

T. COL. ROB “WALDO” WALDMAN is a bona fide hero for many reasons – and not just because he rescued the term “wingman” and the “top gun” concept from the cheesy clutches of the ’80s movie, Top Gun. As a fighter pilot, he flew 65 missions in Iraq and Serbia, and now he is bringing those lessons to the business world. He is eminently qualified to do that because not only is he a graduate of the U.S Air Force Academy, he also holds a Master’s in Business Administration degree with a focus on organizational behavior. He melded his studies with his anecdotal observations from his military career into the book Never Fly Solo.

Readers might recall seeing Waldo in one of his many speaking gigs or media appearances. Although he looks the part of a dashing fighter pilot, he is an engaging, approachable guy with a knack for putting people at ease. He is comfortable revealing his own struggles, such as overcoming claustrophobia and fear of heights to jam himself into the tiny cockpit of a sound-barrier-busting fighter jet. He also can relate to sales people because he was one of them. He was a top producing sales manager for several technology and consulting firms.

In this discussion with InsuranceNewsNet Publisher Paul Feldman, Waldo talks about how insurance producers can build their own squadron of wingmen for mission success.

ly, your life isn’t on the line based on your job performance. But your lifestyle is. If you look at the constant change occurring in the financial services industry, from regulation, the constantly changing products, increased competition, the commoditization of your trade, it’s very tough out there. Many people selling insurance are eating ramen noodles instead of steak because they are out of work! They also are having difficulty paying their bills and putting their kids through college. That’s what I mean when I say “lifestyle.”

Accomplishing the mission – be it in combat or in sales – with a sense of passion and commitment, combined with a focus on service and getting the job done right, is the impetus to what drives success. This eventually leads to performance excellence.

FELDMAN: Being a fighter pilot and being an insurance agent or a financial advisor appear to be two opposite ends of the spectrum. What can agents learn from a fighter pilot that would help them to close sales?

FELDMAN: Your message, and the title of your book, is Never Fly Solo. But a lot of our readers are solo entrepreneurs. They work in their small offices and they are not necessarily reporting to others. Sometimes they do feel like they are flying alone because they don’t have peers to build them up.

WALDMAN: Both a fighter pilot and a financial advisor (or anybody who wants to achieve success, for that matter) have to execute with precision. As a fighter pilot and as a businessperson, you can talk

about motivation, attitude and mindset.

But it’s ultimately how you are fulfilling the mission and getting the job done that counts. As fighter pilots, we didn’t have many options when it came to execution.

We either hit the target and did our job or we risked not coming home alive.

Obviously, fighter pilots’ lives are on the line if they don’t do their jobs correctly. As an insurance agent, fortunate-

The F-16 can withstand up to nine G’s – nine times the force of gravity – even with a full load of internal fuel.

May 2013 » InsuranceNewsNet Magazine

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FEATURE

TOP GUN SECRETS (THAT EVERY ADVISOR MUST KNOW)

WALDMAN: A lot of us think we are flying solo but we really aren’t. As a fighter pilot, I may have been strapped into the cockpit by myself but I really wasn’t flying solo. I had other wingmen flying with me in formation. We never went out as a single ship. We always flew as a team because we knew we could get a lot more done and also provide mutual support in the process.

As a team, you can build a picture of your entire operating environment. We called it “situational awareness” in the fighter pilot world – a 360° view of the threat, the weather, the target, alternate airfields, location of emergency airfields, etc. – all things that are impossible to track and monitor on your own. Wingmen in the air help “build the picture” and increase situational awareness. But you have support from people on the ground, such as crew chiefs who maintain the jet and make sure it’s working properly, and intelligence officers who help you prepare for threats. They all allow you to focus on the most important thing, which is executing the mission successfully.

Now if you look at it from the perspective of an insurance agent at the office, you also may think you are flying on your own. But you also have wingmen who can help you build your picture and accomplish the mission in a competitive environment where your threat is constantly changing. Wingmen can help you adapt and execute your sales plan successfully.

Your wingmen include your sales support staff, administrative assistant, accountant, attorney, referral network, spouse, your peers in the industry, wholesalers and even your mastermind groups. There are relationships with a whole host of other wingmen that you can nurture and put into your formation to help you to execute your mission successfully. I think a key to any successful practice is to leverage those relationships with those trusted partners. When a missile is coming at you that you may not see, it sure helps to have a wingman who can see it, call it out and help you take the action to avoid it.

FELDMAN: So what makes a good wingman?

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InsuranceNewsNet Magazine » May 2013

“A wingman has the back of the flight lead and checks the blind spots.”

WALDMAN: Good wingmen are fully prepared, disciplined, accountable for their actions, and have integrity like a rock. They must also possess a healthy work ethic and fully understand their responsibilities. Finally, they aren’t afraid to ask for help and are always willing to “lend their wings” to those in need as well.

I think that in order to explain in greater detail what makes a good wingman, it is best to share how typical formations of wingmen work in the world of aerial combat. In combat, you have two-ship, four-ship, eight-ship, sometimes even 16-

ship formations. There’s only one leader (known as the “flight lead”) and the rest are wingmen. Now, the flight lead is a wingman, but the wingmen are not flight leads. There is only one flight lead at all times. This flight lead helps create a plan, delegates responsibilities and helps build the picture based on the communication that they receive from the wingmen.

Wingmen have assigned roles and responsibilities. They are also responsible for checking each other’s “six.” This means we check each other’s blind spots (directly behind the plane). This helps to “As fighter pilots, we brief and debrief. This sets the tone of the mission and at the end of the mission, regardless of how it went, we debrief and we learn the lessons.”

Do MEDICAL improve situational awareness and builds an accurate picture for other members of the formation.

For example, when it comes to the radar on the aircraft, you have a high search and a low search. Let’s say the low search is from 0 to 15,000 feet and the high search is 15,000 to 30,000 feet.

If your responsibility is to look from 0 to 15,000 feet, you must maintain that search range and not deviate to the high search unless directed to by the flight lead. If you see something, you call it out to your wingman and they do the same for you. Everyone stays disciplined and focused on his or her role and it helps maximize mutual support.

This concept of communication, what I call a “check six culture,” is absolutely critical to success and is the key to turning an average business formation into an outstanding one. It’s important also to note that open communication and the ability to give and receive feedback are also critical to success in sales and life. Sometimes, a wingman may tell you what you need to hear and not what you want to hear. That call could save the life of your sale, relationship or business.

Getting your ego out of the way and being receptive to those calls is a great leadership attribute.

FELDMAN: In the business world, it’s a little bit different than the military because you have trained fighter pilots who know what to look for and they know how to do the check six and how to communicate with you. In a non-structured environment like in the business world, how do you find and train people to be wingmen?

WALDMAN: The biggest thing that we do is hire on attitude. In particular, in financial services, you need a committed attitude, somebody who has an amazing work ethic, integrity and values relationships. These are all the things that are critical because not everybody can be a “top gun” in business. You have to have the competence, discipline and the character to be the best. Great insurance teams hire on character and a great work ethic. The rest can be learned in focused training sessions.

As fighter pilots, we brief and debrief every mission. Briefing sets the tone of the

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FEATURE

TOP GUN SECRETS (THAT EVERY ADVISOR MUST KNOW)

mission at the beginning and, at the end of the mission, regardless of how it went, we debrief. These are valuable tools for any small or large business as well.

In the briefing, we assign roles and responsibilities to everybody, understanding that if one person fails to do his or her job, the whole mission fails. The last thing that we do in the briefing is ask ourselves, “What if?” What if the weather changes, the threat changes or we have an emergency? Who is taking over? Everybody understands these roles, responsibilities and actions, and what we call standards.

They are written down and briefed, and they ensure we are all marching to the same beat.

In the debriefing, we review the good and bad, analyze the lessons, and then communicate our feedback in an environment of trust and collaboration. This formalized process really allows us to set standards and grow.

So if you are building and growing your business, everybody needs to know (and enforce) the standards of your organization. It’s a cultural norm that should be understood by all so they can fall back on it instead of guessing how to deal with a challenging situation.

FELDMAN: You say that the debriefing is more important than the briefing. How does that work?

WALDMAN: When we come back from our mission, the members of the fourship formation take off our rank and nametags, which are attached by Velcro, and sit down behind closed doors and do a debriefing.

We don’t let our ego, rank, or personality get in the way of being brutally honest and learning from the good, the bad and the ugly that went on during the mission. The first thing that happens in the debriefing is the flight lead shares his or her challenges and admits any mistakes. We call it “exposing our chest to daggers.” It means admitting that you messed up something or perhaps did not enforce the standards and responsibilities that were briefed prior to the mission.

When you set the tone as a leader by admitting your mistakes, you create an environment where others are more likely to bring you their problems and 16

InsuranceNewsNet Magazine » May 2013

“Wingmen have assigned roles and responsibilities.

They stay focused on that and then they are able to call it out to the leader.”

Creating a CHECK-SIX Environment When communication, feedback and mutual support don’t exist, people begin to distrust each other. No one collaborates, fear arises and the team lacks synergy. Inevitably, overall performance suffers. But when people trust, miracles in productivity and morale can happen. In fast-paced, high-risk, performance-demanding environments like the world of business, tight and trustworthy coordination is critical because:

» Human beings make mistakes.

» Most professionals undervalue communication and teamwork.

» We each have a limited perspective.

» Faulty communication can kill a mission as well as a relationship.

» We operate in stressful environments that lead to tunnel vision and task saturation.

» Errors increase when there is no definable set of teamwork standards and skills.

An effective check-six environment frees up communication and removes barriers to growth so that all members of the team feel empowered to speak up and ask questions. Most important, it creates a context in which feedback and objective criticism are received more openly and less defensively. Team members become more engaged in processes and service, while leaders benefit from the improved flow of vital information up and down the chain of command. A check-six environment also builds team confidence.

It is the experienced manager who goes on a big sales call with the younger salesperson to provide support, it is the safety spotter on a highway construction zone, and it is the officer who pulls his squad car behind a fellow officer’s during a routine traffic stop. It is the CEO who leaves his office empty every afternoon to spend quality time on the floor and in the warehouse with his workers. Measures such as these promote team culture and effectiveness like nothing else.

TOP GUN SECRETS (THAT EVERY ADVISOR MUST KNOW) share their mistakes. By doing so, everyone can learn from them and trust increases dramatically.

Sure, egos may be bruised and you may upset some folks. You may get grounded (assuming you committed a serious violation). But we know in the debriefing that when the doors close, the training is sacred. It’s how we develop as a team. If you can’t handle that, then you don’t belong in the cockpit of a jet fighter. Some folks will wash out of fighter training because they can’t maintain their egos and aren’t open to feedback.

It’s in that highly intense, rapidly changing environment of combat where you want to be the best. Briefing and debriefing differentiate average teams from excellent ones. It can make a huge difference for high-performing sales teams and insurance practices as well.

FELDMAN: A lot of our readers will go out on a sale by themselves. How could they debrief effectively? Is there a strategy to debrief yourself that you should be doing? What are steps to do that?

WALDMAN: Checklists are critical. I used them for years when I was in sales.

I was in financial services as a mergers and acquisitions consultant, and also in technology sales. I used a checklist along with a pre-mission and a post-mission briefing to assist in my sales. When I sat down with the vice president of sales at Panasonic or UPS, I would go through this checklist. Before I met them, I would

double-check press releases, find them on Google and LinkedIn, and prepare relentlessly. I had a contingency plan in case I was stuck in traffic. I had their cell number and e-mail address. I didn’t fly by the seat of my pants!

I recommend showing up with some preplanned questions. Clients love that.

They want to see that you are prepared for the “sales briefing,” and are ready to come up with a solution to their issue or their challenge.

So, use those checklists and plan every mission. Don’t fly by the seat of your pants when you meet that newlywed couple looking for insurance to supplement their investments. Do your research and show prospects that you are different, that you value them enough to be different than the rest of the advisors giving them the same old pitch.

If I win someone’s business sale, I always ask why they hired me. When I lose the sale, I ask why they went with my competition. I am really curious. If you are lucky, your prospects will be brutally honest with you if you ask – was it price, service, your personality or your follow-up? Was it because you weren’t prepared? Was their cousin an insurance agent and they felt pressured to go with him? It’s always great to find out why you were or were not engaged.

FELDMAN: You talk about chair-flying missions, where you would visualize missions on the ground while seated in a chair. Is it true that you practiced missions “I don’t want to discount the fact that if you want to grow a business, you have to do the hard work. You have to study the threat, the competitors, the products.”

FEATURE

while exercising and even on the toilet?

WALDMAN: It’s true, I practiced countless missions there! When you are in pilot training or F-16 training, you practice every waking moment. You live it, you breathe it. If you are a financial advisor or an entrepreneur, you also have to live it and breathe it. Everything that is going in and out of your brain has to be about your business if you truly want to excel. We all have only so many hours in the day.

At the end of the day, the most important wingman in your life is you. You have to be your own wingman. You have to be committed, disciplined, fully accountable, prepared, resilient, focused and have integrity like a rock to succeed.

You can’t outsource any of that stuff. As fighter pilots, we are strapping into a jet by ourselves and we are flying with other wingmen. But ultimately, we have our hands on the throttle and stick, and if we are not ready to go to do battle, no amount of teamwork is going to be able to help execute the mission.

I don’t want to discount the fact that if you want to grow professionally you have to do the hard work. You have to study the processes, competition and the countless products you sell. Go out there and meet all the wholesalers and get to know them – meet the best of the best. Read the books on sales and personal development. Attend the seminars. It’s a lot of hard work to strengthen that “inner wingman,” as I call it. You are the most critical wingman in executing a successful business plan.

Commitment is an important part of the success equation. It relates to the drive and the ability to keep going when obstacles are present – when the missiles of life are being shot at you.

A truly committed fighter pilot and entrepreneur still presses on when the fun stops – when the missiles are launched, when the sales are down, when the prospect says no, when the economy sputters and when the products change. That resilience and commitment have to be there when you jump out of bed every day and go to battle. You have to be willing to get shot at! If not, then business isn’t for you.

FELDMAN: Can you tell us about a leader May 2013 » InsuranceNewsNet Magazine

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FEATURE

TOP GUN SECRETS (THAT EVERY ADVISOR MUST KNOW)

A mind map of Waldman’s core beliefs in both business and combat.

who helped you develop as a fighter pilot?

WALDMAN: There are a lot of fundamentals that differentiate average leaders from great leaders and poor leaders from average leaders. I will share what happened one time when I was late for a mission briefing. If you are late for a briefing (or a debriefing), you are grounded. It’s a serious situation because you impacted the training of your entire squadron.

Instead of chewing me out, my commander, whose call sign was “Psycho” and happened to be a rather intimidating guy, came up to me and said, “Waldo, listen, this isn’t like you. You are never late.

Is everything OK at home? Do you feel all right? Do you need a day off? Talk to me.”

I remember how shocked I was. I just did not expect to hear it from him.

I remember thinking how he appreciated me as a person first rather than as a pilot. Psycho connected with me from the heart, not the head. He show me he cared by the questions he asked, and by 18

InsuranceNewsNet Magazine » May 2013

doing so, he built my loyalty to him (a rare commodity these days).

I worked harder for Psycho. I volunteered for the tough duties, studied harder and became a better pilot because of him. I performed better because of Psycho’s leadership.

A great leader, in any industry, asks the questions and treats others as people first rather than as employees. We’re all going to have bad days. We’re going to walk into the squadron of life – be it an office or a meeting or a sales conference – and we may have missile launch or engine failure. One of our gear may not be down and locked. A phone call may have come in and our spouse may be sick, the divorce paperwork is getting ready to be signed or the test results are positive. But we have to still go out and execute the mission, close the deal, give the presentation, land our jets and make it home.

FELDMAN: Can you motivate people to become wingmen or do you have to hire the right people?

WALDMAN: Hiring good people is key. You can’t change the stripes on a zebra. And finding qualified talent is difficult these days, so you have to hold on to talented employees and treat them well.

You can motivate people but you also can demotivate them. You can obtain perfectly qualified wingmen in your office, but if you don’t treat them with respect, appreciate their efforts and give them proper training, they will find work elsewhere. Even worse, they will stay and be mediocre.

Here’s the point: As a leader, we have the choice every day to either “push it up” and commit ourselves to excellence for our team, clients and family, or we are going to pull it back. It’s easier to give into the temptation to pull it back when we are overwhelmed, stressed and dealing with rejection. It’s easy to say, “You know what? I’m going to get into work a little late today. I’m going to sleep in. I’m not going to

TOP GUN SECRETS (THAT EVERY ADVISOR MUST KNOW) make the extra call. I’m just going to give it half the effort.”

