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A REVOLUTION FOR FINANCIAL ADVISORS DEAN ZAYED AND BROOKSTONE REMAIN AHEAD OF THE CHANGE
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IN THIS ISSUE
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APRIL 2016 » VOLUME 9, NUMBER 4
FEATURE
PAGE 10
Hall of Fame, Fall of Shame By John Hilton We’ve all heard stories of world-class athletes who earned a fortune during their careers but ended up broke. How does that happen? Here are some tales of those who burned through their cash and others who parlayed their fame into lifetime wealth.
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INFRONT
8O pponents Prepare for Fight Following DOL Rule Release
Photo Credit: Bob O’Connor
By John Hilton The real battle over the Department of Labor’s fiduciary rule might be just getting started.
34 Protecting Family Business From Expected IRS Rules By Lawrence J. Bell Life insurance can provide a way to transfer family assets from one generation to another without running afoul of the taxman.
44 M etLife Deal Signals Hard Times Coming for Variable Annuity Sales
INTERVIEW
24 T he Power of the Pose
An interview with Amy Cuddy We all have a superpower. But how will the rest of the world ever know what it is if you don’t show it? Amy Cuddy has made a career of studying body language, and her best-selling book Presence describes the effect that Power Posing has on ourselves and others. In an interview with InsuranceNewsNet Publisher Paul Feldman, Amy teaches how striking the right pose can help us become our authentic selves.
2
LIFE
InsuranceNewsNet Magazine » April 2016
36 AG 49 Targets Fantasy Returns in IUL Illustrations, Policy Loans By Cyril Tuohy Some observers say Actuarial Guideline 49 will install some long-overdue corrections to what they describe as questionable behavior.
ANNUITY
42 F IAs May Be Reaching Saturation
By Cyril Tuohy Fixed index annuities are on the verge of becoming “mainstream,” if they aren’t already, and that means they are getting a temporary lift from broader market forces.
By Cyril Tuohy MetLife’s decision to sell its career agency insurance channel and broker/ dealer to MassMutual may signal the contraction of the annuity market that some analysts predicted would come from the Department of Labor’s fiduciary rule.
HEALTH/BENEFITS
50 B enefits That Matter: Give Workers Choices They Want By Elizabeth Halkos A diverse workforce demands that employers provide benefits that reflect workers’ diverse needs.
FINANCIAL
56 Changing Residency for Taxes Could Lead to State of Confusion By Russell E. Towers Changing legal residency to a lowertax state involves a lot more than just packing up and moving.
Industry Leaders Are Warning of an
Annuity MASS EXODUS. Are You Prepared? Back in 2014 we shocked the industry with our groundbreaking report. It was a wake-up call for the 1,000+ advisors who responded. The story of a $25M annuity producer who shifted the majority of his premium to IUL – and how it tripled his commissions – had many of you looking at the viability of your own practices. Fast forward to today and annuity producers are faced with an even bigger threat. If you’re relying strictly on selling annuities, now is the time to diversify your practice and ensure your livelihood despite the looming DOL fiduciary rule. If you are starting to see the writing on the wall, we urge you to attend our webinar held by the founder of IUL Sales Mastery University to learn:
• How to • Selling IUL • The best answers • How to master becoming DOL-proof from start to any and all a conceptual salesperson your practice to finish IUL objections (not a product pusher)
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ALSO IN THIS ISSUE APRIL 2016 » VOLUME 9, NUMBER 4
61 NAIFA: Women Want Their Advisors to Talk Less, Listen More By Juli McNeely Women tend to look for an advisor who will educate them instead of “sell” them.
BUSINESS
58 Four Generations = Four Different Sales Approaches By Mark Peterson Individuals don’t always fit labels. Here’s how to break through the stereotypes and tailor your approach to every generation.
INSIGHTS
60 MDRT: Four Ways to Attain Client Loyalty
62 T HE AMERICAN COLLEGE: 4 Tips for Navigating Volatile Markets in Retirement By Jamie Hopkins The recent volatile markets are taking retirees for a scary ride. Here’s how you can reassure them.
64 L IMRA: Using Behavioral Economics to Market Life Insurance By Kimberly Landry and Jennifer Douglas LIMRA has investigated whether behavioral concepts could be turned around to encourage more people to buy life insurance.
By Donald P. Speakman Delivering exceptional results tailored to each client’s needs and objectives is at the heart of winning loyal clients.
EVERY ISSUE 6 Editor’s Letter 22 NewsWires
32 LifeWires 40 AnnuityWires
48 Health/Benefits Wires 54 FinancialWires
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3500 Market Street, Suite 202, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 www.InsuranceNewsNet.com PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli MANAGING EDITOR Susan Rupe SENIOR EDITOR John Hilton SENIOR WRITER Cyril Tuohy VP FINANCES AND OPERATIONS David Kefford PRODUCTION EDITOR Natasha Clague VP MARKETING Katie Frazier CREATIVE STRATEGIST Christina I. Keith AD COPYWRITER John Muscarello CREATIVE DIRECTOR Jake Haas GRAPHIC DESIGNER Bernard Uhden GRAPHIC DESIGNER Shawn McMillion
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Copyright 2016 InsuranceNewsNet.com. All rights reserved. Reproduction or use without permission of editorial or graphic content in any manner is strictly prohibited. How to Reach Us: You may e-mail editor@insurancenewsnet.com, send your letter to 3500 Market Street, Suite 202, Camp Hill, PA 17011, fax 866-381-8630 or call 866-707-6786. Reprints: Copyright permission can be obtained through InsuranceNewsNet at 866-707-6786, Ext. 115, or reprints@insurancenewsnet.com. Editorial Inquiries: You may e-mail editor@insurancenewsnet.com or call 866-707-6786, ext. 117. Advertising Inquiries: To access InsuranceNewsNet Magazine’s online media kit, go to www.innmediakit.com or call 866-707-6786, Ext. 115, for a sales representative. Postmaster: Send address changes to InsuranceNewsNet Magazine, 3500 Market Street, Suite 202, Camp Hill, PA 17011. Please allow four weeks for completion of changes.
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WELCOME LETTER FROM THE EDITOR
‘How Did You Get Started?’
I
was an ambitious high school junior when I came across something that I like to call the magic key.