This is what leads to complacency, and complacency kills. It kills the fighter pilots who don’t prepare and stay committed. And it kills businesses, entrepreneurial practices and relationships as well. Because complacency eats away at you and your values and everything you stand for. Your wingmen will see that as well. George Patton once said, “You are always on parade.” Your people are watching you to see if you are pushing it up or pulling it back. If you are not willing to push it up in everything you do, they’re not going to push it up either.

And neither will your clients, because they are watching you, too. They are watching you when you’re at the meeting and asking them about their lives. They’re seeing if you follow up and send them a handwritten personalized note thanking them for their time. They’re watching to see if you’ll deliver on your promises. These are the subtleties that differentiate the aver-

FEATURE

age insurance agents from the experts.

They separate the complacent from the committed.

FELDMAN: Do you have any examples of leaders who demotivated you?

WALDMAN: I was a young instructor pilot and learned a valuable lesson about integrity and leadership when I was on a solo training flight in the T-37 jet trainer. A few times a year, instructor pilots are given the opportunity to fly without a student in order to hone our skills.

It’s a lot of fun and stress-free. After practicing aerobatics, I returned to the traffic pattern and decided it would be cool to see if I could hit the maximum “G-limit” of the plane, which was 6.67 G’s. Anything above that limit would require an emergency to be declared. In other words, I was being stupid.

Sure enough, I hit some wake turbulence and inadvertently pulled 7 G’s – just a tad over 6.67. I could have “zeroed out” the G-meter and nobody would have known. But I knew the right thing

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FEATURE

TOP GUN SECRETS (EVERY ADVISOR MUST KNOW)

to do was to declare an emergency and deal with the consequences, which I did reluctantly.

When I landed, my commander met me at the jet and seriously chewed me out for being a hot dog and for lacking discipline. I was being unsafe and deserved it. The jet had to be grounded for two weeks and inspected for cracks in the airframe, and this cost the taxpayer $25,000! My commander made me give a presentation to my squadron mates on the procedure and also made me apologize for messing up.

From that day on, my commander washed his hands of me and I could do nothing right. My reputation was tarnished. When my friend met me for lunch, he told me that if he over-G’d the jet by as little as I did, he would have punched off the G-meter so as not to go through what I went through in the squadron. I remember how disappointed I felt. Despite the example that was made of me, instead of creating a culture of courage where people would admit their mistakes, my commander created a culture of cowards. His leadership backfired and I lost respect for him.

While I definitely messed up and deserved to be punished for my mistake, I think the commander also could have publicly praised me for having the integrity to turn myself in. Sure, I lacked discipline and was unsafe. But by highlighting the fact that I did the right thing, he could have shifted the culture in my squadron in a more positive manner.

I think that as leaders in business and life, we should be careful not to severely reprimand someone we work with (or who works for us) when that person makes a mistake for the first time. It doesn’t mean that person shouldn’t be disciplined or reprimanded (or even fired it if continues).

But if someone makes a mistake and maintains integrity by admitting it, you should use it as a learning opportunity. By doing so, they will be more apt to share future mistakes and hold themselves to a higher standard. It will not only improve your reputation as a business leader, but it will also improve the reputation of your agency.

Trust is a commodity you can’t afford to lose, especially in financial services.

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InsuranceNewsNet Magazine » May 2013

“Be careful chopping off your wingmen at the knees, the folks that work for you when they make a mistake.”

The Seven Rules of Wingmanship

W

IN. Win stands for “work it now.” Plan on hitting the target or don’t fly at all.

Be willing to sacrifice and do the hard work necessary to win. Effort is the impetus to action.

I

NTEGRITY. Integrity is the foundation for trust and the most important core value in building a long-term, successful business. Integrity means you are a person of your word. You do what you say you will do and you honor your commitments.

N G

OW. Wingmen operate on a “now timeline.” Do what’s necessary to take action now and resist the temptation to procrastinate and become complacent.

ENEROUS. Wingmen give unconditionally. Give your time, advice and feedback to others. Most importantly, give your focus. Be the type of person others can come to for help, and you’ll always have others there for you when you call out “Mayday.”

M

ISSION-READY. Preparation is critical for success. Discipline yourself to study the competition and your customer, hone your skills and “chair-fly” your missions. Finally, build cohesive relationships before the missiles of adversity and change are launched.

A

CCOUNTABLE. You, and no one else, must be fully accountable for results. Own them. Never outsource responsibility. Ultimately, you’re the mission commander of your aircraft.

N

EVER FLY SOLO. Always lend your wings to others in need and be willing to ask for help. “Walk the flight line,” and connect with your co-workers, vendors and customers by learning their business and challenges. Finally, treat others as people first. When you do, your wingmen will become more loyal and stay committed to the mission.

To download Waldo’s Top Gun Motivation mission sales briefing or hire Waldo to speak at your sales meeting, visit www.YourWingman.com, e-mail info@yourwingman.com or call 1-866-925-3616.

TOP GUN SECRETS

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[NEWSWIRES]

95% of those surveyed by LIMRA said they were satisfied with the experience of filing a death claim. bitly.com/QRdeathclaim

What the Young don’t Know about Life

THEY DON’T KNOW … … the difference between term and permanent life insurance

60% 30% 19%

… what type of

insurance they Most 20- and 30-somethings get an “F” in Inactually own surance 101, according to The Guardian Life … how much Insurance Co. and LearnVest. their policy For example, 60 percent of young adults that would pay out the two firms polled don’t understand the difference between term and permanent life insurance. In addition, 30 percent don’t know what type of insurance they actually own, and 19 percent don’t know how much their policy would pay out, the researchers say. Among the married or partnered, 59 percent do know that their significant other has coverage but 35 percent of those people say they have no idea what type of coverage. And get this: Nearly 20 percent of married/partnered young adults say they don’t need to worry about getting their own insurance because their spouse is covered, and that should be enough for them, too.

To which most insurance professionals would say, “Get a life” (policy, that is).

THE MLR BILL IS BACK

This year, the federal medical loss ratio (MLR) bill in the Senate has a new number – SB 650 – but it has the same purpose as last year: Amending the health-care reform bill “to preserve consumer and employer access to licensed independent insurance producers.”

The measure proposes to remove broker compensation from MLR calculations of administrative costs for health insurance plans. The Affordable Care Act (ACA) requires that such compensation be included in the calculations, and since the ACA also caps the percentage of premiums that can go toward administrative costs, carriers say they were all but forced to slash commissions so they could meet the law’s parameters. Those commission cuts have triggered fierce protests from health insurance brokers who say their health insurance commission income fell by a third or a half or more. Legislation they supported to turn back the clock didn’t pass last year, but it’s clear that brokers aren’t giving up.

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?

22

It’s not just the reduced income to health insurance brokers that is the problem with the current MLR requirements, brokers say. It’s also the crippling effect that commission reductions are having on brokers’ ability to stay in business and serve clients. Some have already left the business. If more do so, that could sharply curtail services to middle-class Americans and small businesses, brokers say, because these markets typically buy health insurance through local agents and brokers.

IT’S ADVICE THEY NEED, PERSONALIZED ADVICE

Personalize it, according to TIAA-CREF. A whopping 80 percent of adults say they are not contributing to an IRA, up 4 percent from 2012. What’s more, close to half also lack basic understanding of what IRAs are and how they are used, the researchers say.

Those percentages are staggering, considering that IRAs have been around for decades. After looking at the new data, the researchers have concluded that, not only are IRA education and awareness programs needed, but also personalized advice to, as they put it, “help individuals make the best financial decisions at all life stages.”

INDEXED UNIVERSAL LIFE INSURANCE now represents 30 percent of total UL premium, and 12 percent of all individual life insurance premiums. Source: LIMRA

InsuranceNewsNet Magazine » May 2013

Generation Y is particularly in need of such advice, they say. Nearly 70 percent of these young adults say they would consider opening an IRA, the researchers concede.

But nearly half of those who are disregarding IRAs say their reason is they don’t know enough about IRAs. And, when it comes to maximizing tax benefit through the IRA vehicle, people “need to find the right advisor to help them navigate through vast amounts of information,” concludes Dan Keady, director-financial planning for TIAA-CREF.

LIFE CARRIERS AND COMMERCIAL MORTGAGES

Interest rates were bottom-lining in 2012 and market volatility was making waves, but life insurance companies were not without certain resources. Take their commercial mortgage holdings for example.

In 2012, commercial mortgage investments held by life carriers returned 7.48 percent, according to LifeComps Commercial Mortgage Loan Index. For the 12-month period, income contributed 5.64 percent and price added 1.84 percent, the Boston Index Service says, adding that the annual performance benefitted primarily from mortgage spread tightening, and to a lesser extent, lower Treasury yields on five- and 10-year maturities (both of which fell 11 basis points over the year).

Commercial mortgages aren’t the biggest percentage of carrier holdings. For instance, a late 2012 report from the National Association of Insurance Commissioners says that, as of year-end 2011, commercial mortgage loans constituted 8.7 percent of life companies’ total investments.

Still, the 2012 returns could be a talking point to raise with business and other clients who want some insight into the industry they are relying upon for long-term protection.

VOLUNTARY BENEFITS GET A HIGH-FIVE

More than half (63 percent) of employees who say their employer offers at least one voluntary benefit agree that such benefits increase the value of their company’s benefits program, says a new poll from Prudential Insurance

[NEWSWIRES] Co. What’s more, those interested in receiving more voluntary benefits through the workplace jumped to 34 percent from 24 percent a year ago.

Brokers seem to be on the same page.

According to the Newark, N.J., carrier, 44 percent of brokers selling voluntary products are expecting to see a 10 percent increase in demand for voluntary benefits compared to last year. Which products? Forty-one percent point to critical illness insurance. Others point to accident insurance (31 percent), long and short-term disability insurance (30 percent and 28 percent, respectively), dental insurance (27 percent) and life insurance (25 percent.)

INSIDE A HEALTH-CARE EXCHANGE

What health plan choices do employees make when using a health care exchange?

During annual enrollment last fall, 39 percent decided to enroll in a consumer-driven health plan (CDHP) for the 2013 plan year. That’s up from 12 percent in 2012, says Aon Hewitt, citing data gleaned from more than 100,000 enrollments via the firm’s corporate health exchange.

While CDHP enrollments went up, preferred provider organization (PPO) enrollments dropped from 70 percent in 2012 to 47 percent in 2013, the Lincolnshire, Ill., human resources company says. Health maintenance organization (HMO) enrollments fell, too – from 18

QUOTABLE As (independent advisor) firms have grown, most have not had a vision of what they want their business to evolve to, and as a result are stuck in third gear unable to shift into fourth and fifth gear where the practice can operate smoothly, efficiently and very profitably.

— Deborah Fox, CEO and founder of Fox Financial Planning Network

Start Discussing LTCi ASAP People aren’t up to speed on long-term care insurance (LTCi), according to a Nationwide Financial survey of people 50 and up who have at 23% not planning at all least $150,000 in income or investible assets. For 22% will use 401(k) instance, although industry figures show that only or retirement savings about 11 percent of people over 55 have LTCi, 24 percent of those polled by the Columbus, Ohio, 21% other personal carrier said they own the coverage. savings Here’s another odd twist: Nearly a quarter (23 percent) say they are not planning at all for LTC expenses; 22 percent say they plan to cover LTC costs with their 401(k) or retirement savings; and 21 percent say they’ll use their personal savings. Furthermore, 64 percent say they do not believe that state laws can force children to pay their parents’ unpaid nursing home bills – this even though, according to Nationwide, 29 states have laws that could make a patient’s children responsible for unpaid LTC bills.

If that’s not a jolt, how about this: Only 21 percent of the surveyed adults said they expect their children will help them in retirement.

In the what-to-do department, John Carter, president of distribution and sales for Nationwide, says this: Start discussing LTC planning, and develop a wellthought-out plan, so that parents and children understand where LTC funding will come from and both parties feel secure in the approach. “Proper retirement planning should include some type of LTC insurance protection that can provide funds for someone should they have LTC expenses,” he adds.

HOW THEY PLAN TO PAY

percent to 14 percent. Forty-two percent reduced their regular payroll contributions and selected a less rich coverage. But here’s an interesting wrinkle: 32 percent chose a plan similar in type to current coverage (e.g., PPO to PPO), and 26 percent chose richer coverage.

Industry professionals are keeping tabs on data like this because participation in health insurance exchanges is still uncharted water. People must wait until October of this year for the new state health care exchanges to begin operating, Mandated by the Affordable Care Act (ACA), these online marketplaces will allow consumers to compare and buy health policies for the 2014 plan year. This approaching development is fueling industry interest in types of coverage that consumers might select via these state exchanges. Of course, state exchange offerings will differ from each other and from those in the Aon Hewitt exchange. Still, activity in the Aon Hewitt exchange may provide an inkling of what is to come elsewhere.

SIGN OF THE TIMES

A lot of economy buffs believe that interest rates just will not stay at today’s low-slung levels.

Eventually, rates will go up, they insist. So perhaps it is no surprise that life carriers are developing policies suited for rising interest rate market conditions.

Take the new indexed universal life policy for Lincoln Financial Group. Called Lincoln Treasury Indexed Universal Life, it lets policyholders choose, at policy issue, the duration of their initial guaranteed coverage. In return, they receive a guaranteed schedule of earned “credit factors” that correspond to 10-year Treasury yield levels. Policyholders who pay scheduled premiums on time can: 1) apply the credits to extend coverage duration or to reduce out-of-pocket premiums; 2) withdraw the credits as cash; or 3) leave the credits in the policy account value (in all years except year one).

There is more to it than that but the thing to note here is the focus. It’s designed to appeal to those who believe rates eventually will rise, the company says.

May 2013 » InsuranceNewsNet Magazine

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BY STEV EN A. MOR ELLI

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InsuranceNewsNet Magazine Âť May 2013

W

ESTATE PLANNING FAILURES OF THE RICH AND FAMOUS

henever a celebrity wins an award, you can expect the tearful thanks to family – deeply expressed gratitude for the long-suffering loved ones without whom none of this would be possible.

But celebrities typically lose that loving feeling when it comes time to plan their estates. Instead, family members get to suffer a little bit longer. It seems to be the way of the uniquely creative, authentically eccentric and fiendishly entrepreneurial types that they come up with new ways to torture their loved ones.

The theme for this year’s gallery of estate-planning failures is families – you can’t live with ’em and they can’t live without you, even when you’re dead.

NAME: Sherman Hemsley AGE: 74 DIED: July 24, 2012; El Paso; lung cancer ESTATE MISTAKE: After his stint as George Jefferson, Helmsley moved on out to El Paso, which he adopted as his home, and considered his partner his family. But he did not take the step of cutting his actual family out of his will and his half-brother came back for him – literally – because he wanted to take his body back to his native Philadelphia.

FEATURE

Sherman Hemsley, before he moved on up to that deluxe apartment in the sky, played the rude and abrasive George Jefferson, spinning off from “All in the Family” to “The Jeffersons.” Apparently, he was a sweetheart of a guy in real life – unless you were family. Then you just didn’t exist.

But exist they did, no matter how much Hemsley ignored them. (Much like the theme song, “Movin’ on Up,” which will undoubtedly blast from the eighttrack of your brain for the rest of the day.) Hemsley’s manager and “beloved partner,” Flora Enchinton, found this out the hard way. She said in the decades that she knew Hemsley, he never talked about his family and they never visited. He adopted El Paso as his new home and left his native Philadelphia far behind.

Soon after Hemsley died, Richard Thornton showed up, claiming to be his half-brother and demanding the estate – all $50,000 of it.

“Some people come out of the woodwork – they think Sherman, they think money,” Enchinton told The Associated Press.

But that wasn’t all that Thornton wanted, he also demanded to take Hemsley’s body back to Philadelphia. This was despite Hemsley’s wish to be buried in El Paso with military honors (not in commemoration of his battles with Archie Bunker – Hemsley served in the Air Force).

Thornton’s argument had two things going for it: a test showed he was in fact a blood relative, giving him standing to contest the will, and Hemsley signed his will six weeks before dying of lung cancer.

Julie Ann Garber, author of the About. com blog on wills and estate planning, said that when Hemsley signed the will that close to his death, it could have triggered one of what she calls the four grounds for contesting a will. Those grounds are when the signer: D idn’t sign the will in accordance with state laws.

L acked capacity to sign a will.

W as unduly influenced into signing a will.

D idn’t realize he or she was signing a will, so the will was procured by fraud.

May 2013 » InsuranceNewsNet Magazine

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FEATURE

ESTATE PLANNING FAILURES OF THE RICH AND FAMOUS

NAME: Ted Williams AGE: 83 DIED: July 5, 2002; Inverness, Fla.; heart attack ESTATE MISTAKE: Although he said he wanted to be cremated and to have his ashes scattered in the Florida Keys, two of his children produced a note supposedly signed by Williams that said he wanted to be cryogenically frozen. The third heir could not afford to keep fighting the other two heirs, so the head of one of the finest players ever to grace baseball remains frozen in a pot. Because the will was not immediately available, the heirs had time to abscond with The Splendid Splinter’s body.