It was from an anecdote told by TV interview queen Barbara Walters in her book How To Talk With Practically Anybody About Practically Anything. Walters spent decades getting famous folks to tell her their deepest secrets on national TV. But she was absolutely tongue-tied the first time she met Aristotle Onassis. Onassis was the world’s richest man, presiding over a shipping empire, married to former first lady Jacqueline Kennedy and the subject of countless gossip magazine articles. How did Walters get the conversation started with Onassis? By asking him this question: How did you get started in business? Bingo! Onassis began reciting every detail of his early life and described the driving force behind his success. Ultimately, he told Walters what inspired him. That question — How did you get started in business? — was the magic key for me whenever I was assigned to interview someone during my years as a newspaper reporter. It also was a great icebreaker during the years I worked for an insurance trade association and found myself sitting in a meeting or networking at a luncheon with a group of members I did not know. People who are reluctant to talk about themselves almost always light up when you ask them to recall their early days in their chosen profession. Why? Because what they really are telling you is what inspires them. These are the stories we want to share with our readers in our upcoming “Inspiration” issue in August. But we can’t share these inspiring stories with our readers unless you share them with us first. How did you get started in the business? Who or what inspires you to keep on going? What obstacles have you overcome? How has this inspiration impacted your practice? I’ve been privileged to hear many stories from insurance and financial professionals recalling the paths that led them to where they are today. I have my own “how I got started” story, and it’s a bit unusual. I won my first job in a contest. I was a high school senior, writing features for my school newspaper, when one of my 6
InsuranceNewsNet Magazine » April 2016
classmates told me that a group of students from our school was planning a fundraising effort to acquire an old building and convert it into a community center that my hometown badly needed. I interviewed the girl who was heading this effort, and wrote the story. My journalism teacher thought it was a well-written article, so she entered it in a contest that our local newspaper, the Johnstown (Pa.) Tribune-Democrat, conducted each year among the high schools in our area. As my senior year became filled with more activities, I barely thought about the contest. But I was accepted into college as a journalism major, and I did think once or twice that winning the contest might give me some validation that it was the right path for me. And then I found out I was the winner. The prize? Twenty-five dollars in cash and a paid internship at the Tribune-Democrat for the summer. That’s right — I was going to spend my summer working in journalism, getting paid for it, and all before I had even started college. How cool was that? Two weeks after I received my high school diploma, I rode the bus to work to begin my first day as a working journalist. I remember
that as I climbed the steps to the second-floor newsroom on that first day, I thought I was the luckiest girl in the world. That summer internship turned into five consecutive summers spent working at the Tribune-Democrat. Most of it was grunt work, but I learned far more there than I ever did by sitting in a college classroom. And I did manage to put together a decent portfolio of articles that I had published before I had even graduated from college. Eventually, I left the Tribune-Democrat for another newspaper. And then I left that newspaper for still another newspaper. Work had its ups and downs, but when things were down, I would think about the prize that I had won so long ago, and it inspired me to try to be worthy of getting that lucky break. So now you’ve read a story of inspiration. And now I want to read one as well. And I want to share it with our readers. Take a moment to send us your inspiring story at editor@insurancenewsnet.com. We would love to take that inspiration and spread it around. Susan (Yocca) Rupe Managing Editor
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INFRONT TIMELY ISSUES THAT MATTER TO YOU
Opponents Prepare for Fight Following DOL Rule Release s opponents line up litigation A and legislative support, companies and advisors look at compliance. By John Hilton
E
ven though it seems like the fighting has been fierce on the Department of Labor’s fiduciary rule, the real battle might just be getting started. Rule opponents have a new, powerful ally in Speaker Paul Ryan. In late February, he weighed in with a blistering commentary on the Obama administration’s motives for the fiduciary rule, which governs the advice provided to qualified retirement plans, employer plans and individual retirement accounts (IRAs). “This rule would create more paperwork and record-keeping requirements for planners, meaning higher costs for consumers,” Ryan wrote in a message on his website. “It would also mean less access and fewer options for small businesses.” Ryan singled out GOP alternative bills that “provide a workable alternative to the administration’s flawed proposal.” Of these, the Retail Investor Protection Act (RIPA), from Rep. Ann Wagner, R-Mo., has been around the longest. First introduced in 2013, the legislation would prohibit the DOL from instituting new rules governing financial services before the Securities and Exchange Commission (SEC) reviews the proposed regulations. More recently, the Affordable Retirement Advice Protection Act, introduced by Rep. Phil Roe, R-Tenn., and the Strengthening Access to Valuable Education and Retirement Support Act, put forth by Rep. Peter Roskam, R-Ill., passed a House committee. Any one of these alternatives “provides a workable alternative to the administration’s flawed proposal,” Ryan said. 8
InsuranceNewsNet Magazine » April 2016
Congressional Review Act a Possibility
The Congressional Review Act is one option to counter the DOL rule, said Michael Ricci, Ryan’s communications director. Passed in 1996 as part of the GOP’s “Contract with America,” the CRA provides a filibuster-proof path for Congress to override a regulatory rule. However, since the
“The odds of this rule not going into effect in some form are the equivalent to President Obama appointing Ted Cruz to the Supreme Court,” said Aaron Klein, whose company, Riskalyze, is consulting with firms on how to adapt to the DOL rules. There is a high expectation among industry types that major carriers with a lot on the line will back litigation to kill the
president can still veto any CRA resolution, it has worked only once to overturn an executive branch rule. “We have different avenues,” Ricci said. “No decision’s been made, and one reason for that is we not only want to see what the rule looks like, but we’ve got a lot of Democrats who have signed on to a letter expressing concern about it.” How much Democrat opposition materializes is an important component of the House response, he added. Democrats would have to defy an Obama administration that has made the fiduciary rule a high priority. The Office of Management and Budget publication of the rule is timed to ensure the rule is fully adopted prior to the president’s departure from office in January 2017.
rule. There is precedent for this approach. In 2010, the District of Columbia U.S. Court of Appeals vacated the SEC’s Rule 151A, which regulated indexed annuities as a security. A subsequent amendment by Sen. Tom Harkin, D-Iowa, to the Dodd-Frank Act ensured that indexed annuities would continue to be regulated as fixed insurance products permanently. But analysts note that the DOL is not the SEC. In other words, Labor has the full experience and power of the White House in its corner. The most obvious court challenge is based on whether DOL followed the proper procedures in promulgating its rule, said Fred Reish, a partner at Drinker Biddle & Reath in Los Angeles.
OPPONENTS PREPARE FOR FIGHT INFRONT
“That is so well-known that I can’t imagine the DOL isn’t doing intensive investigations right now and isn’t going to write a very robust” report in support of its rule, he added during a December interview with InsuranceNewsNet.