“It is better to plan while you have your wits about you,” said Garber, who is chief legal officer at The Andersen Firm in Florida. “Then there couldn’t be any question that you were doing this in view of your death.”

In Hemsley’s case, a judge said his half-brother could contest the will but followed Hemsley’s wishes to be buried in El Paso. That was after Hemsley had been in a refrigerator for three and a half months.

But that was nothing compared to Ted Williams, one of the greatest players to have ever graced the game of baseball. His head has been frozen for more than 10 years in what has been described as a lobster pot. Two of his children said it was what he wanted and produced a stained, scribbled note signed by Williams to that effect.

Russell Fishkind, wrote about the case in his book, Probate Wars of the Rich & Famous: An Insider’s Guide to Estate Planning and Probate Litigation. He says he was dumbfounded when he saw the note that the heirs produced.

“When I first got a copy of this note, I thought I had a bad copy, but that’s not the case,” said Fishkind, who is a partner at Saul Ewing, a personal wealth, estates and trusts practice in New York City and Princeton, N.J. “There are four or five blobs of oil on this note.”

It said, “JHW, Claudia and Dad all agree to be put in bio-stasis after we die.

This is what we want, to be able to be together in the future, even if it is only a chance.” It was signed “Ted Williams,” 26

InsuranceNewsNet Magazine » May 2013

which is what he commonly used for autographs, but usually signed his full name in legal documents.

The note is in form and content a stark contrast to the Hemingwayesque wishes in his will: “I direct that my remains be cremated and my ashes sprinkled at sea off the coast of Florida, where the water is very deep.”

Daughter Claudia produced the note almost immediately after Williams’ death and whisked the body to Arizona, where the head that once wore a Red Sox cap was removed and placed in one container, while his body was stored in another. Not a cheap procedure, by the way, costing $120,000, according to Fishkind.

Also, it appears that cryogenic storage is not as sedate as it might sound.

“His head was cracked, apparently dropped, and has as many as 10 deep fractures in the skull,” Fishkind said.

“The company says, ‘Well, that’s just because of changing temperatures,’ but the point is, he’s got these 10 holes that they said are the size of a dime.

His head is stored in a silver container marked as ID number A-1949.”

Williams’ elder daughter entered the picture and fought the other two, but legal fees were rapidly depleting the estate. So, they settled on setting up trust for the remaining $645,000 to be split among the heirs. Why did the elder daughter drop the fight?

Reportedly, she had previously been disinherited.

People can learn two things from Williams’ case. The first is to document wishes clearly, which he had done. But then those wishes have to be known, Fishkind said. Make sure certain people have quick access to the will so that someone cannot come in and undermine true intentions.

“It is better to plan while you have your wits about you. Then there couldn’t be any question that you were doing this in view of your death.”

RETHINKING BIG CASES

FEATURE

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FEATURE

ESTATE PLANNING FAILURES OF THE RICH AND FAMOUS

NAME: Thomas Kinkade AGE: 54 DIED: April 6, 2012; Monte Sereno, Calif.; alcohol and Valium overdose ESTATE MISTAKE: The self-described painter of light had a dark side, which led to his demise. And, despite his $50 million in wealth and his careful artistry, he had left behind a sloppy note bequeathing his girlfriend $10 million and a Northern California compound. Kinkade’s wife took issue with that.

“Attach at least a copy of it with the lawyer, with the accountant, with the financial planner, with a key family member so that everybody knows what your intentions are and someone can’t act on their own and undermine your intentions,” Fishkind said.

The Williams and Hemsley cases also illustrate the point that if the will does not specify what happens to the body, the next of kin decides what happens. In Hemsley’s case, his will won, but in Williams’ case, speed won. That’s because wills usually do not go into effect for at least a few weeks and a fight can break out even before then.

The Hemsley case also reinforces the need to account clearly for those unrelated by blood – and those related – for that matter, Garber said.

“If you’re silent on the issue it leaves people wondering if it was intentional or a mistake,” she said.

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If Hemsley named relatives and excluded them by name, his intentions would be clear. But how would a person do that? It might sound a bit rude, but he or she would use the “you’re-deadto-me” clause. So, even if Uncle Bob still insists on breathing, he can be cut out of the will by being declared already dead. Garber said it is the clearest way to disinherit someone, but it takes some strong nerves.

“The wording is something to the effect that, ‘I have chosen not to provide for Bob or any of his descendants in my will or my trust for reasons I deem to be good and sufficient. Therefore, for all purposes of this will or trust I deem Bob and all of his descendants to have predeceased me,’” Garber said, adding that some people blanch upon seeing that.

“I’ve had clients who cringe when they see that in black and white and they’re like, ‘Wow, that’s, uh, harsh,’ and have

second thoughts.”

Clarity is good, particularly when it comes to relationships other than blood relatives and marriages. Those were lessons lost on Thomas Kinkade.

Kinkade, the self-described painter of light, had more than a few streaks of dark pigment in his life. When he died of an alcohol and valium overdose, he was living with a girlfriend, but still married. That major life change right there should have screamed for an estate planning update, which he did, but not very artfully. His girlfriend produced two notes purportedly scrawled and signed by Kinkade leaving her $10 million, a California estate and some art.

Kinkade was smart about his business, amassing a fortune of about $70 million, but did some not-so-smart things. In fact, in Florida, where Garber practices, the state would protect

ESTATE PLANNING FAILURES OF THE RICH AND FAMOUS

FEATURE

NAME: Larry Hillblom AGE: 52 DIED: May 21, 1995; Saipan; plane crash (maybe) ESTATE MISTAKE: Hillblom was the entrepreneurial genius behind overnight package delivery as the founder of DHL. But he was not so smart about indulging his appetite for underage prostitutes. He indulged that appetite with abandon across Asia, leaving behind a fairly well-populated legacy, which came for a cut of the estate. He could have explicitly cut them out of his will, but, then again, it might have been better if he had just cut out his behavior.

people from themselves. A will that was handwritten and signed without witnesses would not be valid. But even so, the scrawled nature of the notes certainly invited challenges.

“They’re barely legible,” Garber said.

“So that goes back to capacity. Did she force him to write that? Then you have the undue influence question. So that was a mess.”

The situation had all the makings of a slowly grinding spectacle bound to inspire creative headlines for years to come. But to the surprise of many, Kinkade’s wife and girlfriend settled.

“I was really shocked when I saw that,” Garber said. “Usually it takes years for people to come to the conclusion, ‘Let’s just forget it and move on.’ ” Another case of when stupid wills happen to smart people was Larry Hillblom, the Howard Hughes you probably never heard of. Hillblom was the entrepreneurial genius behind the overnight courier, DHL. He challenged the post office to become the first large carrier besides U.S. Mail and paved the way for others such as Federal Express.

He also blazed a trail to Nuttytown.

He moved to Saipan, which is one of the United States’ most western territories, sitting in the Pacific Ocean suspended between Japan to the north, Papua New Guinea to the south, the Philippines to the west and a whole lot of ocean to the east. It is somewhere in that ocean where Hillblom now rests – most likely.

He looked like a beach bum unless you saw his DeLorean, his enormous home and somehow got a look at the many hundreds of millions of dollars he had. Some said he was a billionaire, but the official count brought it to about $600 million. He was secretive in his dealings, so many millions might still be unaccounted for. Hillblom also was

quiet about his predilection for underage prostitutes in the Philippines and in other places so beset by poverty that children turned tricks to help support their families.

He preferred virgins, supposedly to avoid AIDS, but even if that were so, he was not as careful about his other hobby of flying rickety aircraft without a license. His plane dropped into the ocean with two other passengers in 1995. Their bodies were recovered; his never was.

Soon after, women from the Pacific Rim started showing up with children who

resembled Hillblom, setting off a nasty probate battle.

Hillblom’s will left generous amounts to the University of California, where he graduated from law school, and for medical research. But it made no mention of possible progeny, leaving the door wide open for challenges.

Garber said people typically name their children and then exclude any defendant not named. “Say you have three kids and you think, ‘Well, I might have a fourth out there somewhere,’ then you would just name those three kids

NAME: Ray Charles AGE: 73 DIED: June 10, 2004; Beverly Hills; liver failure ESTATE MISTAKE: Even though Charles had an estate worth $75 million by some estimates, he did a slightly nicer rendition of Hit the Road Jack by leaving $500,000 total for his 12 children and the rest to his charity, the Ray Charles Foundation. The relatively small bequest to his children and ill-defined remarks from Charles ensured an estate battle, which started soon after he died.

May 2013 » InsuranceNewsNet Magazine

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FEATURE

ESTATE PLANNING FAILURES OF THE RICH AND FAMOUS

NAME: Whitney Houston AGE: 48 DIED: Feb. 11, 2012; Beverly Hills; drowned in bathtub ESTATE MISTAKE: Houston did not draw up a new will when her daughter was born but added a codicil to leave her daughter her whole estate, and this was challenged

by Houston’s mother. Houston could have reinforced her true wishes by updating her estate plan and structuring a better trust that would have allllwaaaaays loved her daughter.

and their descendants, and then say, ‘I specifically exclude any other descendent that’s not named.’ ” Even though Hillblom had a law degree, and was supposedly advised to revise his will, he did not. He also did not name his live-in girlfriend, who was kicked to the street by Hillblom’s executors. Eventually, four of the children who came forward proved to be related to Hillblom and were awarded 60 percent 30

InsuranceNewsNet Magazine » May 2013

of the estate in a long, drawn-out settlement. His girlfriend got $3 million.

Someone else with prodigious progeny was music legend Ray Charles. He accounted for his 12 children but left them $500,000 in total, a sliver of an estate valued to be as much as $75 million in cash and assets. The rest went to a business, and to set up the Ray Charles Foundation.

By leaving a proportionally small amount to his children, Charles en-

sured challenges. Whitney Houston also guaranteed a challenge in her case when she left her $20 million estate to her 19-year-old daughter, Bobbi Kristina Brown. She instructed the trust to pay out 10 percent when her daughter turned 21, 20 percent at age 25 and the rest at age 30.

The estate, and Whitney’s mother, protested, saying that the plan would make Bobbi a target for people trying to exert undue influence and that Whitney would probably have preferred Bobbi to have a lifetime stream of money rather than the lump sum at 30.

In the Charles and Houston cases, although they were clear in their wills and trusts, people questioned whether the legal documents reflected their true intention. Fishkind said one way to avoid this is to videotape the person explaining his or her reasoning.

“I go through the terms of the will with the testator and say, ‘Is this your intention?’ After the testator says yes, then I pan the camera to the witnesses and the notary,” Fishkind said. “Then I have the testator sign, on camera, the witness and the notary sign, and the notary affixes his or her seal, on camera. Then I store that with the will. It knocks out the claim for lack of capacity and that the will wasn’t signed properly.”

But what happens if the client issues a poorly timed joke, such as, “I have no idea what I’m signing,” right into the camera?

“That is a concern,” Fishkind said. “I work with the client in drafting a statement that the client reads into the record, so that no comments essentially go off script. If Ray Charles says, ‘I’ve spent a lifetime in music and it’s very important to me and I have 12 children and I love them all, but I’ve really spent a lot of time with my estate planner designing a plan that meets with my intentions and therefore, what I have agreed to do, and I’ve documented in my will, is to leave the sum of $500,000 to be divided equally amongst my 12 children, and the balance is to go to the Ray Charles Foundation.’ ” Then Fishkind would refer to that section of the will and confirm the client’s intentions to clear up any possible confusion.

In the Charles and Houston cases, trusts handled the money and were able

RETHINKING BIG CASES

FEATURE

FEATURE

ESTATE PLANNING FAILURES OF THE RICH AND FAMOUS to avoid estate taxes. That was an area of planning inspired by the introduction of the estate tax and in particular the experience of the John D. Rockefeller Sr. case.

Rockefeller is considered the country’s first billionaire, having amassed an enormous fortune in oil just as cars and airplanes were being developed. But, the United States had a love/hate relationship with the empire builder. Rockefeller helped inspire anti-trust and other regulations designed to curb his power and wealth. The estate tax law, besides helping fund World War I, was also structured to break up dynasties.

Despite the government’s actions, Rockefeller still acquired the vast fortune of $1.4 billion in 1937, even with The Great Depression at its deepest. And although the estate tax did take a 70 percent chomp out of the estate, the Rockefellers still managed to perpetuate a bit of a dynasty, inspiring countless moms and dads to tell their kids, “whaddaya think, we’re Rockefellers or something?”

Now, it would be rare for very large estates to not feature some protection from taxes, but that becomes more difficult for families with large assets.

Family farms might come to mind, but it often happens with sport teams and other properties such as major metro newspapers.

The Ochs/Sulzberger family has been getting a sense of this since the family bought The New York Times about 100 years ago. Family ownership had dwindled to 15 percent until Arthur Ochs Sulzberger Sr. died last year. Of his $70.2 million estate, Sulzberger left $41 million in company stock to his children, which they said they had to sell in a few weeks to deal with estate taxes and they

NAME: John D. Rockefeller AGE: 97 DIED: May 23, 1937; Ormond Beach, Fla.; hardening of arteries ESTATE MISTAKE: America’s first billionaire was one of the reasons for the creation of an estate tax, which took 70 percent upon his death. His heirs still had a few bucks left, considering his estate was worth about $1.4 billion, even in the depths of the Great Depression.

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“There are two things you can run and not hide from – God and a dysfunctional family.”

ESTATE PLANNING FAILURES OF THE RICH AND FAMOUS

He had won a $1 million lottery and then soon died of cyanide poisoning.

He spoke to the press of his big plans with the money: pay off his mortgages, expand his business and donate to St. Jude Children’s Research Hospital.

Instead, a couple of days before he was to pick up the check, he complained of a severe stomach ache, went to the hospital and died. Doctors said cyanide killed him but authorities have not figured out how he ingested it.

Besides the big plans Khan had for the winnings, he was already somewhat of a winner, having built a successful chain of dry-cleaners and had some real estate.

Despite all of that, he did not have a will.

So, the children’s hospital will not get money. Nor will his daughter from a previous marriage. The sole heir is his current wife – the person who served him his last meal.

The moral of this year’s batch of stories? A quote from R. Alan Woods’ book The Journey is the Destination might be appropriate here: “There are two things you can run and not hide from – God and a dysfunctional family.”

So, the lesson here might be that clients shouldn’t even try to run from family, dysfunctional or not. But you can let them know that this is their opportunity to finally have the last word – and testament.

NAME: Arthur Ochs Sulzberger Sr. AGE: 86 DIED: Sept. 29, 2012; Southampton, N.Y.; brain hemorrhage ESTATE MISTAKE: When the publisher of the New York Times died, the family had to sell off stock to settle the estate, which is not unusual for families with enormous assets. The sale dropped the family’s ownership of the Times from 15 percent down to 13 percent. That might not seem a lot, but just a few years earlier, the family had 18 percent ownership before another death forced a stock sale.

wanted to act before they significantly affected the stock price. The sale eroded family ownership to 13 percent. The family’s ownership had been 19 percent as recently as 2010.

Although the estate tax exemption is higher than it has been for years, family-owned businesses are still in dire need

FEATURE

of estate-planning to keep the enterprise in the family, if that is their desire.

This series would not be complete if we did not include at least one person who died without a will. This year’s example is Urooj Khan.

That might not be a familiar name, but his circumstances might ring a bell.

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@insurancenewsnet.com.

NAME: Urooj Khan AGE: 46 DIED: July 20, 2012; Chicago; cyanide poisoning ESTATE MISTAKE: Khan won $1 million in a lottery and had big plans for the money, but someone else had other plans for him.

The winnings will not go to the charity he chose but most likely to his beloved wife, who served him his last meal.

Discover more curious estate planning blunders at www.estatefailures.com May 2013 » InsuranceNewsNet Magazine

33

MORE, not less, IS BETTER

Advertisement

By: Thomas R. Petersen, MBA, RHU

A recent television commercial shows a moderator speaking with several children at a table, asking them different questions. “Which is better, more or less”. One young girl says, “more because we don’t want less…we want more!” The same is true when it comes to disability insurance benefits. No one has ever said they had too much, especially at claim time.

Supplemental disability benefits have been available through select producers for many years. Traditionally these plans are sold on an individual basis. However, in recent years, excess disability plans have become available in the multi-life and group GSI markets providing the advantageous ability to reduce or even eliminate underwriting and at the same time increase discounts up to 30% over individual rates!

Argument for “more”; insurance industry experience suggests that a sufficient amount of disability insurance occurs at about 70% of a person’s income, regardless of income level. A person who makes $750,000/year probably has a larger house than a person who makes $75,000/year, but the percentage of income dedicated to the mortgage of each person remains relatively constant.

However, higher paid executives and professionals often are subject to limitations by the fact that as income goes up, the traditional individual and group market plans’ par34

InsuranceNewsNet Magazine » May 2013

ticipation percentage goes down.

Let’s use a basic group plan as our starting point: ABC company has 250 employees. The top 10 executives have an annual income of $300,000 and $200,000 (bonus) for a total compensation of $500,000. The group plan provides 60% of income, up to $15,000/month.

The executives will receive a maximum benefit of $15,000/month because that is the cap on the group plan. Now to add insult to injury, group and individuals carriers do not fully cover bonus income if at all. Using our 70% rule for proper coverage, the executives should have disability benefits of $29,200/ month. They have a shortfall of $14,200 in adequate amounts of disability protection. If one of these executives were to become disabled, they stand a strong chance of falling into bankruptcy.

Let’s add in individual coverage. Based upon $500,000 annual income, the individual plan will cover up to $20,000/month less the $15,000 group coverage. Thus the total benefits will be $20,000 ($15,000 group and $5,000 individual). This is better! This is more!

However, this is still not adequate as the proper amount is still $29,200/ month. A shortfall of $9,200.

Enter excess GSI coverage – the “more” plan. Since all 10 of these executives need more benefits, an excess GSI plan is layered on top of the group and on top of the individ-

ual plan with the additional $9,200/ month benefit.

Excess GSI is not to replace group disability and it is not to replace individual disability. It is there to provide more benefits to those incomes high enough to need additional adequate coverage. There are several ways to acquire more coverage: Individual: This is written on a fully underwritten basis, unless following the issuance of a traditional disability plan, then excess can automatically be issued with little or no medical underwriting and only financial underwriting.

Multi-life Mandatory: Carved out specific such as the executive board of directors, a specific department, or owners.

Multi-life Voluntary: Coverage is offered to a select group of employees. Minimum participation is required to maintain the Guaranteed Issue offering. Each individual will be provided an individual enrollment form with no medical questions.

Don’t your clients deserve more?

Thomas R. Petersen, MBA, RHU is a principal at Petersen International Underwriters.

He can be reached at piu@piu.org.

GUARANTEED ISSUE

SUPPLEMENTAL DISABILITY INSURANCE A Tiered Approach to Adequate Disability Insurance Protection Proper disability insurance protection often requires the use of more than a single disability insurance policy. The supplemental Disability Insurance Plan fills in the deficiencies of not only group LTD coverage, but individual, standalone policies as well. Coverage will often take the following format:

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May 2013 » InsuranceNewsNet Magazine

35

[LIFEWIRES]

U.S. Insurance Mergers & Acquisitions Activity Dropped in 2012 bitly.com/QRMergers

Indexed Life Sets 4Q Record Fourth quarter 2012 was another record-setter for indexed life sales and it capped off another record-breaking year. Sales for the quarter were $430.8 million, an increase of nearly 34 percent over the previous quarter, and up more than 34 percent compared with the same quarter in 2011. Indexed life sales in 2012 set records for the third consecutive year.

Aviva held on to its No. 1 position in indexed life, with a 15 percent market share.

Pacific Life continued as the second-ranked company in the market, while AXA Equitable, National Western and AEGON Companies rounded out the top five companies, respectively. AXA Equitable’s Athena Indexed UL was the top-selling indexed life insurance product for the seventh consecutive quarter. The average target premium on indexed life increased over 30 percent to $11,370 for the quarter.

BANK LIFE SALES REACH SECOND HIGHEST RATE

Banks continue to make inroads in life insurance sales. Life insurance sold through banks continued its upward trend in 2012, reported BISRA. Total life premium sold through financial institutions reached $1.6 billion in 2012, up 13 percent from the prior year. This represents the second highest annual level in history for banks, only 12 percent below the record $1.837 billion sold in 2010.

“Since 2009, at least 9 out of every 10 dollars in new life sales premium sold in the bank channel has come from single premium products” stated Dan Beatrice, associate research director at BISRA. In 2012, 96 percent of total new life insurance premium was reported coming through single premium transactions.

“While the life insurance sales results for 2012 are impressive, it’s discouraging to see the amount of recurring premium decline fairly steadily since the mid-2000s,” said Scott Stathis, managing director of BISRA. “We need to move beyond life insurance baby steps and get to real protection products. As banks evolve into providers of inteDID YOU

KNOW

?

36

grated wealth management we should see the amount of recurring premium increase. If we don’t, I feel it will be a sign that the bank reps are not doing their jobs as true advisors for managing their clients’ wealth.”

INSURANCE COMPANIES LOOKING TO MAKE MAJOR MOVES

Three of the nation’s major life insurers have announced major changes to their workforces.

MetLife is making an estimated $125 million investment in North Carolina, moving as many as 2,600 jobs to office campuses in Cary and Charlotte. The company is shifting jobs from California and several Northeastern states to North Carolina. Charlotte will be the U.S. headquarters for MetLife’s retail business, while Cary will become the company’s global technology and operations hub. A company spokesman said the consolidation will allow teams to work in the same location while cutting MetLife’s real estate presence.

New York Life announced plans to hire 3,700 financial professionals in 2013, with more than half to be women or individuals who represent the cultural markets.

Last year, 62 percent of New York Life’s new hires were women or individuals serving cultural markets. The company plans to

45% OF THOSE POLLED said they are likely to purchase life insurance in the next year. Source: LIMRA 2013 Insurance Barometer Survey

InsuranceNewsNet Magazine » May 2013

continue that trend in 2013 as it continues to hire women and individuals serving the African-American, Chinese, Hispanic, Korean, South Asian and Vietnamese markets.

Meanwhile, State Farm is experiencing a growth spurt. The company plans to bring 2,000 new jobs to Tacoma, Wash., and it is forming hubs in Phoenix, Dallas and Atlanta, where it has leased enough new office space in the past six months to employ thousands of people.

All of this has raised questions about whether State Farm’s next move will be out of its Bloomington, Ill., headquarters.

A company spokeswoman said in February that there are no plans to relocate from Bloomington.

HOW MUCH WOULD IT COST TO REPLACE MOMMY?

Who can put a price tag on Mom and what she does for her family? Although many of Mom’s contributions to the household are priceless, someone would have to shell out big bucks to pay anyone else to do them.

Even though women are just as likely to bring home the bacon as they are to cook it for their kids’ breakfast, they haven’t kept pace with their male counterparts in purchasing life insurance, according to an industry group.

As many as 43 percent of adult women have no life insurance, according to the Insurance Information Institute. This is about the same percentage as adult men who have no life insurance. Many of those who have life insurance are underinsured, the group said, carrying about one-quarter of what their beneficiaries need.

“A hundred years ago women weren’t even able to buy life insurance,” said Loretta Worters, vice president of the institute, in a statement. “Today, women can protect their finances, but they aren’t buying the coverage or, if they are, it isn’t enough.”

Replacing mommy would cost “a small fortune,” Worters said, particularly if she were underinsured by an inadequate life policy or lacked coverage altogether. The Bureau of Labor Statistics puts an estimated pricetag of $94,700 a year on the value of services that a mother provides for her family (including nanny, cook, housekeeper, chauffeur and laundress).

$ 94

pe,r7y0ea0r

to be our policyholders.

Securian Financial Group, Inc. www.securian.com Insurance products are issued by Minnesota Life Insurance Company in all states Minnesota Life and Securian Life are highly rated by the major except New York. In New York, products are issued by Securian Life Insurance Company, independent rating agencies that analyze the financial soundness a New York admitted insurer. Both companies are headquartered in Saint Paul, MN. and claims-paying ability of insurance companies. For more You can never put enough weight on financial strength.

Product availability and features may vary by state. Each insurer is solely responsible information about the rating agencies and to see where Minnesota how we can strengthen your for the financial obligations under the policies or contracts it issues.

Life andLearn Secur ian Life’s ratings rank relative to other ratings, please clients’ financial security. Call our Sales Support Team today: 400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 see ourLife websi te at www.securian.com/ratings.

1-888-413-7860, Option 1 ©2012 Securian Financial Group, Inc. All rights reserved.

For over 130 years, our dedication to mutuality and financial strength has helped us fulfill our obligations – in good times and bad.

• Providing comprehensive life insurance solutions since 1880

• Ranked among the 15 most highly rated company groups evaluated by all four major ratings agencies, out of almost 1,000 life insurers doing business in the United States You and your clients can be confident knowing our primary focus has been and will continue to be our policyholders.

F78462-3 3-2013 DOFU 1-2013 A04768-1212 Securian Financial Group, Inc. www.securian.com

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

400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2012 Securian Financial Group, Inc. All rights reserved.

F78462-3 3-2013 DOFU 1-2013 A04768-1212

For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it is accessible to the general public.

Minnesota Life and Securian Life are highly rated by the major independent rating agencies that analyze the financial soundness and claims-paying ability of insurance companies. For more information about the rating agencies and to see where Minnesota Life and Securian Life’s ratings rank relative to other ratings, please see our website at www.securian.com/ratings.

For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it is accessible to the general public.

May 2013 » InsuranceNewsNet Magazine 37

LIFE

Buy-Sell Planning Vaults Higher Estate Tax Bar T he higher estate tax exemption removed one need for life insurance, but advisors have another opportunity to help protect business owners.

By William P. Stark

W

hen Congress passed the American Tax Relief Act of 2012, it also removed one of the key needs for large life insurance policies.

The estate and gift tax exemptions were raised from $1 million to $5 million for individuals and $10 million for married couples. Additionally, the estate and gift exemptions will be indexed for inflation each year. In 2013, the exemptions are $5.25 million for individuals and twice that for married couples. Both exemptions are permanently extended for estates and gifts after Dec. 31, 2012.

The top tax rate rose from 35 percent to 40 percent and portability of unused credit for surviving spouses also was made permanent.

Because some high-net-worth clients will not have the same need for life insurance in estate planning, advisors might be interested in replacing much of this evaporated market with other opportunities. The business planning market is a logical choice. A key tool in that market is the buy-sell arrangement funded by life insurance.

Motivating the business owner

Start a conversation with the business owner about buy-sell planning with a thorough fact-gathering process. Basic facts include number of owners, ages, ownership percentages, type of business and the fair market value of the business.

This process provides an excellent opportunity to showcase your expertise and motivate the client to take action.

Ask the business owner to consider different scenarios regarding business continuation. Typical questions to ask are: 38

InsuranceNewsNet Magazine » May 2013

If one of your owners died, would you like to be in business with the deceased owner’s family?

If you died, would you want the well-being of your family to be dependent on your surviving owners’ continued success in the business?

Ninety-nine percent of the time, the answers to these questions will be an emphatic “No.” A good follow-up question is: “Would you like to see how we could solve these issues with a funded buy-sell agreement?” The next step is outlining the business owners’ options and organizing the information so that an informed decision can be readily made.

Basic buy-sell arrangements

There are two basic forms of buy-sell arrangements: the cross purchase and the stock/entity redemption. Both are legal agreements between the business owners or the business itself. It specifies all material provisions of a buyout and, most importantly, obligates the deceased owner’s estate to sell its business interest to the other owners or business and for them to buy the deceased owner’s share.

The buy-sell arrangement should cover

events such as death, retirement, disability, divorce or a lifetime sale of stock.

Any buy-sell agreement should be coordinated with all of the owners’ estate-planning documents and vice versa. The impact of estate taxes should also be considered regarding the ownership of any life insurance policies. This analysis is easier and less likely to affect clients because of the higher estate and gift tax exemption amounts discussed above.

Cross-purchase arrangement

A cross-purchase arrangement is an agreement among the owners. Each agrees to buy a deceased owner’s share of the business upon a certain event such as death, and the deceased owner’s estate agrees to sell that share of the business to the other owners. Their purchase of the deceased owner’s business interest raises the surviving owners’ income-tax basis in the business. Therefore, if the business is sold after the buy-sell transaction is completed, the selling owner will pay fewer capital gain taxes.

The cross-purchase arrangement is easy to fund with two owners. Each owns a life insurance policy on the other. If they are of similar age and health status, the premiums are also similar. If one of the owners

BUY-SELL PLANNING VAULTS HIGHER ESTATE TAX BAR is older, smokes or is in bad health generally, the premiums the healthy owner would pay could be substantially higher. This may be a point of resistance and a signal to explore a stock or entity redemption arrangement discussed below.

In the case of more than two owners, funding the arrangement becomes more complicated. Because each owner funds a policy on the others, the number of policies could increase exponentially, which can be a disadvantage. For example, if there are four owners, they will need to buy 12 policies.

If an owner retires, he or she will want to have the right to take possession of the policy under which he or she is insured. For two owners, they would simply exchange the policies and make up any difference in the value with cash or other property. Any financial gain from this transaction is taxable.

Stock/entity redemption arrangement

A stock/entity redemption is an agreement between the business itself and each of the owners. The business agrees to redeem

NEW Arrival

or buy a deceased owner’s share of the business and the deceased owner’s estate agrees to sell that share of the business to the business. Under this arrangement, the purchasing owners’ income-tax basis in the business is not increased. This is an important difference from the cross-purchase arrangement.

Funding the stock/entity redemption arrangement is also different. The business owns – and is the beneficiary of – life insurance policies on each of the owners. If there are more than two owners, this type of arrangement may be more attractive because it doesn’t require as many life insurance policies. If there are four owners, only four life insurance policies need to be purchased.

If an owner retires, he or she will want to have the right to take possession of the policy under which he or she is insured.

This transaction is a taxable event and any gain is recognized by the entity or flows through to the owners. For a C-corporation, the distribution of the policy is also a taxable event for the departing shareholder. It is important to realize that for a

LIFE

C-corporation, the corporate alternative minimum tax may apply to any cash value accumulation and to any death benefit paid into the corporation.

In this type of arrangement, it is critical to comply with Internal Revenue Code Section 101(j), which requires a written and signed notice and consent form for employer-owned life insurance. This code section does not apply to a cross-purchase arrangement.

With the estate and gift tax exemptions at all-time highs, estate tax planning cases are fewer. Advisors will want to expand and supplement their practices with planning for business owners. The buy-sell strategy is a great technique to start with and may lead to other sales such as key person insurance, executive compensation and personal planning for the business owners.

William P. Stark, J.D., LL.M., CLU, is senior advanced marketing counsel at Securian Financial Group. William may be reached at william. stark@innfeedback.com.

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May 2013 » InsuranceNewsNet Magazine

39

LIFE

Advisors Invade D.C. in Stealthy Springtime Strike N AIFA and other insurance organizations are making a special push to educate lawmakers and the public on the vital role played by the products its members sell.

By Susan Rupe

W

hen an organization or interest group goes to Congress, the group members often do it with a lot of noise. Banners, bullhorns and slogan-chanting all contribute to an emotion-charged atmosphere.

But often a quieter, more positive approach is the way to deliver your message more effectively, a group of industry advocates discovered.

More than 1,000 advisors from every state in the nation visited Congress in April to tell the story of how life insurance products provide financial security for their clients. It was the highlight of the two-day Congressional Conference held by the National Association of Insurance and Financial Advisors (NAIFA).

This group of industry warriors launched a pre-emptive strike in the century-old battle to protect the tax-favored treatment of life insurance.

When the words “comprehensive tax reform” began to hit the headlines and the halls of Congress yet again, it was time for the advisors who represent “Main Street” to mobilize.

NAIFA teamed up with five other insurance associations to form SecureFamily.org, a coalition with the goal of highlighting the facts about life insurance products and their importance to the financial and retirement security of American families. The coalition is making a special push this year to educate lawmakers and the public on the vital role played by the products its members sell.

The fight over life insurance is nothing new. In fact, it goes back 100 years, when insurance agents with what was then known as the National Association of Life Underwriters (NALU) appealed personally to President Woodrow Wilson in 1913 to extend special status to life insurance as 40

InsuranceNewsNet Magazine » May 2013

Sen. Mike Johanns, R-Neb., (seated, far left) answers questions from a group of NAIFA members during the NAIFA Congressional Conference. the federal income tax system was being established.

But, as the saying goes, that was then and this is now. President Obama’s recently proposed $3.77 trillion 2014 federal budget calls for tax increases on high-income households and corporations. Meanwhile, the national debt is creeping toward $17 trillion and increasing by about $1 trillion a year. Calls for tax reform are coming anew from members of Congress who are feeling the pressure to find new sources of revenue.

Insurance industry advocates are fearing once again that Congress may be looking at the billions of dollars locked up in the inside buildup of life insurance products as a fresh source of funds.