Volatile Times for Annuity Sellers
One virtual certainty is that an expanded fiduciary rule is going to change how annuities are sold. Many carriers conceded as much without waiting to see what a final rule looks like. American International Group sent out the first shock waves when it began shopping its distribution network of four separate broker-dealers collectively known as AIG Advisor Group. Then MetLife made a big deal, shipping its 4,000-agent Premier Client Group and its affiliated broker-dealer,
EAGER BUYERS
SEC States a Case
The Dodd-Frank Wall Street Reform and Consumer Protection Act specifically authorizes the SEC to adopt a rule imposing a fiduciary duty. The agency plans to do just that, Chairwoman Mary Jo White said in February. According to SEC rulemaking documents, the agency expects to finish its rule by the fall of this year. Industry observers are not expecting the SEC to harmonize its efforts in any way with the DOL. “It seems more likely that we’ll be looking at the same sorts of issues, but approaches from different ways,” said Mark Smith, partner with Sutherland Asbill & Brennan, a Washington, D.C., law firm. A series of emails released in late February highlighted the differences between the DOL and the SEC over the types of improper broker activity that the rule
“The odds of this rule not going into effect in some form are the equivalent to President Obama appointing Ted Cruz to the Supreme Court.” MetLife Securities, to MassMutual in a $300 million deal. The apprehensive approach is not surprising, analysts say, and will likely mark the first months and years operating under new rules, if they go into effect. “It feels like the nature of the conversation is very much ‘Well, what are you going to do?’” said Christopher Raham, principal with Ernst & Young. Based on conversations with advisors and firms, the Ernst & Young “DOL response team” expects the percentage of advisors who sell annuities to decline, Raham added. Barring surprise language in the final DOL rule, fixed index annuities could emerge as a go-to product for advisors. FIA sales are already hot, totaling $26.5 billion in the third quarter of 2015, the highest sales level in six years according to Beacon Research. With variable annuities to require the new DOL Best Interest Contract Exemption, advisors and clients might see FIAs as a better option.
should measure: conflicts of interest or impact on investment returns. The DOL reportedly rejected numerous recommendations from the SEC and other agencies. While the fight might not be over, many within the industry are also preparing for a new business model. That means pragmatically looking at timelines for rule mandates on record-keeping and new disclosures. Scott Stolz, senior vice president of private client group investment products at Raymond James Financial, was hoping that the final rule would give companies like his more leeway to adapt before enforcement begins. “The best I think we’ll get is a longer timeline where they let us be out of compliance for a while.” InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john. hilton@innfeedback.com.
April 2016 » InsuranceNewsNet Magazine
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InsuranceNewsNet Magazine Âť April 2016
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FEATURE HALL OF FAME/FALL OF SHAME Photo Credit: Markson Sparks/Rex USA/Everett Collection
Y
ou know how the movie the 20th round of the 2005 “The Hangover” revolves Major League Baseball draft around a tiger that turned by the Detroit Tigers. out to be Mike Tyson’s After a promising 2006 seapet? son for a Tigers’ minor league Well, in real life the team, Averill developed elbow former heavyweight champion didn’t issues and underwent surgery. have a pet tiger. He had three. Faced with a year-plus recovThe rare, white Bengal tigers cost him ery time, Averill said he quick$140,000 and then about $40,000 to feed ly got “really bored.” them each year and $125,000 annually So he secured an internship for a trainer. That is just one instance of at a Smith Barney office with the famously extravagant spending that a colleague who did financial led Iron Mike to pummel hundreds of planning for athletes. The inmillions of dollars. tersection of Averill’s two main His is a fascinating tale like that of many interests was completed. a sports star who came into fame and for“It was really during that tune at an early age. But they might not be time … that I fell in love with so different from a high-net-worth client just being able to help athletes that an advisor might deal with. Entre- make smart decisions with preneurs and business owners can strike their money,” he said. it rich and make more money than they After a brief return to pro know what to do with. So what they do baseball in 2008, Averill turned before seeking the help of an advisor is in his uniform for good. In often the wrong thing. 2010, he was recruited by DaWhen advisors deal with big cases, they vid Penniall, himself a former often have to manage big spenders. In this pro baseball player turned feature, we will hear from advisors who financial advisor, to head up Athlete help keep wealthy athletes out of trouble. Wealth Management Group. This advising requires financial know“He believed the right model that an how, but also a healthy dose of psychology. athlete needed was much more along Not many athletes the lines of a family are equipped to make office-type service the difficult financial model as opposed to decisions that accoma traditional finanpany their profescial advisor who just sion, said Erik Averill, focused primarily a partner in Athlete on investment manWealth Management agement,” Averill exGroup in Scottsdale, plained. Ariz. After all, many Averill’s team inathletes will earn the cludes three other majority of their lifeex-pro athletes, and time earnings before the company has $1.1 Erik Averill parlayed a turning 30 years old. billion in assets under finance degree and a base“I actually think the management. They ball stint into a successful advisory career. majority of athletes have 125 clients, Averwant to make the right ill said, including 51 decisions and they want to be smart with active Major League players — two with their money,” Averill said. “It’s just a lack career earnings of more than $100 milof education and, unfortunately, a lack of lion, and two with more than $50 million. getting the right advice.”
Financing a Fallback Plan
Averill, 32, majored in finance at Arizona State University, where he starred as a left-handed power pitcher for the Sun Devils baseball team. He was drafted in 12
InsuranceNewsNet Magazine » April 2016
Start With Goals
Perhaps the most important part of financial planning for athletes doesn’t involve money at all, Averill said. It involves the attitude, the goals and, finally, the plan crafted at the beginning of the relationship.
Mike Tyson spends quality time with one of his pet tigers, which took a bite out of his checkbook. Depending on the player, there are strategies that are often effective, Averill said. For example, an AWMG advisor will ask players to look ahead 30 years to a Sports Illustrated profile being written about their career. What would the players want it to say? “The first thing we always clarify with our athlete-clients is that this has to be important to you,” Averill said. “There’s a mutual commitment where we’re going to agree on a budget and we’re going to review these things on a regular basis. You can’t come in and try to control their money or tell them what to do.” Not that it is all smooth sailing by any means. But the talks and the agreement give the advisors some leverage if an athlete begins making bad financial decisions. “We’re not going to allow a client to be a train wreck,” Averill said. “It’s only happened twice that we had to fire clients. After multiple years of repeated attempts to help them make smart decisions, (you realize that) it’s just not important to them.” While NBA players earn an average annual salary of $4.7 million — and going up — as many as 60 percent of players go broke within five years of retirement, according to a Sports Illustrated report.