So far, a specific bill that targets life insurance has not been proposed, said the chief of staff to a Pennsylvania congressman. But, advisors are taking no chances this year.

They did what they do best: mobilized and told a story. And those who participated in the Congressional Conference said they found a receptive audience, thanks to the efforts of SecureFamily.org and its member organizations in promoting the message of life insurance in recent months.

Tom Michel of Pacific Palisades, Calif., is a veteran of several NAIFA trips to Washington. But he said that the congressmen and

aides he visited during the recent conference “were as receptive as I’ve ever seen.”

“I could tell they were cognizant of the importance of our business. They understand that there are other areas where they can improve our government’s bottom line without touching the products we sell,” said the NAIFA-California president-elect.

Michel said he believed one reason for the positive reception is what he called “the great groundswell effort” made by all the organizations making up SecureFamily.org.

“They have been working so hard to get out a positive message,” he said.

Another reason, he said, is that almost everyone can relate to the need for financial security. “They understand what (taxation of life insurance) would mean for them. What it would mean for their retirement, what annuities would mean to their own retirement,” he said.

Michel said he believed the fact that there is no specific bill targeting life insurance under consideration actually worked in the NAIFA group’s favor. “I really think that the message we were able to give is a more wholesome message than what they usually hear,” he said. “Usually, the message is more like, ‘Don’t vote for this bill.’ Instead, we told a story and let them put a face on the good work we do. We told the story of how we

May 2013 Âť InsuranceNewsNet Magazine

41

LIFE

ADVISORS INVADE D.C. IN STEALTHY SPRINGTIME STRIKE

Sen. Mike Enzi, R-Wyo., (left) listens to a list of talking points presented to him by the NAIFA members who participated in the NAIFA Congressional Conference. deliver peace of mind, we deliver security. “It was amazing to realize the sheer number We told how much money we put into the of people whose interests were represented economy on a daily basis. These messages by the members in the meeting,” said Kent are important for us to tell, and they are Bennett of Montoursville, Pa., a member of something that everyone can relate to.”

NAIFA’s national Advisors Political Action Another message that NAIFA members Committee. told frequently was the story of how NALU “The message that we are conveying is members appealed to President Wilson in that our industry is part of the solution, not 1913. “The legislative aides we met with part of the problem. If we’re going to reduce found that interesting – that the president the deficit and decrease the dependence on thought it was so important for the finan- government, then we need to be promoting cial health of our country for people to these products, not taxing them.” invest in our products that he intervened Bennett described the Congressional with Congress to give our products special Conference as “a pre-emptive strike.” treatment,” said Lou Pettinato of Old Forge, Pa., NAIFA-Pennsylvania’s political involvement chairman.

“We’re in on the ground floor of this issue right now,” said Brian Worrell of Wernersville, Pa., another NAIFA member. “There has Sen. Mazie Hirono, D-Hawaii, (left) listens to a been no legislation on this presentation from a NAIFA member during one issue crafted yet, so our timof the more than 400 meetings held as part of ing was good.” the NAIFA Congressional Conference.

“The staffers we met with said a lot of people come to Congress and “(Congress) knows how much money say ‘Don’t touch our stuff, touch someone is sitting in qualified plans and they would else’s stuff.’ We’re not saying don’t touch love to get their grubby little hands on someone else’s stuff. We said, if you tax our it,” he said. “If you get inside everybody’s products, then people will be less likely to head before all the steps are made to entake responsibility for their financial future act a piece of legislation, that’s when you and the government will end up having to want to talk to Congress. Not after a bill take care of more of us. We’re not asking has been written, not after something has Congress to change anything, we just want been brought to committee, not when it’s it to keep everything the way it is.” on the House floor for a vote. You need to In their meeting with an aide to Sen. stop it before it gets to first base, not when Robert Casey, D-Pa., each of the 15 NAIFA it’s heading for home.” members in the room took a turn telling William Tighe, chief of staff to Conhim how many clients he or she represents. gressman Tom Marino, R-Pa., met with 42

InsuranceNewsNet Magazine » May 2013

three NAIFA members from his boss’ district and described the group as “highly focused.”

“The message they brought to us was tax reform and the need to have policies in place to encourage people to plan for the future and save for retirement,” he said.

One NAIFA-California member credits his association’s long-running relationship with their elected representatives as the reason he came away from the Capitol confident that the group’s mission was a success.

“All three of the people I met with said that they believe no changes (regarding life insurance taxation) are the best position to take,” said Shane Westhoelter of Dublin, Calif. “All three told us that if they made changes, the American public would be in an uproar because they purchased these products with their financial security in mind.”

Westhoelter said he believes that older lawmakers may look more favorably on the tax treatment of life insurance because they are more likely to have been a beneficiary of a life policy or because they are more likely to be considering a financial product such as an annuity. “It’s the younger legislator – the one age 50 or younger – who may not have had any experience with the products we sell. Those are the lawmakers who have me concerned.”

Political advocacy and education don’t end when the last plane leaves D.C. for home. All of the NAIFA members interviewed emphasized that the real work of educating lawmakers continues back in their home districts, whether it’s by holding legislative events in the local association or by keeping in touch throughout the year. NAIFA also maintains a network of “key contacts” who have relationships with lawmakers and who are in contact with them regularly.

“We can multiply our efforts by getting our members to meet with their representatives back in the districts,” Worrell said. “Not every member can go to Washington but they all can see their representatives in their home districts. We can’t ever tell them our story too often.”

Susan Rupe is assistant editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor.

Susan may be reached at srupe@insurancenewsnet.com.

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Financial Independence Group, Inc. www.figmarketing.com May 2013 » InsuranceNewsNet Magazine

43

[ANNUITYWIRES] So, You Wanted New Products …

That’s right, more new products have been making an entry in the annuity zone. The developers are obviously focusing on interest rate strategies and income strategies.

Here are several examples: FORERETIREMENT. This is the first variable annuity to be issued by Forethought Life Insurance Co. Ever since it took over the annuity operation capabilities of The Hartford last year, the carrier had been promising to debut a variable annuity in first quarter.

TARGETBENEFIT ANNUITIES. This fixed indexed annuity series from Aviva USA bases the guaranteed lifetime income amount solely on amount of premium, customer age and how long before lifetime income benefits start. The policy also has two optional riders – a fixed lifetime income benefit rider, or one with a slightly lower guarantee that offers the chance to participate in more market index upside potential.

MNL INCOMEVANTAGE. This is the first fixed indexed annuity from Midland National to offer a “stacking roll up” feature to enhance income opportunity. It includes a built-in guaranteed lifetime withdrawal benefit (GLWB) that provides growth opportunities through a combination of GLWB bonus on premiums, a GLWB stacking roll-up credit, plus interest credits.

PROTECTIVE INDEXED ANNUITY. Along with a fixed interest crediting strategy, this fixed indexed annuity from Protective Life offers two indexed interest crediting strategies. One is annual point-to-point, and the other is annual tiered rate (which the carrier says enhances the credited rate when index performance meets or exceeds a pre-determined performance tier).

ING LIFETIME INCOME. This single premium deferred annuity is an income-focused policy from ING USA. Policyowners who delay starting income payments for five years will get a 150 percent boost in their available “income withdrawal amount,” the company says. For delays of 10 years, the boost is 225 percent.

SMARTSTEP ANNUITY. This is a single premium deferred annuity from Western-Southern Life or National Integrity Life. It’s aiming at interest rate oriented buyers, with a guaranteed initial interest rate in year one followed by three years of interest rate “step-ups” and then company-set annual renewal rates after that.

PRUDENTIAL DEFINED INCOME. This variable annuity from Prudential Annuities invests 100 percent of the premiums in the AST Long Duration Bond Portfolio. The goal is to provide people at or nearing retirement with a higher level of guaranteed minimum income than generally found with other variable annuities, the carrier says.

2012 ANNUITY SALES A DOWNER BUT …

Individual annuity sales were definitely off in 2012, according to yearend sales estimates from LIMRA. Variable and fixed annuity sales combined came to $219.7 billion, down about 8.6 percent compared to the previous year, the researcher says. Variable annuities sold $147.4 billion, and fixed, $72.3 billion.

The Insured Retirement Institute (IRI) reported similar numbers – industrywide 2012 annuity sales at $211.8 billion, with 44

InsuranceNewsNet Magazine » May 2013

variable annuities bringing in $145 billion and fixed annuities, $66.8 billion.

But there were two diamonds in the rough. One is that fixed indexed annuity sales reached nearly $34 billion for the year, up nearly 5 percent from 2011 and their fifth consecutive record-setting year, says Sheryl J. Moore, president and CEO of Moore Market Intelligence. The other diamond was income annuity sales.

These reached nearly $9.2 billion for the year, up 8.5 percent from 2011 and their third consecutive record-setting year, says Beacon Research President Jeremy Alexander.

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What’s to account for those increases?

According to Moore: “When you consider that record-low indexed annuity caps and rates have persisted, it’s hard to ignore that these sales records provide compelling evidence of consumers’ demand for retirement accumulation products with principal protection features.” As for the income annuities, much of the growth came from deferred income annuities (DIAs), Alexander says. In fact, Cathy Weatherford, president and CEO of IRI, says her organization is expecting DIAs to be “the fastest growing product on a percentage basis in 2013.”

ANNUITY INFLOWS UP 7 PERCENT

The year 2013 seems to have started with a noticeable amount of annuity activity. Annuity inflows were up by 7.4 percent in billion January compared to the prior month, reports the Insurance & Retirement Services of the Depository Trust & Clearing Corporation (DTCC). These flows reached $7.1 billion for the month, up from $6.6 billion in December. Meanwhile, outflows, at $6.8 billion, changed “insignificantly” from December, the New York firm says.

Putting the two together, net flows increased by almost $466 million in January, from negative $140 million in December, to more than $325 million, DTCC says. The numbers are based on data the firm obtains from annuity transactions it processes for participating firms.

It’s early in the game to decide whether that’s a harbinger of growth to come. But coming, as it does, after receipt news about disappointing industrywide sales in 2012, some annuity watchers will likely put this item in the good news basket.

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May 2013 Âť InsuranceNewsNet Magazine

ANNUITY

Advisors can Net Big Business from $21 Trillion Protection Gap

which represents “a continued decline from the high of 65 percent measured in 2009,” the Washington researchers said in their 2013 annual Retirement Confidence Survey.

In the other study, the latest COUNTRY

By Linda Koco Financial Security Index survey, a third of nnuities are in a worse position Americans said they think a middle-income than life insurance when it comes family can save for a secure retirement. to consumer attitudes toward That sounds somewhat promising. the products, even as the public’s need Perhaps they have access to the products for income protection grows even larger, and resources they think they will need to according to recent studies. reach that goal.

A Conning report pointed out that What actually happens could be somemany consumer surveys have detected a thing much different, however. Only 28 significant disconnect between what conpercent of those aged 50 to 64 – and thus sumers say about needing annuity and life nearest to retirement – told the researchers products and what consumers actually do that they think a secure retirement is posabout buying those products. sible to achieve. That’s even though 59 perConsumers will “claim that they know Fresh data cent of this age group said they had started they need more life insurance coverage, It’s not just Conning that is pointing out saving for retirement before age 40. or longevity protection in retirement,” the the disconnect that exists between what This raises some perplexing questions.

Hartford researchers wrote in Conning’s consumers are saying about their financial Did these boomers save in products that 2013 Life-Annuity Consumer Markets needs and what they are doing. weren’t suitable for their situations? Did Annual Report. However, many fail to Recently, two more studies came out they have a save-and-spend lifestyle, untake steps to invest in annuities or to buy with fresh data on the extent of the fail- dermining their retirement goals? Did they additional life insurance (or individual life ure-to-act problem. The new studies iden- see the value in other options but never insurance in the first place). tify the problem as it relates to saving for followed through? Did anyone teach them In 2006, for example, the “protection gap” retirement, not specifically to failure to about diversification? Did they consult an across all demographic segments was $11.3 buy annuities or life insurance. But the insurance or financial specialist? trillion, according to Conning estimates. findings resonate in annuity and life cirAnother surprising finding from the “Protection gap” is the term Conning uses cles since both types of products are often COUNTRY Financial survey is that nearly to refer to the capital that would be needed purchased in whole or in part with retire- half (42 percent) of 18- to 29-year-olds said to replace a portion of the income of the ment in mind. they have not yet started saving for retireprimary householder for the period prior In one study, from Employee Benefit ment. This is 20 points higher than Amerto normal retirement.

Research Institute (EBRI) and icans overall, and the highest of any age ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// This estimated gap more///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// than Mathew Greenwald and Asso- group in the survey. Talk about disconnect.

DREAMING OF A ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// doubled to $22.8 trillion in///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// 2012, SECURE RETIREMENT? ciates (MGA), nearly 70 percent ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// the report said. For 2013, the esof American workers said they Why is this happening? ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// HOPEFUL A third of timate is slightly smaller, at///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// $21.2 do see the need to save for re- In recent years, the financial stresses of the working Americans think ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// trillion, but it “still represents a a middle-income family tirement, but the workers also post-recession era are often cited as a key ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// large increase over the gap///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// that can save for a secure reported amazingly low actual reason for Americans not saving more or ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// existed before the financial///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// crisis savings levels. not taking steps to act on acknowledged retirement. ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// and recession in 2008-2009, ” the BUT Only 28 percent of For instance, more than 50 financial needs. ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// report said.

In the COUNTRY Financial survey, those aged 50 to 64, and percent reported having less than ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// The problem is not new, but thus closest to retirement, $25,000 in total household sav- for example, 38 percent of baby boomers ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// in some markets – such as the think a secure retirement is ings and investments (excluding told researchers that they had to delay re///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// possible to achieve. ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// retirement market – it appears value of the primary home or any tirement by at least two years due to the ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// Source: The COUNTRY Financial to be growing, according///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// to a Security defined benefit plans). And only economic downturn. Other surveys point Index survey, March 2013 ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// few studies.

57 percent said they are saving, to rising health care expenses, long-term

S ome studies confirm that consumers know they need what annuities do, but still do not want to buy them.

A

46

By implication, failure to act could make things “worse” for consumers who may end up not owning the very products that could help them meet the needs they say they have. It also could make things “worse” for the insurance and financial services industry in the sense that it contributes to lower market penetration than would otherwise be the case. And it could be “worse” for everyone if increasing numbers of citizens lack the financial essentials that help make the economy tick.

That’s not a pretty picture but the situation is not hopeless. Various experts say insurance producers and carriers can help reverse the direction, from disconnect to connect. First, the scope of the problem.

///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// InsuranceNewsNet Magazine » May 2013 ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////

$21 TRILLION PROTECTION GAP OPENS ANNUITY OPPORTUNITY care expenses, job uncertainty, debt levels, instability in the financial markets, and a string of other financial and economic concerns – all reasons not to act.

But researchers are finding that economic and monetary matters are not the only factors causing the disconnect between consumer saying and doing.

Where annuities are concerned, lack of understanding of the product is a factor, according to the Conning study. Consumers’ self-reported knowledge shows that “they do not feel they understand the product,” the researchers said.

In addition, “many consumers think about annuities from an investment frame, as opposed to a consumption frame,” Conning said. That leads them to focus on the loss of control of principal as well as the “investment loss” that consumers might experience from an early death.

Then there is the matter of attitude. Attitudes toward annuities as well as life insurance plus lack of consumer knowledge about these products may be contributing factors, the Conning researchers suggested.

People do feel pressure around a desire to maintain lifestyle, said Mathew Greenwald, president and chief executive officer of MGA, and one of the authors of the EBRI/MGA study. Forty-one percent of workers named cost of living and dayto-day expenses as reasons for not saving more, he noted, and 18 percent said they can’t afford to save more.

However, many people know that there are things they can cut back on relatively easily, and that this would enable them to save more for retirement, Greenwald continued.

For instance, the majority of workers in previous EBRI/MGA surveys said that, yes, they could afford to save $25 a week more, or start saving $25 a week. What would they have to give up in order to do that, the researchers asked. The answers included cutting back on good-life things like entertainment, clothing expenditures and impulse spending, but the big one was cutting back on something more epicurean in nature.

“The main thing cited was eating out,” Greenwald said.

This suggests that consumer choice and perhaps certain habits and pleasure pursuits are also factors in consumer disconnects. Insurance producers and financial advisors are first to confirm that. Some people are willing to spend, they say, but if they’ve had no guidance or insurance and

financial education, many tend to spend on short-term creature comforts and delights, not on long-term longevity and protection products or investments.

Where saving for retirement is concerned, two expectations are strong contributing factors, Greenwald contended. One is that many people expect to work longer, and the other is they expect they will be able to work longer. So, if they don’t think they’ll have enough money come retirement time, they figure they’ll just work a few more years. The problem is, the EBRI/MGA survey found that working longer is not always possible due to disability, ill health, job loss, inability to find new work and other factors beyond one’s control.