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FEATURE HALL OF FAME/FALL OF SHAME Even more alarming is a similar report Pension] IRA to take advantage of taxshowing that 78 percent of ex-NFL play- deferred growth. After that, a “properly ers suffer financial problems within two designed” indexed universal life or variyears of leaving the sport. able universal life insurance policy is an Once the discussions option, he added. on philosophy and be“We are big believers havior are out of the that it can be a great way, AWMG advisors tool if max-funded at start with a pretty conan early age and not servative financial base touched for a minfor their clients, said imum of 10 years,” Averill, a certified fiAverill said. nancial planner. “That core portfolio ‘A Bunch of Stress’ that we have is going Brad Klontz doesn’t see to be your typical lowTyson’s journey to ficost globally diversified nancial ruin as unusuBrad Klontz incorporates portfolio where we’re al. Co-founder of Your psychology into his not trying to hit home investment strategies for Mental Wealth and the high-net-worth clients. runs,” he explained. Financial Psychology “Once our clients reach Institute, Klontz said the goal where basic lifestyle needs are star athletes are similar to lottery winners. met, we will start to implement some difThe sudden accumulation of wealth ferent strategies.” throws them out of their “financial comHigh-net-income athletes tend to max fort zone.” While that might sound like out their 401(k)s fairly quickly, Averill a good thing for some poor athletes, it noted. At that point, AWMG will steer often isn’t. them to a SEP [Simplified Employee “It puts a bunch of stress on your
relationships,” Klontz said. “It changes your relationships with people. In a sense, you’re almost kicked out of your social group.” And that’s where the athlete’s subconscious “animal brain” kicks in, he said. At an early point in our evolution, humans relied on being in a tribe. Since being kicked out of the tribe was basically a death sentence, we learned to desperately cling to our sociocultural group identity, Klontz explained. “Frankly, there’s social pressure for (suddenly rich athletes) to get rid of all the money and go back to where you were, because if you go back to where you were psychologically, then emotionally there’s no more pressure,” he added. Likewise, the sudden wealth creates a sort of “existential crisis” for the athlete, Klontz said. After working so hard to be a great athlete, get a scholarship and play professionally, the athlete is sometimes left wondering who they are and what it all means, he said. Many Asian- and African-American cultures are very insular. That tight-knit group dynamic often affects the financial
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InsuranceNewsNet Magazine » April 2016
HALL OF FAME/FALL OF SHAME FEATURE
An Allowance
Mike Tyson AGE: 49
SPORTS HIGHLIGHT: The youngest boxer to win the WBC, WBA and IBF heavyweight titles. CAREER EARNINGS: More than $300 million from boxing alone. SHAME: Tyson flailed his way through his fortune and ended up flat on the mat under $38 million in debt.
William Small sees it frequently among the NFL athletes he encounters as head of William Small Wealth Management Group in Hazelton, Pa. “A lot of the athletes come from low income or poverty growing up,” he said. “They might have had seven people growing up in a one-room house. And you get a couple hundred thousand or a couple million, and
you want to take care of everyone around you, so the money is spent quick.” The key is getting the athlete to follow a budget and creating a diverse portfolio for them, Small said. And it’s not as easy as it might seem, he added. Players need to exercise strong financial discipline.
“These guys only get paid during the season, so a lot of times in the offseason these guys are borrowing money at crazy interest rates because they don’t get paid from January until the summer,” Small said. He mentioned a current NFL running back who is on a monthly allowance
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15
Photo Credit: Hahn-Nebinger-Orban/MCT/Newscom
behaviors of athletes. For instance, is the player going to fly first class while his buddies are in coach? Or is he going to pay the difference to bump them up? “If you all of a sudden have a bunch of money, can you talk to your friends about how stressed you are about the stock market?” Klontz said. “You can see that there are one or two things that typically happen without a lot of conscious thought and effort, and that is you get rid of all your friends, or you get rid of all your money.”
Photo Credit: KARL CRUTCHFIELD, Ai Wire “Ai Wire Photo Service”/Newscom
FEATURE HALL OF FAME/FALL OF SHAME sticking with their goals. It’s not what we want; it’s what they need and want.”
Sheryl Swoopes
HALL OF SHAME
AGE: 45
CAREER EARNINGS: More than $50 million. SHAME: Swoopes ran through reportedly $50 million in a sneaker deal to end up not even being able to pay her rent.
distributed by his agent and financial planner. If the player spends less than his monthly figure, those dollars carry over for him to spend in another month, Small said. “So what he does twice a year is take his buddies on long trips,” he said. “If he wants to do something crazy, like buy a Ferrari, his advisors say no and he listens.” For long-term planning, Small said life insurance and maybe an annuity can go a long way toward setting up an athlete for life.
Jack Johnson AGE: 29
SPORTS HIGHLIGHT: Played for Team USA at the 2010 Winter Olympics in Vancouver. CAREER EARNINGS: About $22.5 million. SHAME: Johnson trusted his parents as financial guardians after signing his multimillion-dollar contract, but they apparently didn’t reciprocate the love, as they racked up bills in the millions.
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The NBA is one sports league taking the annuity route in an effort to help its employees auto-save for retirement. The league sets aside 1 percent of basketballrelated income (BRI) for welfare benefits and a post-employment annuity plan for its players. “The goal is a 30-year goal for retirement,” Small said. “It’s not retirement three months down the road when you want to buy a second, third or fourth house that somebody’s talking you into buying. The main thing is, the players
MIKE TYSON
By the time he crashed headlong into bankruptcy court in 2003, Tyson had spent his entire $300 million in career earnings. His balance sheet came up $38 million in the red, most of it owed to the IRS. To say he could have used a faithful financial planner is like saying Jesus influenced a lot of people. Sadly, Tyson’s story is not unique in the athletic world. The boxer was all of 20 when he exploded into living rooms as “The Baddest Man on the Planet,” knocking out Trevor Berbick to become heavyweight champion in 1986. Raised on the streets, Tyson was ill-equipped to handle the sudden fame. “I was totally out of my league. I didn't know how to handle money, didn't know how to handle the people who were involved with me with my money,” he told CNBC in an interview. In recent interviews, Tyson has revealed bits and pieces about his financial picture. The boxer turned to the media — book deals, movie roles, a TV series and even a Broadway show — to help climb out of his financial hole. While still in debt, Tyson is once again a millionaire, according to the website Celebrity Net Worth. Tyson and his wife Lakiha closed Dec. 28 on a two-story, 10,401-square-foot mansion in the Seven Hills golf community in Las Vegas. According to Clark County records, the couple paid $2.5 million for the home. Photo Credit: Aaron Doster/Cal Sport Media/Newscom
SPORTS HIGHLIGHT: The first player to be signed by the WNBA when it was created in 1996.