The role of government policy plays in this park, too. Remember the 42 percent of Generation-Xers whom COUNTRY Financial found had not started saving for retirement yet? Perhaps that’s because Gen-Xers anticipate they will be receiving more help from the government, the researchers suggested. It’s easy to see how the team arrived at that interpretations – after learning that half (49 percent) of the Gen-Xers said the “government should have a greater role in funding Americans’ retirement.”

What to do?

Annuity and insurance professionals aren’t like innocents abroad on the disconnect issue. Neither are the carriers. Here are some steps they can take to help break the cycle of do-see but don’t-act.

Provide more education. “Increased consumer education about annuities, as well as a focus on the value of lifetime income streams, may help increase the appeal of these products,” the Conning researchers said.

Talk about tax deferral. Annuity professionals need to help workers understand the power of the tax deferral of fixed annuities in IRAs and non-qualified annuities, said Kim O’Brien, president and chief executive officer of NAFA, the National Association for Fixed Annuities. That’s in addition to urging them to make the most out of their already tax-deferred 401(k) or 403(b) plans, she wrote in an email.

Talk about the interest rate environment.

The tax deferral of compounded interest – particularly in this pesky perpetual low-interest market – cannot be over-emphasized, O’Brien added.

Reevaluate target markets. Where life insurance is concerned, try changing or ex-

ANNUITY

panding the target marketing from what has been traditional up to now to include people who differ by gender and ethnicity or race and who may also differ in attitudes towards insurance, Conning suggested. Certain marketing messages seem to resonate more with particular demographic groups, they pointed out.

Point to tax refunds. If clients are expecting a tax refund, suggest they think about putting that money directly into a fixed annuity IRA, suggested O’Brien. The national average refund is about $3,000, so if clients do that yearly, the annuity can grow into “a very

respectable retirement nest egg,” she said.

Employers can help. They should consider adding an automatic enrollment feature to the company 401(k) retirement plan, said the EBRI/MGA study. Why? This feature “has been shown to increase the number of people in the plans.”

Provide resources. Choose materials and calculators that will help clients understand their needs. Nearly half of surveyed workers guessed at how much they will need to accumulate for retirement rather than doing a systematic retirement-needs calculation, pointed out the EBRI/MGA study.

Meanwhile, only 18 percent did their own estimate, 18 percent asked a financial advisor, 8 percent used an online calculator and another 8 percent read or heard about how much was needed.

Remind that professionals can help. “Annuity professionals are in the best position to advise and provide product that helps consumers save routinely while protecting those savings from the markets and other economic calamities,” contended O’Brien. Meanwhile, many consumers may not even know that such expertise exists. The EBRI/MGA study found that just 23 percent of workers (and 28 percent of retirees) have obtained investment advice from a professional financial advisor who was paid through fees or commissions.

Counsel consumers to save early and often. “Plan to save at least a foundational amount by age 60,” the EBRI/MGA researchers said. The risk of waiting beyond that to build a foundation is too high.” Another suggestion for consumers came from NAFA’s O’Brien: “The first step is to take the first step.”

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.

May 2013 » InsuranceNewsNet Magazine

47

ANNUITY

When Pensions End, Advisor Opportunity Begins D efined benefit plans are dialing down, and opening up a market for annuities.

By Linda Koco

P

rivate defined benefit (DB) plans could represent an expanding market opportunity for advisors, according to Cerulli Associates.

The new sweet spot appears when people “separate” from their traditional employer-based pension plans, the Boston researcher indicated.

Many of those “separated participants” will be looking for a new home for the assets they will take out of the old plan. Advisors having the expertise to help reposition those assets could be looking at an influx of new business.

The Opportunity

It can mean some serious business. “The number of separated participants in private DB plans totaled more than 12.4 million at the end of 2011, up from 10 million in 2004,” pointed out Kevin Chisholm, associate director at Cerulli.

Furthermore, over the past year, there has been a steady increase in the number 48

InsuranceNewsNet Magazine » May 2013

of lump-sum distributions taken from DB plans, “and we expect that number to continue to increase,” he said.

When plans offer separated participants the option of taking distribution as a monthly payout (annuity) or a lumpsum, most will likely select the lump-sum, Chisholm said.

If they do, that’s when the sweet spot opens up. “Lump-sum distributions put a significant amount of assets in motion,” he explained.

“DB plan sponsors could offer lumpsums to participants that amount to larger payouts, which create a new pool of prospects for financial advisors, or an infusion of cash to advisors whose current clients accept the one-time payment.”

The period when the offer is active provides opportunity as well – to help clients decide whether to take the offer or not.

Then there is helping the client after the decision. These participants are not retired, the Cerulli researchers pointed out. Rather, the participants are separated from their former DB plan but likely to still be working and contributing to a defined contribution plan. This will yield

additional rollover dollars in the future, the Cerulli researchers predicted.

Another researcher, Aon Hewitt, also sees lump-sum distribution activity heating up. A few weeks ago, the human resources consulting firm reported that 39 percent of DB plan sponsors it surveyed are “somewhat or very likely” to offer terminated vested participants and/or retirees a lump-sum payout during a specified period (a “window”) in 2013.

That’s up from 7 percent of DB plan sponsors that added a lump-sum window in 2012, Aon Hewitt said.

Contributing Factors

“There is no question that employers are looking for new ways to aggressively manage their pension volatility,” said Rob Austin in a statement. He is a senior retirement consultant of Aon Hewitt.

Pension Benefit Guarantee Corporation (PBGC) premiums will begin to increase in 2013 and 2014, Austin pointed out. That will increase the carrying cost of pension liabilities, he said. That, in turn, will give plan sponsors “an economic incentive to transfer those liabilities off their balance sheet.”

In 2012, new rules went into effect that made lump-sum distribution offers a financially attractive option for some employers. The rules derive from provisions in the Pension Protection Act (PPA) of 2006. Among other things, the rules permit amendments to plans to allow full lump-sum distributions on a favorable interest rate basis.

The numbers reported by Cerulli and Aon Hewitt suggest that employers are, in fact, taking advantage of the change.

Headlines from last year support that conclusion, too. For instance, big auto makers General Motors and Ford made news when they came out with lump-sum distribution offers to retirees.

Some firms, when making the offers, stress that this is a one-time-only offer.

So it’s essentially a take it or leave it option for employees.

Take-up of the offers can make a financial difference to the employer. Consider Kaydon Corp., a firm that designs and manufactures custom engineered products for various industries. It made such an offer in third quarter of last year.

“The company offered certain former non-retiree employees with vested pension benefits the option of receiving a lump-sum payment or an immediate annuity in settlement of all future pension obligations,” the company wrote in its year-end report. “This de-risking of our pension obligations reduced future pension liabilities by $9.2 million.”

If plans do not offer a lump-sum distribution option, separated workers will still receive distributions – as the traditional monthly annuity payouts. This, too, presents opportunity for advisors, in the sense that they can counsel clients on how to manage the clients’ other assets as advisors have done for years.

The Internal Revenue Service (IRS) defines a lump-sum distribution as the “distribution or payment, within a single tax year, of a plan participant’s entire balance from all of the employer’s qualified pension, profit-sharing, or stock bonus plans.”

Participants can roll over all or part of the distribution, with no tax due on the part rolled over, the IRS said. Any part not rolled over is reportable as ordinary income.

A lot has been said about Charitable Planning over the years, but many advisors don’t understand how incredibly powerful it can be for their clients.

Every year, nearly 85% of Americans make annual contributions for charity, totaling $298 billion. And most of them aren’t aware of the additional benefits they can receive through simple charitable planning programs. Benefits include: • Tax deductions and income benefits while supporting charitable organizations • An immediate or deferred income payout • Programs are fully reinsured by top insurance carriers

• Can reduce Adjusted Gross Income by up to 50% with a 5-year carry-forward • Programs can be utilized to unlock or re-characterize qualified money in a tax advantaged manner • Advisors can be compensated

• Not just for “high net worth clients”

If you are ready to learn more about one of the biggest missed opportunities in our industry, now is the best time ever to discover Charitable Planning, with our free report “The Benefits of Charitable Planning,” which details the many uses, opportunities, and common misconceptions.

The mission of LegacyTree Foundation is to provide funding for charitable work by assisting and educating advisors who offer charitable planning to their clientele. LegacyTree Foundation operates with the utmost commitment to integrity, compliance and regulation.

To instantly receive our highly informative and useful guide, go to: www.LegacyTreeBenefit.com

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.

May 2013 » InsuranceNewsNet Magazine

49

[HEALTHWIRES]

See the health plans available in the exchanges bitly.com/QRACAplans

QUOTABLE

The Clock is Ticking and the Public is Confused Enrollment under the health-care exchanges is scheduled to begin on Oct. 1, and surveys show the public is still scratching their heads about how the whole thing will work.

A recent HealthPocket consumer survey indicated most people don’t know the difference between a Bronze health plan and a Platinum health plan. Only 4 percent of those polled correctly answered that the difference between the plans is the percentage of medical costs paid by insurance.

Meanwhile, a recent survey by InsuranceQuotes.com revealed that 90 percent of Americans don’t know when the health exchanges will open for business. Only about half of those surveyed knew that health plans must limit the total amount of money that patients have to pay out of pocket each year and that health plans cannot place limits on the total dollar value of benefits that patients receive.

In total, 39 percent of Americans said they are somewhat knowledgeCHECK OU ACA REPLA T able about the Affordable Care Act. Twenty-eight percent said they CIN AGENTS W G are not too knowledgeable, 21 percent said they are not at all knowlIT NAVIGATO H RS edgeable and only 10 percent said they are very knowledgeable. page 52

PERCENTAGE OF UNINSURED YOUNG ADULTS TAKES A DIVE

Junior can stay on his parents’ health insurance plan until his 26th birthday – but should he?

One of t he most chronically uninsured groups in the U.S. – young adults – experienced an unprecedented drop in the rate of those without health insurance. In just one year, the percentage of uninsured young adults dropped by 6 percent, to 27.9 percent. Analysts concluded that the main reason for this development is the Affordable Care Act, which permits young adults to stay on their parents’ health insurance until age 26.

Staying on Mom or Dad’s health plan for a few more years seems to make sense when a recent graduate “boomerangs” back home, trying to figure out how his

Dropped

6%

DID YOU

KNOW

?

RESEARCHERS PREDICT SPECIALTY DRUGS will account for 50 percent of all drug costs by 2018. Source: Prime Therapeutics

50 InsuranceNewsNet Magazine » May 2013

degree in medieval literature will help him find a job that will enable him to repay nearly six figures of student loan debt.

But this is not always a good option, according to a researcher at HealthInsuranceQuotes. In many cases, better options are available from individual insurers.

It’s important that both the young adult and his or her parents examine the details to get the best deal – no matter who is paying. There are circumstances – a faraway job, expensive cost-sharing, an opportunity to add a new spouse to an employer-based plan – in which staying with Mom or Dad’s plan no longer makes sense.

In some cases, adult children might be better off seeking coverage through an employer or by purchasing low-cost policies where they are living. That’s assuming they have an employer, but that’s another story.

MEDICAL CLAIMS COSTS TO INCREASE 32% UNDER OBAMACARE

Another reason why skepticism about Obamacare continues to run high: The Society of Actuaries estimates that

Open enrollment for the new Affordable Care Act plans is only six months away and consumers still don’t understand how the health insurance market will transform .

— Bruce Telkamp, chief executive officer, HealthPocket

insurance companies will have to pay out an average of 32 percent more for medical claims under the health-care overhaul.

The analysis said that the hike in claims costs will result from more sick people entering the insurance pool. But the Obama administration countered that the study did not take into consideration cost relief strategies in the law, such as tax credits to help people afford premiums and special payments to insurers who attract an outsize share of the sick.

What will this do to insurance premiums? According to the actuaries, those who obtain health insurance from an employer should not see any effect. Those who buy insurance directly from a company could see a hike in premium.

SOUTHERNERS MORE LIKELY TO DELAY MEDICAL TREATMENT BECAUSE OF COST

People have plenty of reasons to skip a trip to the doctor or a medical test.

Maybe they are unable to miss work. Or they need a ride. But a study shows that those who live in the South – particularly those who live in lower-income areas – are most likely to delay medical treatment because it is too expensive.

The study, conducted by researchers at Harvard University and Brigham and Women’s Hospital in Boston, showed that South Carolina, Texas and Florida are particularly vulnerable areas where people are most likely to delay seeing a doctor because of the cost. Compounding the problem is that Medicaid eligibility requirements in those states are stricter, the study found.

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Minnesota Life Insurance Company ¼ A Securian Company ¼ 400 Robert Street North, St. Paul, MN 55101-2098 ¼ 651-665-3500 ¼ 651-665-4488 Fax A04803-1212 Š2013 Securian Financial Group, Inc. All rights reserved

HEALTH

Will ACA Navigator Rule Wash Out Agents?

Helping the consumers to find their way through the health care maze will be a massive job. Who will fill the role of navigator?

By Susan Rupe

S

ome fear that the role of the health insurance advisor will become little more than a customer service representative when the health insurance exchanges open for business on Oct. 1.

The newly created position of insurance navigator is a government-paid advisor who will be available to help individuals and small employers choose their health care options in the exchange marketplace under the terms of the Affordable Care Act (ACA).

Although health insurance advisors and brokers are eligible to serve as navigators, some who are following the health care issue say that the exchange regulations leave the advisor no room to provide advice.

The U.S. Department of Health and Human Services (HHS) announced last 52 InsuranceNewsNet Magazine Âť May 2013

month that up to $54 million in grants will be made available to support the hiring of navigators for the state health insurance exchanges. The funds are available to states where a federal or state partnership exchange will be implemented. Funds are available for either individuals or organizations who wish to provide navigator services.

The role of navigator will be crucial to the success of the exchanges, where an estimated 30 million uninsured Americans will turn to purchase health care coverage.

The exact number of navigators required nationwide has not been determined, but it is estimated that the number will reach into the tens of thousands.

California alone announced earlier this year that it plans to certify 21,000 of them to work in its exchanges.

In addition to individuals working as navigators, each exchange is also required to have at least one navigator from what HHS calls “a community and consumer-focused not-for-profit entity,� which could include anything from a

local human services agency to an agricultural organization.

But the two big questions in all of this are: [ 1] Will advisors and brokers who currently sell health insurance be able to serve as navigators? [ 2] Will they even want to?

One of the main factors entering into this debate is money. Navigators are prohibited from receiving any payment or commission from a health insurance company for enrolling anyone in exchange-qualified health plans. Navigators will be paid from grants made to health care exchanges, and they will be paid for each individual they enroll in a qualified health plan. The amount the navigators will be paid for each enrollee will vary by state.

In April, HHS issued the latest proposed regulations on the navigators. In those regulations, HHS specifies that although a navigator is not permitted to receive payment or commission from a

WILL ACA NAVIGATOR RULE WASH OUT AGENTS? health insurance issuer, there is nothing in the regulations to prohibit them from receiving commission for other insurance products they sell (such as life insurance) outside of the exchange.

“It just plain does not look like an attractive business proposition for the health insurance agent,” said Tony Novak of OnlineNavigator.org. Novak described the job of navigator as “the equivalent of a customer service representative.”

“In one state, they are paying their exchanges $86 per enrollee to cover their expenses. The navigators will get onethird of that ($28),” Novak said. “How many enrollees can you sign up in one month? The enrollment process will be time-consuming and it does not look like a cost-attractive business for the in-person enroller.”

“I think for the average agent, there will be a lot of work involved in enrolling people through the exchanges, and not much compensation,” he said. “I think that what you’ll find is that the agents will gobble up all the middle-income, tech-savvy individuals for health care, and the rest of the health care consumers will end up going to the exchanges.”

“I can’t imagine any of our members opting to get into (the navigator program), said Diane Boyle, vice president of federal government relations with the National Association of Insurance and Financial Advisors (NAIFA). “The big issue with the navigators is compensation. They can’t be compensated through commissions; they have to be paid through the exchange.”

Boyle said she believes there is a role for the navigators to play in getting information about health care to specific groups who are underserved by the health insurance business, such as ethnic minorities or residents of remote areas.

“But let’s use the Cattlemen’s Association as an example – is that where you want to go to get your health care information?” she asked.

There is nothing in the current navigator regulations that prohibits licensed agents from becoming navigators. Navigators are required to undergo training in the Affordable Care Act before they can be approved to enroll people in the program. Training is scheduled to begin in June in preparation for the opening of the exchanges in October.

HEALTH

So you wanna be a Navigator?

In early April, the U.S. Department of Health and Human Services (HHS) issued standards applying to navigators under the federally-facilitated and state partnership exchanges. These standards specify the following: » Navigators may not be health insurance issuers. » A navigator may not be an association that includes members of the insurance industry or lobbies on behalf of the insurance industry. » Navigators may not receive any compensation from any health insurance issuer in connection with the enrollment of individuals or groups into a qualified health plan (QHP). » Navigators must provide the exchange with a written plan to remain free of conflicts of interest during their term as navigator. » All navigators must provide information to consumers about the full range of QHP options and insurance affordability programs for which they are eligible. They may not recommend any specific plan. » Navigators must disclose to the exchange and to all consumers who receive information from them of any line of insurance business (such as auto or homeowners) that the navigator sells while assisting consumers, and any relationships with any health insurance issuers. » Navigators must obtain certification from the exchange, which includes completing HHS-approved training, passing an examination and obtaining required continuing education. Recertification must be done at least every year.

The National Association of Health Underwriters (NAHU) issued a statement to HHS in which the association expressed its concern that “many potential navigators may initially lack basic insurance knowledge and relevant experience, although they are expected to perform a series of significant and sensitive duties that may be similar to those duties currently completed by licensees.”

NAHU urged HHS to ensure that the navigator’s role be limited to determining eligibility for individuals or groups to participate in the exchange.

The National Association of Professional Insurance Agents (PIA) also has been vocal on the issue of navigators. PIA delivered a letter to the National Association of Insurance Commissioners (NAIC) Producer Licensing Task Force, recommending that states require rigorous licensing of navigators as they implement any finalized HHS rules.

“I really don’t see navigators competing with agents,” Boyle said. “There may be a very small fraction of our members – retired agents perhaps – who may want to become navigators. But for the rest, the money is not there.”

“I think the agent will always be around, but with the shift in compensation through the Medical Loss Ratio, what we will see is that agents who have been specializing in health insurance will be diversifying and offering additional products,” Boyle said. “I don’t see agents turning their backs on their existing clients. The big question is what about new clients, who will they turn to? Will they turn to the navigators for health care? There is still a lot of confusion there.”

Boyle said the NAIFA member community is “still figuring out where the agents will fit in as the rules change.”

“We always will have the eternal optimists,” Boyle said. “They say, ‘this is so complicated, we will still see a need for the agent to serve the clients.’”

Susan Rupe is assistant editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Susan may be reached at srupe@insurancenewsnet.com.

May 2013 » InsuranceNewsNet Magazine

53

[FINANCIALWIRES] That Gold Was Sour Anyway

IRAs, with $54 trillion in assets, represent the largest share of Americans’ savings bitly.com/QRassets

h!

Uh-o

Spot gold price in USD in oz | Source: www.gold.org

Pssst, you wanna buy some gold? You might have been hearing that a lot lately.

Or you might have had trouble hearing it over the sound of the air whooshing out of the gold bubble.

It appears that gold is heading for the big crash that pretty much everyCurrencies: USD body Weight: has oz been predicting since the commodity started its streak in 2001. Not that it required a genius to see that one coming, because when gold runs up, it Start date: Mon Nov 6 2000 eventually falls down. Now, of course, it’s not certain that this is the big one, End date: Fri Apr 19 2013 but April 15 did see the worst percentage drop in price since 1980, which was invest@gold.org the last crash.

One shiny bit of solace to sift from this is that gold always was considered the disaster investment – the thing you buried in the back yard if you had to grab your wealth as you fled the smoldering ruins of your country. The run-up was at inverse proportion to the economy. So we can hope the opposite is true.

So, where can you put your money now? There is the Bitcoin thing. It’s digital currency that’s been around for only four years, but is gaining attention as an alternative to old-fashioned crazy money. Besides having crashes of its own, the other problem is how do you roll around in it and throw it up in the air as you cackle?

1/ 3

RETIREMENT, IT’S JUST FOR OLD PEOPLE

Count retirement as yet another thing sucked into the whirlpool of of Americans diminishing expecta- think middle tions. More Americans income families think that they will can save for retirement never retire. In fact, only one-third of Americans think a middle-income family can save for a secure retirement, according to a COUNTRY Financial Security Index survey.

It’s even worse for people within sight of when they would expect to retire.

Just 28 percent of 50- to 64-year-olds say that they think it’s possible for mid-income families to save for retirement. That is even though half of that

age group said they had started saving for retirement before they were 40.

People in retirement didn’t worry so much about it when they were younger.

Only 38 percent of people over 65 had started saving for retirement before 40. Yet another reason for boomers to resent The Greatest Generation.

DID YOU

KNOW

ACTIVE INVESTORS WHO MAKE 36 OR MORE TRADES PER YEAR SAID, in the fall of 2012, that they were planning to allocate 10 percent more of their assets to exchange traded funds within the next six months.

?

Source: Fidelity Investments

INFLATION, IS THAT YOU, BUDDY?

– accelerated on a year-over-year basis,” Inflation – remember said Michael Ashton, managing principal that? It used to scare the at Enduring Investments, a consulting and bejabbers out of us, but investment management firm. Not to get now we miss its madcap, you too riled up but he also said that has exciting ways. Well, some never happened in the 20 years or so that 'Disclaimer of warranties and limitation of liability' here: http://www.gold.org/terms_and_conditions/ people holding a torch for the eight major subgroups have existed. that wild child claim to see hints of it in the “Even in 2008, all eight groups never March Consumer Price Index (CPI) report declined.” In addition, from 2010 through 2012, “we had 15 consecutive increases from the Bureau of Labor Statistics.

“All eight major subgroups of the CPI in the year-on-year core CPI, something – food and beverages, housing, apparel, which hadn’t happened since the 1970s.” transportation, medical care, recreation, Ah, the ’70s. We don’t need to get that education and communication, and other crazy, do we?

DID YOU

KNOW

?

54

MEDIAN HOUSEHOLD NET WORTH IN THE UNITED STATES, including home equity, increased by 30 percent from 2000 (when it was $81,821) to 2005 (when it reached $106,585) but then it decreased 35 percent by 2011 (when it fell to $68,828). Source: The U.S. Census Bureau

InsuranceNewsNet Magazine » May 2013

AIN’T THAT RICH? WELL, NO

Rich ain’t what it used to be. There was a time when people rubbed their hands together and said, “If only I had a million dollars … ” Now, more people think it’s at least $2 million, according to the Spectrem Group. In its January survey, 18 percent said it takes $2 million to be considered rich and 16 percent put the bar at $5 million. Those two

groups together dwarf the 27 percent who are the old-schoolers happy with a million bucks. Yet another reappearance of our old frenemy – inflation?

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May 2013 » InsuranceNewsNet Magazine

55

For Agent Use Only - Not For Use With General Public

FINANCIAL

Tax Law Offers Faster Connection for Clients’ Roth Conversion he latest spur for Roth conT versions came from ATRA, which allows for a conversion without a requirement for a distributable event.

By Gretchen Miller

C

onverting 401(k) assets to a Roth account became easier with the passage of The American Taxpayer Relief Act of 2012 (ATRA).

The ability to contribute to a Roth account in a 401(k) and 403(b) plan has been allowed ever since 2006. However, plan participants were not able to convert their traditional pre-tax portion of their retirement plan to the Roth portion of the plan until the passage of the Small Business Jobs Act (SBJA) in 2010.

The problem was that SBJA only applied to intra-plan conversions by participants who were eligible to take a distribution from the plan. Such distributable events include reaching the age of 59½, separation from service or retirement.

Therefore, relatively few participants were able to take advantage of an in-plan Roth conversion. ATRA now allows intra-plan Roth conversion without the requirement for a distributable event. In order to take advantage of this opportunity, the employer-sponsored plan would specifically have to permit Roth contributions and may need to be amended to include language allowing for intra-plan conversions. Additional guidance on this is expected from the Internal Revenue Service later in the year.

This new provision is being touted by the Congressional Budget Office (CBO) as a $12.2 billion revenue raiser over the next 10 years. It is believed that taxpayers will be attracted to the idea of paying taxes now on assets that have the potential to subsequently grow on a tax-free basis. Before taking advantage of this opportunity, plan participants should first discuss with their advisor whether and how much of their retire56

InsuranceNewsNet Magazine » May 2013

ment assets should be converted to a Roth account.

The factors to consider when converting retirement assets to a Roth includes the participants’ investment timeline, whether they have assets to

pay the resulting income taxes, their current income tax bracket and whether they believe income tax rates will be lower or higher in the future. Whether a Roth conversion makes sense will depend on some of these factors, as well

TAX LAW OFFERS FASTER CONNECTION FOR CLIENTS’ ROTH CONVERSION as the individual’s specific financial planning goals and objectives.

With recent years of tax uncertainty, there has been a greater focus on the benefits of tax diversification. The idea being that having investments in different buckets – those that are taxable, tax-deferred and tax-free – allow for better tax efficiency and control of a person’s tax liability when taking distributions. Allocating a portion of a client’s money into a tax-free Roth account can be an ideal way to provide for this tax diversification.

If a Roth conversion does make sense, the next question is what assets should be converted. First, make sure the employer-sponsored plan permits an intra-plan conversion. Then determine if the participant otherwise has the right to either roll money out of the plan directly to a Roth IRA (rollover conversion directly to a Roth IRA has been allowed since 2008 under the Pension Protection Act of 2006) or have traditional IRA assets that can be converted.

One of the benefits of converting funds to a Roth IRA, as opposed to an intra-plan conversion, is the ability to recharacterize the conversion. If the investments drop in value after the taxpayer converts the funds, the taxpayer has the ability to recharacterize or undo the conversion. It is as if the conversion never happened. The taxpayer can elect to recharacterize a Roth conversion for any reason up until the tax filing due date of their income tax return including extensions (Oct. 15). An intra-plan Roth 401(k) conversion cannot be recharacterized. This can be a major drawback to an intra-plan conversion.

Another key difference between a Roth 401(k) and a Roth IRA is the requirement to take a Required Minimum Distribution (RMD). Roth 401(k) plans are subject to RMDs, meaning that once the participant attains the age of 70½ (or retires if later) the participant must begin to take distributions.

The distributions from the Roth account will be tax-free but will lose the benefit of continued tax-free investing.

FINANCIAL

Roth IRAs, on the other hand, are not subject to the RMD rules and can continue to grow tax-free until the death of the account owner. Of course, the plan participant can easily get around this by rolling the Roth 401(k) monies to their individual Roth IRA at or before age 70½.

As more plan sponsors amend their retirement plans to take advantage of new provisions under the recent passed tax act, the more people will be having the Roth conversion conversation. Be prepared to discuss whether a Roth conversion makes sense and, if it does, what retirement assets should be converted and whether that conversion should be inside a retirement plan or to a Roth IRA. Gretchen Miller is advanced planning director of Prudential Annuities. Gretchen may be reached at gretchen.miller@ innfeedback.com.

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May 2013 » InsuranceNewsNet Magazine

57

BUSINESS

Volunteering Pays Well An advisor’s passion for community involvement leads to opportunities to position himself as an expert.

By Edward C. Auble

T

here is an adage that if you advertise, you don’t know what you will get, but if you don’t advertise, you know exactly what you will get.

So, if you remain at home, join no organizations, do no advertising or marketing and, above all, assiduously avoid involvement with the internet and social media, the life of a hermit comes to mind. But, the majority of insurance professionals are not hermetically sealed in a basement home office. They are out and about in the community, and they are joiners. They are establishing a reputation in the community.

Let’s pause for a moment and consider reputation. The insurance and financial services industry is basically highly ethical. When I joined the industry in 1972, I learned the Latin phrase, “uberrima fides” or “utmost good faith.” While Latin expressions don’t litter my mind, I do focus on that one, particularly as it applies to transparency – if everyone could see what I am doing, would they consider it appropriate? Am I keeping faith with my client?

Now, how does one build a reputation?

It’s easy to build a bad reputation. Just one untoward action is sufficient. Just one!

How about skimming premiums? Or here is a creative scam: the agent sold condominium shares of spaces in the building in which his office was located. The problem was that he didn’t own the building.

Let’s focus on building a good reputation, one that I, immodestly, believe that I possess. As a frequent volunteer, my efforts have been with my local business association, my township, my college alumni board, my professional association (National Association of Insurance and Financial Advisors), The American College alumni board and my homeowners association board. What I need to make clear is that I volunteer for organizations and causes in which I believe. I do not join because I expect my involvement will lead to sales. Any positive reputation 58

InsuranceNewsNet Magazine » May 2013

which may accrue is a byproduct of my serious efforts in supporting the mission of the organization. I join no organization unless I can truly get involved.

We have all seen instances when people join a board, contribute no time or treasure and then leave, miffed that they have attracted no business from their negligible efforts. This is an example of hypocrisy at its finest! If anything, their reputation is damaged.

How else might you promote your valuable name in the community? As a related effort to your community involvement, consider writing and public speaking.

Yes, writing a blog gets your name out in social media. However, consider writing for something with a bit more gravitas – for your local newspaper or a professional magazine. If writing is not your forte, prepare an article about a favorite subject and ask someone you trust to proofread it. Some years ago, I prepared a CD on disability sales ideas. In 2011, The American College Wealth Channel used ideas from the CD more than 50 times during the year. Great free promotion by an impeccable source!

And consider public speaking, which, for some, buckles the knees. I understand.

I was one who trembled many years ago when asked to speak. Now it is fun.

I actively seek speaking opportunities. It’s great for the reputation and there is usually a free meal! I maintain an up-to-date list of those organizations to which I have spoken. It is valuable when I am seeking another speaking engagement.

Community involvement always involves public speaking to some degree and, often, writing. Shy away from either and you stunt your professional growth.

Tagging along with the public speaking idea, consider getting an opportunity to speak on television or radio. Comcast Newsmakers is a five-minute cable television news program in the Philadelphia region on which I have been asked to speak on both professional and community-based subjects. What is required?

Knowledge of your subject plus a clean shirt and tie. The programs were each re-broadcast 21 times over the course of a

month – at no personal expense.

You might get called upon to testify as an expert witness. Some years ago, I represented NAIFA-Pennsylvania before the Pennsylvania House Insurance Committee in Harrisburg. The testimony was taped, broadcast statewide on the Pennsylvania Cable Network, and is available on YouTube. And, yes, I had a clean shirt and tie. And, again, no personal expense.

Just how many clients has my practice obtained through my community involvement? I will never know for sure, but I can give some specifics. » My leadership roles in NAIFA on the local, regional and state levels have generated untold brokerage business for my practice. » My years of teaching Life Underwriter Training Council (LUTC) courses have led to new brokers doing business with us. I taught an LUTC course in long-term care insurance at The American College nearly 10 years ago. Two of my students in that class have since given us thousands of dollars of business.

» My involvement with the Lafayette College alumni board led to a 30-year friendship with a local physician and thousands of dollars of premium. It also brought me a large life case in 2012 with Rich, who is a fraternity brother. » I wrote a long-term-care policy with a $12,000 annual premium on a fellow board member of my local business and professional association. He led me to a fellow Lafayette College graduate, who also became one of our longterm-care clients.

These are folks who came to use my services of their own volition. I have no idea who we attracted because of articles I have written or my speaking engagements.

There are many ways to enhance your reputation in the community with little or no expense. You need to be transparent in your efforts and you need to prepare.

And with community involvement, it is important that you ask what you can do for your community, not what it can do for you. Give and you will receive.

Edward C. Auble, CLU, ChFC, MSFS, FLMI, LUTCF, CASL, joined AIG in 1972 and managed overseas operations, primarily in the Caribbean and the Middle East. He is past president of NAIFA-Pennsylvania and owner of Auble Financial in Paoli, Pa. Contact him at ed.auble@innfeedback.com.

• Only NAIFA advocates on behalf of all of your clients and their financial future.

NAIFA

A LOSE/WIN SITUATION

BUSINESS

.org/ItPays Go t o www.

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Insurance products have been identified as “tax expenditures” and have a price associated with them. Congress is looking for more money in 2013, and your products and your business are at risk.

Join NAIFA, and you’ll be joining other advisors in speaking to State and Federal legislators with one, clear voice.

• Only NAIFA represents insurance and financial advisors regardless of the products they sell or the focus of their practice.

“We intend to move

a comprehensive tax reform bill in 2013 – no matter what.”

Representative Dave Camp (R-MI) Ways & Means Chairman November 15, 2012

• Only NAIFA advocates on behalf of all of your clients and their financial future.

Go to www.NAIFA.org/ItPays or call 1-877-866-2432!

May 2013 » InsuranceNewsNet Magazine

59

MDRT INSIGHTS

The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.

Opportunities in Estate Tax Law Changes in the estate tax law make this the perfect time to help your clients create or amend their plans.