SHERYL SWOOPES
The first breakout star of the fledgling WNBA, Swoopes did not make the bulk of her money from salaries. The average league salary remains slightly more than $100,000. But Swoopes racked up serious hardware: She was a threetime Olympic gold medalist and
HALL OF FAME/FALL OF SHAME FEATURE
A MAGICAL MOVE FROM SPORTS TO BUSINESS Ervin “Magic” Johnson’s most recent business venture saw him purchase a controlling stake last year in EquiTrust Life Insurance Co., creating the nation’s largest blackowned insurance company. Magic Johnson Enterprises bought more than a 60 percent interest in the Chicagobased company from Guggenheim Partners. The purchase price wasn’t disclosed. EquiTrust manages $14.5 billion in annuities, life insurance and other financial products. “We will educate and emphasize the importance of life insurance for estate planning and annuities for retirement planning purposes,” said Johnson, 56, who also serves as MJE’s CEO and chairman. “It’s not only groundbreaking, but it continues my mission to invest in businesses where we can make a positive impact in the community.” The move into the insurance world is just the latest business success for the confident and hardworking Johnson. A member of the NBA Hall of Fame, Johnson played his entire career with the Los Angeles Lakers, retiring in 1991 after contracting HIV.
Photo Credit: Matt A. Brown/Icon SMI 454/Matt A. Brown/Icon SMI/Newscom
Johnson returned to play 32 games in 1996, and finished with three MVP awards and five championships. While still playing, Johnson sought the advice of Michael Ovitz, CEO of Creative Artists Agency. Ovitz advised him to read business magazines and seek out successful people. Johnson dove into the business world after retiring, pushing a plan to locate state-ofthe-art movie theaters on cheaper inner city property. The plan was wildly successful and led to a partnership with Starbucks. MJE went on to diversify into many different businesses and is worth a reported $700 million today. — John Hilton
April 2016 » InsuranceNewsNet Magazine
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Photo Credit: Steven Leija/ZUMApress/Newscom
FEATURE HALL OF FAME/FALL OF SHAME
Ryan Broyles AGE: 28
SPORTS HIGHLIGHT: Set an NCAA record for most receptions, with 349. CAREER EARNINGS: About $3 million. FAME: Broyles was a promising wide receiver who banked about $3 million, but he caught a whole lot of good financial sense, living like a moderate middle-class earner.
Photo Credit: DANNY MOLOSHOK/REUTERS/Newscom
won three WNBA MVPs and four league championships with the Houston Comets. All that TV time helped Swoopes become the first female basketball player to lend her name to a sneaker: the Nike Air Swoopes. She reportedly earned more than $50 million from her sneaker deals. But in the 2013 documentary “Swoopes,” she said a series of bad investments combined with profligate spending caused her to lose it all.
By the end of her financial downfall, Swoopes had lost several basketball mementos from her college and pro career because she couldn’t afford the $300 monthly rent on a storage unit. She filed for Chapter 13 bankruptcy in 2004. Five years later, Swoopes, then 37, was cut from the Seattle Storm. At the time, she was so poor she couldn’t afford to pay rent.
Shaquille O’Neal AGE: 44
SPORTS HIGHLIGHT: NBA Most Valuable Player in 2000. CAREER EARNINGS: About $292 million in NBA salary, and an estimated equal amount from off-the-court ventures. FAME: O’Neal is one of the alltime stars of basketball, but he shines the spotlight on annuities as essential to securing a firm financial future.
JACK JOHNSON
In one of the more heartbreaking stories of sports stars in financial ruin, NHLer Jack Johnson was forced to declare bankruptcy after a string of poor decisions by his parents. While NHL players do not earn as much as the stars of most other sports, Johnson, 29, signed a seven-year, $30.5 million deal with the Los Angeles Kings after being drafted third overall in 2005. At 6-foot-1, 238 pounds, Johnson is a powerful defenseman with offensive capabilities. But his off-ice financial health went south from the moment he granted his mother, Tina Johnson, power of attorney over all his finances. Tina and Johnson’s father, Jack Sr., took out several large, high-interest loans against Johnson’s future earnings, a lending practice known as “monetizing,” and spent the money on homes, cars and travel. In 2014, the Columbus Dispatch reported that Johnson had filed for Chapter 11 bankruptcy protection, claiming just $50,000 in assets against $10 million to $15 million in estimated debts. Lenders eventually brought three lawsuits against Jack Johnson for defaulting on over $6 million in debt. For his part, Johnson claimed to have no knowledge of his parents' spending, but said he would not pursue criminal charges against them. Lenders claim Johnson was complicit in the borrowing scheme, pointing to loan documents he signed in person. He has sued National Mortgage Resources and an investment firm, CYA Investments, for at least $1.5 million, including for punitive damages. Johnson continues to earn a healthy $5 million salary, a portion of which is garnished to pay off the debts.
HALL OF FAME RYAN BROYLES
Not all athletes are into fancy cars, cavernous mansions and blingbling. Ryan Broyles certainly isn’t. 18
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WILL ANNUITIES MISS THE RETIREMENT TRAIN? FEATURE
April 2016 » InsuranceNewsNet Magazine
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FEATURE HALL OF FAME/FALL OF SHAME
Roger Staubach AGE: 74
SPORTS HIGHLIGHT: Named MVP of the 1971 Super Bowl after leading the Dallas Cowboys to a win over the Miami Dolphins, 24-3. CAREER EARNINGS: The sale of the Staubach Co. for $663 million in 2008 dwarfed his football earnings. Staubach handed off 88 percent of the money to more than 300 of his employees.
In fact, the NFL wide receiver made headlines last year when he talked about his $60,000 annual budget. Coming off a record-setting college career, Broyles was drafted in the second round by the Detroit Lions in 2012. Records show he signed a contract worth $3.7 million over four years, $1.4 million of which was guaranteed. Included was a signing bonus of a shade more than $1 million. Broyles’ first move was to seek out a financial advisor. Together, they devised a plan for the young couple (Broyles also got married in 2012) to invest and save most of their money while living on a $5,000-a-month budget. That meant sacrifices that made Broyles stand out among his colleagues. For instance, he drove a rented Ford Focus during training camp. At home, Broyles and his wife drive a Mazda 3 and a Cadillac SRX, respectively. Broyles has said he came up with his plan while sitting through the NFL’s rookie symposium, a league-mandated event warning rookies about a myriad of off-field dangers. And Broyles — who didn’t play in 2015 after being waived by the Lions in September — is trying to pay it forward. In March, he spoke to students about fi20
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and $6,730 on dry cleaning — per month. But O'Neal learned an early lesson to manage money the old-fashioned way: put most of it in the bank for retirement. The 7-foot-1 O’Neal has said he’s socked away 75 percent of his income. That includes more than $1 million annually put in annuities, advice from O’Neal’s first business manager. The monthly substantial income he can draw from annuities ensures that O’Neal’s opulent lifestyle will never change much.
ROGER STAUBACH
After starring at quarterback for the Navy Midshipmen, Staubach FAME: Staubach was known served a five-year commitment as Captain America back in before joining the Dallas Cowboys the day, but did you know he in 1969. was a super insurance agent In those days, nobody made off the field? much money, least of all a 27-yearold rookie QB. So Staubach began working for the Henry S. Miller Company as an insurance salesman. nancial planning in Washington, D.C. He He soon switched to being a commercial has also worked with Visa and the NFL to real estate broker and became one of the promote a Financial Football video game firm’s top salesmen. in classrooms. The goal is to teach finanOn the field, Staubach won the 1971 cial security and planning in D.C. as well MVP award and led the Cowboys to a Suas in Broyles’ home state of Oklahoma. per Bowl win, the first of two championships. He continued working for Miller and SHAQUILLE O’NEAL was eventually named a vice president. Legend has it O’Neal spent his first $1 In 1977, he and fellow broker Robert million 30 minutes after joining the Holloway left to form a real estate NBA. That led to a call from his busicompany, which they called Hollowayness advisor, explaining that he’d be Staubach Corp. broke if he didn’t wise up. Raised by an After Staubach retired from the NFL in Army sergeant father, Shaq decided to 1979, he devoted himself to his business. take the advice. In 1982, Staubach bought out Holloway, O’Neal went on to make a reported who wanted to concentrate on proper$292 million from professional basketball ty development, and the firm became alone. Off the court, he makes movies known as the Staubach Company. and rap albums and endorses a string of The company was wildly successful products. through the years, branching out into He is the joint owner of 155 Five Guys other areas, such as financial services. In Burgers restaurants, 17 Auntie Anne’s 2008, Staubach sold his company for $663 Pretzels restaurants, 150 car washes, 40 million. By that time, he had expanded 24-hour fitness centers, a shopping cenhis firm to 68 offices and 1,800 employees ter, a movie theater and several Las Vegas around the country. nightclubs. InsuranceNewsNet Senior O’Neal still spends lavishly on his own Editor John Hilton has covlifestyle as well as on friends and family. ered business and other A 2012 divorce deposition revealed that beats in more than 20 years O’Neal’s monthly expense budget came of daily journalism. John may be reached at john. to $875,000. That included $24,300 on fuel hilton@innfeedback.com.
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NEWSWIRES
Genworth Stops Life, Annuity Sales The past three years have been difficult for Genworth. A top-five seller of long-term care products, the company has been challenged to meet its obligations to millions of LTCi policyholders in a low-interest rate environment. Genworth announced it is suspending new sales of life insurance products and fixed annuities to help reverse its financial losses. The move will help save the company $50 million in annual expenses, said David O’Leary, president and CEO of Genworth U.S. Life Insurance. The move is part of a broader reorganization to “increase our financial and strategic flexibility,” he added. Life, annuity and long-term care in-force clients should see no change in their policies or how those policies are serviced, he said. The company has 2.8 million life and annuity policy and contract holders and beneficiaries. As for Genworth’s long-term care block of business, O’Leary said Genworth would “separate and isolate” that segment. Asked by one analyst during Genworth’s most recent earnings call whether the company was open to splitting itself up, President and CEO Thomas McInerney said that would be a possibility.
BOOMERS AREN’T POSTPONING RETIREMENT
The baby boomers have always done what they want when they want. Why should retirement be any different? Despite the rough-and-tumble stock market of the past few months, boomers have been beating a path to retirement. Nearly 403,000 American workers and their spouses were awarded their first Social Security checks in January, the highest monthly total in three years. According to Social Security data, 3.2 million workers and spouses qualified for retirement benefits in the past 12 months, up 3.3 percent from the previous year. That’s not a surprise to retirement researchers. People retire for many reasons, including health, job security and hitting those magic birthdays when Social Security or pension benefits start. But there’s no evidence that short-term fluctuations in the stock market influence when workers call it quits. Courtney Coile and Phillip B. Levine, economics professors at Wellesley College, found no DID YOU
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evidence that big 10-year stock market moves affect younger workers or those with less education and fewer stocks. Only huge, long-term moves in the stock market affect retirement timing, the researchers found, and only for welleducated Americans, who are most likely to own stocks.
MEDICARE SIGN-UP SURGE CONFOUNDS EXPECTATIONS
Enrollment in private insurance plans through Medicare has shot up by more than 50 percent, confounding experts and partisans alike and providing possible lessons for the Affordable Care Act’s insurance exchanges. When Congress passed the ACA nearly six years ago,
New York was named the worst state for retirement. Source: Bankrate.com
InsuranceNewsNet Magazine » April 2016
QUOTABLE You do not want the market hijacking your emotional state.
— Andrew Houte, a financial planner at Next Level Planning & Wealth Management in Brookfield, Wis.
it helped offset the cost by cutting payments to Medicare Advantage plans. Insurers and Republicans said the cuts — about $150 billion over 10 years – would ‘’gut’’ the program, a major theme in the 2010 and 2012 elections. The Congressional Budget Office predicted that enrollment would fall about 30 percent. In fact, more than 17 million people are now enrolled in such plans, up from under 11 million in 2010. Nearly one-third of Medicare beneficiaries have chosen private plans, offered by insurers like Humana and UnitedHealth Group, over the traditional fee-for-service Medicare program. But some of the same insurers avidly seeking Medicare Advantage sign-ups have been apprehensive about enrolling people under 65 in public marketplaces created by the ACA. The different trajectories of the two programs are explained by many factors, including money, market size and politics. Insurers know the Medicare population, know the rules of the program and have found ways to manage care that improve the health of Medicare patients and the financial health of the companies. They know much less about their new marketplace customers, many of whom were previously uninsured, and Congress, still bitterly divided over the health law, has done little to stabilize it.