By Wayne D. Minich

A

s we waited in anticipation to see how the estate and gift tax increases in 2013 would affect everyone, we came to the conclusion that many things we thought would be attacked were not – such as the grantor-retained annuity trust (GRAT).

However, among the recent changes with the new estate tax law is the permanent 40 percent rate (up from 35 percent last year) which applies to gift and estate tax, and the increase in the estate tax exemption, which is $5.25 million in value for individuals and $10.5 for married couples (estimated for 2013 using $5 million indexed for inflation as of 2011). The $5.25 million exemption is permanent, and it is indexed for inflation. This increase is not a new exemption, but rather an extension of the exemption that had been set to expire at year-end. The inflation will increase every year, but will allow people to make a yearly gift if they’ve gifted up to the maximum $10 million.

In addition, this change has allowed us to see a clear line of demarcation until the law changes again, which it mostly likely will. Until that time, we have the opportunity to help our clients make better informed decisions because we now know where the “permanent” stands. This platform helps us as advisors have in-depth conversations with clients about the reality of their estate tax burden, find out how they feel and most importantly what they want to do.

We have the contingency to help clients plan without looking over their shoulders, even if they’re below the $10.5 million mark because we know where the tax starts to hit. A client typically has four options to pay the tax: [ 1] In cash [ 2] Use Section 6166 60

InsuranceNewsNet Magazine » May 2013

[ 3] Take out a loan [ 4] Use life insurance – if you do a present value analysis, in most cases life insurance becomes the wiser way to pay the tax However, trust planning is an important process a client must consider. For example, let’s imagine there is a couple at the $10.5 million mark, and the wife passes away in her mid-50s and $5.25 million goes into a trust. The husband has a life expectancy of another 20-25 years – assuming they’re both around the same age. At a 5 percent growth rate, the money in the wife’s trust will double to $10 million. When the second spouse passes, that total $10 million is sheltered in tax and the only thing to worry about is the remaining tax on their estate.

Another technique after a spouse passes is for the remaining spouse to spend down his or her money without worrying about disinheriting the kids, if that’s an objective, because they’re still going to be able to protect them

with the $5.25 million. The inheritance would not have generated any estate taxes because an unlimited marital deduction exempts all property left to a surviving spouse.

Today, there is still a lot of uncertainty about the future of the financial industry. However, what we can be certain of is that there are a lot of opportunities and this is an ideal time for producers to counsel clients about the tax advantages. We need to encourage our clients to take advantage of this circumstance because it will enable them to manage their financial portfolio far better than they have been able to in the past.

Wayne D. Minich, CLU, ChFC, is the founder of Applied Financial Concepts and has been in the financial planning industry for 42 years. He has been an active Million Dollar Round Table (MDRT) member for 38 years, and has earned 18 Court of the Table and four Top of the Table qualifications. Contact him at Wayne.Minich@innfeedback.com.

NAIFA INSIGHTS

Founded in 1890, NAIFA is one of the nation’s oldest and largest associations representing the interests of insurance professionals from every Congressional district in the United States.

Studying for Success S pending time in a study group will pay off in increased earnings.

By Ayo Mseka and Greg Gagne

A

sk any producer how he made it to the top, and he will most likely mention membership in a study group. To find out why study groups are so important, we recently interviewed NAIFA member Greg Gagne, ChFC, who has been a member of a study group since 2009. Here are some of Gagne’s insights on why it pays to belong to study groups, and some helpful hints for making the most of them.

NAIFA: Many successful producers attribute their success in the business to their participation in a study group. Why are study groups so valuable to so many insurance agents and advisors?

Greg Gagne: Study groups are valuable because they really help the advisor to have a sounding board, a cheering section and accountability. This is even more important with “breakaway brokers” or independents who may otherwise feel like they are on their own island. Being a member of a study group has really helped me to stay connected, to share, to learn and to grow both personally and professionally.

NAIFA: Why did you decide to join your study group, and how has it helped you and your practice?

Gagne: I joined because I wanted the opportunity to share my best practices with other advisors and, more importantly, to learn some of the best practices of my colleagues. In my study group, each member is from a different part of the business. This means that each member has his own individual specialty focus.

Having this cross section of business has enabled me to learn “best practices” on running my business, based on how they are running their businesses.

Being a member of a study group also has helped me to become more efficient, more process-oriented and more effec-

tive in communicating with my prospects and clients. My members are from various backgrounds and geographic areas. They are all members of MDRT and NAIFA. They are David Appel in Boston, Scott Edelman in Philadelphia, Marcus Henderson in Nashville and Jonathan Nicholas in Redwood City, Calif.

NAIFA: What should an advisor look for in a study group, and how should he make the most of the time and resources he invests in the group?

Gagne: An advisor should look first at the “character” of the study group and that of the current members in it. He should make sure there is a philosophical match and everyone has a common vision.

Group members should also be members of NAIFA and, hopefully, MDRT. In our case, we were all members of both NAIFA and MDRT. Since starting the group in 2009, four of us have achieved Top of the Table status and one has now achieved Court of the Table.

Hopefully, in the coming year, all five of us will achieve Top of the Table status. I mention this because study group members must be committed to the process, committed to one other, and committed to success both in business and at home.

NAIFA: What are some of the pitfalls study group members should avoid?

Gagne: One of the greatest pitfalls is not scheduling and committing to spending time “out of the business” to focus on the

business. It takes the participation of the entire group to succeed. If not, it will fail.

Another pitfall would be to have all study group members focusing on the same areas of expertise, have all the members from the same area or have all the members work for the same company. This would defeat the purpose. The idea is to get fresh “out-of-the-box” ideas that you may not get if you are spending your time only with the same types of practitioners from the same area.

NAIFA: Is there anything else you would like to add about study groups?

Gagne: Belonging to a study group is like having a special “business family.”

The members get it. They understand what challenges you are facing day in and day out and can relate to them. Having a structure in place where you can rely on the members for support, inspiration and guidance is very well worth the time you take away from your day-to-day business to participate in the group.

Ayo Mseka, is editor-in-chief of Advisor Today, the official publication of the National Association of Insurance and Financial Advisors. Contact her at ayo.mseka@innfeedback.com.

Greg Gagne, ChFC, is president of Affinity Investment Group in Exeter, N.H. He is a member of NAIFA and Advisor Today’s Editorial Advisory Council. Contact him at Greg.

Gagne@innfeedback.com.

May 2013 » InsuranceNewsNet Magazine

61

LIMRA INSIGHTS

Over 850 financial services companies in more than 70 countries turn to LIMRA first to help them build their businesses and improve their performance.

Employers’ ACA Uncertainty Leads to Lack of Planning E mployers who have begun to plan for the long-range effects of health care reform on their business are more likely to make the changes necessary to help them weather the coming storm.

By Yuliya Babushkina

W

ith key parts of the Affordable Care Act (ACA) about to take effect, employers are facing many uncertainties.

A 2013 LIMRA survey of mid- and large-size employers found that half the respondents expect health care reform to have a negative impact on their overall business in the next three to five years. These negative expectations, however, are only perceptions because so many of them have not begun to plan for the changes.

Four out of 10 employers stated they expect an increase of at least 11 percent in annual medical benefit costs. The most common strategy to address increases is to adjust compensation packages and benefit strategies to contain costs and shift more responsibility to employees. (This is especially true for employers with a negative attitude of the reform’s impact.)

One-quarter of employers say they have increased employee contributions in the past. Another third is planning to increase employee share in the next three to five years. Half of the employers surveyed have already increased deductibles/co-payments or plan to increase them in the near future. Employers also plan to reduce coverage for spouses and dependents.

While health care reform specifically highlights the importance of wellness initiatives, employers are still not fully engaged in these programs. Only 40 percent of employers offer a wellness program, but less than half measure their return on investments. Employers who focus on cost-shifting benefit policies tend to pursue wellness programs more.

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These methods of cost containment reflect the employer’s experience before health-care reform. The reform has accelerated the need to revise compensation strategies for the long haul.

The survey revealed that more than 60 percent of employers said they have not started or were not sure about longrange planning for the effects of health care reform.

Understanding where employers stand when it comes to long-range planning is the determining factor of their attitudes toward employee benefits. Employers who have started long range planning are likely to implement the most robust measures, such as making multiple design changes to medical plans, switching to consumer driven plans exclusively or shifting to a defined contribution model. They also see nonmedical benefits as a potential trade-off if needed to keep their medical plans viable.

Even among employers who believe that health care reform will have little or no effect on their ability to offer nonmedical benefits in the next three to five years, half say they are considering the elimination of at least one nonmedical benefit they currently offer. Of this group, half are considering eliminating more than one benefit.

The most troubling group is the 60 percent of employers who said they have not started or don’t know about longrange planning for health care reform.

The smaller the employer, the less likely they are to have a long-term plan.

This lack of long-range planning has significant implications. As stated earlier, many employers assume that health care reform will have a negative impact on their overall business in the next three to five years, yet they cannot identify the reform’s exact impact.

Also, a majority of employers who currently have their medical plans grandfathered expect to keep this status going forward. At best, this notion is unrealistic. Moreover, it gives employers a false

sense of immunity to many outcomes of health care reform.

Attempting to gauge their stance on whether or not they will stay in the benefits marketplace, these employers often hide behind the perceived safety of a “don’t know” attitude. While certainly a legitimate way to express their overall confusion about the implications of health care reform, it also shows that when confronted with reforms in the benefit marketplace, many employers do not have sufficient training and tools to address critical benefit issues in a timely way.

Might insurance exchanges ease some of the uncertainty? That’s difficult to say because even if exchanges prove to be successful, they are currently defined to offer only medical and dental (or vision) benefits, leaving employers as the primary outlet for obtaining other group non-medical benefits.

In order for carriers to be successful in the post-ACA world of employee benefits, they should consider these actions: Identify and start to develop different strategies based on the possible outcomes of the ACA on both employers and employees.

Educate employers and producers about the need for taking a strategic and long range approach to their benefits.

Share knowledge on wellness programs and insurance exchanges.

While little attention has been given to the longer term effects ACA may have on employers, there is an opportunity for carriers to help them navigate the new landscape.

Yuliya Babushkina, senior analyst, product research with LIMRA is responsible for managing U.S. group dental surveys and various studies in group product research. Contact Yuliya at Yuliya.Babushkina@ innfeedback.com

MARKETPLACE Virtually Unlimited Annuity and Final Expense Leads

ADVERTISER INDEX

For more details on an advertiser, use the information below or visit InsuranceNewsNetMagazine.com/spotlight Advertiser

Website

American College

financialplanningsuccess.com/healthcare 888-795-6306

57

American Equity

www.american-equity.com

888-647-1371

5

AMZ Financial Services

go.amzwebcenter.com/warrior_inn

866-279-5677

51

Assurity Life Insurance Company

www.assurity.com

800-276-7619

41

Athene Annuity

www.tuckeradvisors.com

800-734-0076

IBC

Covenant Reliance Producers

www.crp-pcm.com

866-907-4275

3

Creative Marketing

www.creativemarketing.net/inflation

800-992-2642

6-7

Eugene Cohen Insurance Agency, Inc. www.cohenagency.com

800-333-4340

15

Fairlane Financial

www.888fairlane.com

800-327-1460 45

Financial Independence Group

www.figmarketing.com

800-527-1155

43

First Income Advisors

www.perfectappointmentreport.com

888-320-9827

1

Gradient Financial Group

www.gradientfg.com

800-407-4137

BC

Kansas City Life

www.kclife.com

800-258-4525

21

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Legacy Tree Foundation

www.legacytreebenefit.com

615-468 - 8048

49

Levinson & Associates

www.carylevinson.com

800-375-2279

IFC

M&O Marketing

www.fmoupgrade.com

866-401-8291 19

Minnesota Life

www.securian.com

888-413-7860 opt. 1

37, 63

MWG Marketing

www.premiumsaverplan.com/inn

800-800-1397

55

Or you can also call Russ Jones (The Lead Junkie) toll free at 800-499-6959 ext 100

NAIFA

www.naifa.org/itpays

877-866-2432 57

Oxford Life Insurance Company

www.oxfordlife.com

888-203-5778

39

Pacific Life Insurance Company

www.ridewithvul.com

800-800-7646

31

Petersen International Underwriters

www.piu.org

800-345-8816

34-35

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Phone Page

Prudential www.prudential.com/lifesolutions 800-292-0054 10-11 Sagicor

www.sagicorlifeusa.com

Security Benefit

retirementincomechallenge.com/modeler 800-888-2461 51

888-724-4267 opt. 2

27

The Lead Junkie

www.wholesaleleadsnow.com

800-499-6959 ext 100

63

Verical Vision

www.v2freeannuityleads.com

866-984-1585

Insert

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to learn more about our products and services, call 1-888-413-7860, option 1.

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Securian Financial Group, Inc. www.securian.com Insurance products offered by Minnesota Life Insurance Company, 400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2012 Securian Financial Group, Inc. All rights reserved.

F77739-1 4-2013 DOFU 9-2012 A03355-0812

May 2013 » InsuranceNewsNet Magazine

63

THE LAST WORD

WITH LARRY BARTON

How to Hire a Hero Our nation’s military veterans have the discipline, flexibility and resiliency that make them excellent candidates for future careers in financial services.

“Endeavors succeed or fail because of the people involved. Only by attracting the best people will you accomplish great deeds.”

Colin Powell

Former Chairman of the U.S. Joint Chiefs of Staff and Former U.S. Secretary of State

By Larry Barton

H

ere’s the secret to building a world-class financial services operation, whether in the home office or at the agency level. It’s not about the latest and greatest technology, having the best facilities or creating a new product wrinkle your competitors don’t have yet. Those may be the outcomes you’re looking to achieve, but the catalyst will always be the people you hire. Are they passionate about the company and your mission? How can you de-risk the hiring process to stack the deck in your favor?

According to a 2011 Gallup poll, 71 percent of American workers across all industries say they are “not engaged” or are “actively disengaged” in their work.

That means only 29 percent of workers are involved and enthusiastic on the job and passionate about making a real contribution. The No. 1 cited reason for the high dissatisfaction: the relationship with their immediate supervisor. So it’s as much about how employees are managed and led as about whom you hire.

For financial services, I would argue that our circumstances are even worse. The washout rate for new advisors continues to be abysmally high. Those companies that do the best in this area have the dubious distinction of being just slightly less bad than everyone else. Employee churn for our profession is at epidemic levels.

Let’s start with the hiring challenge.

If only we could draw from a pool of candidates who are more likely to be engaged from the outset, the opportunity for increased productivity and profitability is significant. There is a wellspring of potential candidates we’re not maximizing: the veterans of our armed forces who are returning home from tours of service in Afghanistan and other areas. These superbly trained individuals have many qualities that make them ideal candidates for positions within the financial services industry.

64

InsuranceNewsNet Magazine » May 2013

In 2012, The Center for a New American Security issued a report that clearly articulates the values veterans can bring to organizations – including to financial services companies. These attributes include: Leadership and teamwork skills.

Veterans typically have led colleagues, accepted direction from others and operated as part of a team.

Comfort with structure and discipline.

Veterans have experience following established procedures in order to achieve success, a key attribute for financial services firms.

Flexibility. Veterans are accustomed to performing and making decisions in dynamic and rapidly changing circumstances.

Goal-Oriented. Members of the armed forces often have achieved significant victories despite difficult odds. They know how to “get the job done.”

Resiliency. Veterans are accustomed to working in difficult environments, and to traveling and relocating.

Loyalty. Veterans are committed to the organizations for which they work, which can translate into longer tenure and a better return on dollars invested in training.

Penn Mutual recognized this early. They stepped up to help us educate more ser-

vice men and women by creating the Penn Mutual Center for Veterans Affairs at The American College. This center provides military scholarships to men and women who served honorably in the armed services and are making the adjustment back to civilian life, as well as their spouses. By awarding need-based scholarships to the military’s best and brightest, we can provide the financial services profession with a new talent pool of determined and mission-minded individuals.

According to the Bureau of Labor Statistics, veterans who served in Iraq, Afghanistan or both had an unemployment rate of 10.9 percent in August. That’s significantly higher than the unemployment rate for the American workforce as a whole… and it’s totally unacceptable.

Earlier, we talked about the importance of both hiring well and creating the leaders who can help you retain employees in the future. That’s where education comes into play. The more professional education we can provide, the more likely you are to have an outstanding future leader.

When it comes to this critically important veterans’ initiative, we’ll do our part with the education. Will you do the hiring?

I invite you to write me at InsuranceNewsNet and share your perspectives.

Larry Barton, Ph.D., CAP, is president, CEO of The American College and holder of the O. Alfred Granum Chair in Management at The American College, based in Bryn Mawr, PA. Contact Larry Barton at Larry.Barton@innfeedback.com.

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