MORE THAN 17 MILLION Medicare Advantage Plan Enrollees
[NEWSWIRES]
QUOTABLE
Feds Want Proof for Special Enrollment Open enrollment period is the three-month time frame that grabs all the attention once a year. But it is the special enrollment loopholes that are getting a second look by the federal government. The Centers for Medicare & Medicaid Services (CMS) wants to tighten the rules that permit consumers to buy health insurance on the exchanges outside open enrollment season. Major health insurers let loose a sigh of relief after that announcement. The number of people who are signing up for coverage outside open enrollment has led to concerns by insurers that people are waiting until they are about to become sick to buy coverage. CMS announced it will start requiring documentation or proof from people who say they need to buy a plan or change coverage outside that window for reasons like marriage, a permanent move or the birth of a child. The documentation will be required in the states that use HealthCare.gov for their exchange. These special enrollment periods were permitted in case a life-changing event causes a consumer’s insurance needs to change outside open enrollment. Insurers have said they get a lot of expensive customers through these special enrollment periods. They suspect that some customers were waiting until they become sick to buy insurance since no one was asking for proof that they qualified for a special enrollment period.
HHS CHIEF: EXPANDED MEDICAID A MATTER OF TIME
Medicaid expansion as part of the ACA hasn’t caught on in every state. But Health and Human Services Secretary Sylvia Burwell said it’s only “a question of when.” She cited two main factors for this: the higher rate of hospital closures in states that haven’t expanded Medicaid combined with the fact many people who qualify for Medicaid coverage are working. “Helping people who are working and playing by the rules is something that is an important concept most people agree on,” she said. Brian Blase, a former Republican congressional aide now with the free market Mercatus Institute, said he’s “surprised 20 states still haven’t expanded Medicaid” since the federal government is paying states for all the new enrollees. The remaining states haven’t expanded Medicaid, Blase said, because they worry the “cost trajectory is unsustainable” and HHS could eventually cut its money to states, which would in turn force them to drop people from Medicaid.
MORE TAXPAYERS SKIPPING REFUND SPLURGE
Vacations, no! Certificates of deposit, yes! Putting that tax refund away for a rainy day
49% of those expecting a refund plan to save it beats splurging on a vacation or other bigticket item, at least for now. More Americans than ever say they plan to save their income tax refund instead of spending it, according to the National Retail Federation’s annual Tax Returns Survey. Nearly half, or 49 percent, of those expecting a refund said they plan to save the
The babies being born in America today are the luckiest crop in history. — Warren Buffett, chairman of the board of Berkshire Hathaway, in his annual letter to company investors
money rather than spend it right away, the highest percentage in the survey’s nineyear history, the retail group said. In addition to savings, about 35 percent of those polled said they planned to pay down debt, and 22 percent will use the refunds for groceries, gas or other daily living expenses, according to the retail federation. Only about 11 percent said the money would go toward a vacation, and even fewer would splurge on a big-ticket item like a television or car, although about 8 percent were considering a small indulgence like a trip to the spa or a night on the town.
SUPREME COURT LIMITS STATE POWER TO GATHER HEALTH CARE DATA
The Supreme Court ruled that state officials can’t force certain health insurers to turn over data revealing how much they pay for medical claims. The justices ruled 6-2 that efforts by Vermont and at least 17 other states to gather and analyze the data conflict with federal law governing certain health plans. The case involves Liberty Mutual, which operates a self-insured health plan for its workers and refused to turn over data. A federal appeals court sided with the company, saying its plan already is subject to federal reporting requirements. The high court said the potential for a patchwork of different state regulations poses a major financial burden upon health care providers.
At age 65, women typically have income 25 percent lower than that of men. Source: National Institute on Retirement Security
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Photo Credit: Bob O’Connor
INTERVIEW
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E
ven if you don’t know Amy Cuddy, you have likely heard her message on power poses — stand like Superman or Wonder Woman and soon you’ll be feeling pretty super yourself. Amy burst on the scene in 2012 with her TED talk on power poses, which is the No. 2 TED talk, with 32 million views. As a Harvard University researcher, Amy found that although people express their power through their body language, those poses also communicate to our own brains. If you stand like a winner in the classic pose of arms thrown up in a V, then your brain will think, “Look at that! I must be a winner!” Amy parlayed her notoriety into a book, Presence, where she lays out the science of power of poses, but she takes it a step further. She delves into what prevents us from tapping into our own power. But she doesn’t advocate channeling our power to dominate others but instead to communicate our authentic selves. Who can sell well without doing that? Amy saw firsthand how selling is done right by watching her father interact with his clients in a small-town insurance agency. They bought from him because they had a true connection, not because he was a salesman. In this interview with Publisher Paul Feldman, Amy discusses how to bring your superpower to your next meeting.
THE POWER OF THE POSE INTERVIEW big challenges sap our cognitive resources and make us very self-focused and threatened. They undermine our ability to perform well. By figuring out how to become present in those moments, we can not only perform better but leave with a sense of satisfaction instead of a sense of regret. The way I define presence is your ability to know and access your best qualities — your knowledge, your skills, your core values — and to be able to bring them forth when you most need to. The first half of the book is understanding that notion and the authentic best self, which is another term that I
class? Maybe, but you certainly can get some benefit from doing only a couple of minutes. FELDMAN: For a lot of our readers, building rapport and establishing trust quickly are among the most important things they have to do on a regular basis. What do you do in preparation for meetings so you can make sure that you’re present? CUDDY: A problem with talking about presence is that people often talk about how to do it but not about what gets in the way of it. Things that get in the way
“If you’re in a one-on-one meeting with a client, put away the distractors, like your phone. I know people have said this a million times: put it away.” think is thrown around a lot and not defined clearly. And what’s the science behind all of this? Not just a fluffy sort of old-fashioned self-help stuff. Then moving into the second half of the book, that’s where we get into the real power of the body in how to take control of the conversation that the body and the mind are always having. It’s about how you use your body to lead your mind and talk it out of something.
FELDMAN: Tell us about your book Presence.
FELDMAN: Some people believe that to get present, they need to use yoga or go into meditative states. But you don’t think that’s necessary.
CUDDY: The book is about taking this concept of “presence” off its pedestal. Presence is often associated with some kind of lifelong journey to figure out how to become present permanently, and I don’t think that’s what presence is about at all. Presence is about moments. And everyone has been present in some moments, and everyone has not been present in others. The idea is, how do we get the self-awareness to understand what gets us to those moments of presence? How can we make it happen when we need to make it happen? We need to make it happen most when we’re in really stressful situations. These
CUDDY: I’m not an expert on them and don’t want to dismiss them. I was skeptical about how far-reaching the benefits of yoga could be and how different it really is from other exercise. But the research on yoga is really solid and mainstream. It does have enormous benefits. For me, it’s more that I don’t think you need to do these things, but if you can do them, great. Most of us don’t have the time or resources to do them, so that’s more the point I want to make. You can benefit from holding one yoga pose for a couple of minutes. It doesn’t have to be an hourlong class every day. Now, are you going to get more of a benefit from an hourlong
are feelings of social threat and fear of being judged by other people and of not being confident enough or fear of not fitting in. All of these things are social fears and anxieties. Those kinds of social traps cause us to behave like scared animals being chased by predators. The thing is, we’re not being chased by predators. Recognize that your body is going into this fight-or-flight mode and it doesn’t need to do that. Stop and ask, “Why am I feeling so anxious about this? What’s the worst possible outcome? I don’t get the sale or I don’t get the positive review from my supervisor? Is that the end of the world or am I still the same person?” Instead, force yourself to feel as though you’re not being chased by a predator by opening yourself up. Literally, opening your body language, pulling your shoulders back, stretching out, breathing deeply. This is communicating — so they also know you’re not in a fight-or-flight response. All of those things calm you down and allow you to be in touch with your skills and your knowledge so that you’re not worried about being chased by predators and you’re able to actually engage in what actually happens. All of those things also allow you to be open to others. That is key, because when you’re threatened, there’s no way you’re April 2016 » InsuranceNewsNet Magazine
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INTERVIEW THE POWER OF THE POSE going to establish trust easily. Because other people pick up on that threat, and then they become a threat. They become aggressive. It doesn’t allow for openness and for real trust to be established. When you’re present and bringing your authentic self forward, then that invites other people to do the same. Because if you trust them enough to do that, they can trust you to do it. And that’s key. That doesn’t always mean it works in every situation. But I think the general idea is that when you say, “This is who I am,” unapologetically showing compassion toward the other person, you can build trust. You can only do that when you go in without the sense of threat. FELDMAN: You talk about two different types of power that people need in order to be present. Can you tell us a little bit about that? CUDDY: Power is about control over or access to necessary resources. In those terms, we usually think of power in terms of social power. But personal power is access to and control over the resources that you possess in yourself. That would be nonphysical and psychological resources like knowledge, power, charisma and core values. Those are things that you own. They’re yours. No one else gets to control them. You do. That’s personal power, being able to access those. And the funny thing is they’re not only at our fingertips, they’re in our brains. They can be the easiest things to access and also the hardest because fear puts up this wall between ourselves and those parts of ourselves. Personal power is the ability to bring them forward when we’re supposed to. The reason we become virtually powerless when we feel like we don’t deserve to be there is that we think, “Who are we to share our opinions?” Or when we feel like we doubt ourselves even though five minutes before this we were fine and knew what we knew. Somehow you walk into these stressful moments and secondguess yourself. FELDMAN: Been there. CUDDY: Who hasn’t? 26
InsuranceNewsNet Magazine » April 2016
FELDMAN: What are some ways of identifying where your power is? Are people afraid of this power? CUDDY: There are hundreds of studies or scenarios that can help you identify your core values. Let me walk you through that, because it might seem hokey, but it’s extremely robust at protecting us from threats. This is how these studies work: First, people will be asked what makes you you? What are the things that you most care about? Make a list of these five things. We tend to think that these five things are pretty constant across people, but they’re not. People are really different. Some might say creativity is one of those five things. Some might say helping others. Some might say being outdoors. These vary widely. Take the top one or two and write about why they matter to you. What is it that makes them so critical to identifying who you are? Then write about a time when you were able to express those values or you were really in tune with them. Say it’s the outdoors. Write about a camping experience that was so complete or so gratifying. Or if it’s about helping other people, write about a time when you helped people and you walked away feeling really wonderful and satisfied. That’s called the self-affirmation theory. What happens is when people do that, as crazy as it sounds, when they go into another stressful situation such as public speaking, they perform much better. Their anxiety significantly lowers psychologically and physiologically because they know who they are and they know however they perform in that moment, it’s OK because they’re still going to be that person who cares about helping people or about their friends or about spending time in the outdoors. It’s really incredible. You’re not saying, “I’m a great public speaker” and giving a great speech, because that’s not core to who you are. Maybe it is, but for most people it’s not. It’s got to be something
you know is real and authentic about who you are. It buffers you against stress. FELDMAN: Wouldn’t it also help because it helps you visualize? CUDDY: Yes. Even if you’re challenged in things you don’t really like or that aren’t core to who you are. These core values
unleash your talents in other areas. They allow you to be your best in these other isolated areas. FELDMAN: One thing that I see happening a lot is distractions. Like when you’re in the meeting, trying to be present, but something catches your eye and your mind jumps. What are some ways of preventing that? CUDDY: No one is present all the time. So I think that to hold yourself to a standard of being completely present throughout your entire meeting is not feasible. No one can completely prevent eyes wandering or those distractions from popping up.
THE POWER OF THE POSE INTERVIEW The first thing is not to panic. A lot of people feel like “Uh-oh, I just got off track. How am I going to get on track again?” Hold yourself to a reasonable standard. If you’re in a one-on-one meeting with a client, put away the distractors, like your phone. I know people have said this a million times: put it away. Turn off the sound of your email. If you’re in front of your computer, turn your screen off. All those things that you can’t help but be distracted by, just shut them down and don’t let them distract you. Even if it requires you to put a note on your door saying, “I’m in a meeting,”
your father. What did you learn from him? CUDDY: My dad was a State Farm agent in a town of 2,000 people. Pretty much everybody in town went to him. They came to the office because they wanted to see him. He was really good at hearing what they were saying. Outside of the office, he talked about himself. But in the office, he listened to his clients and made them feel heard, and that’s why they wanted to come in to see him. He didn’t start by trying to sell them something. He started by trying to un-
“Being inauthentic might not be the same as intentionally trying to deceive someone, but it comes out in the same way.”
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that’s great. I’ve learned to do that because people will knock on your door. The kind of distraction I’d like to talk about is the distracting fear that we’re not performing well and worrying what this person is thinking about me. That is not going to help you. All you can control is how you present yourself. You can’t really control what others think of you. That’s a hard lesson we have to learn. As soon as you start worrying about that, you start managing the impression you’re making on other people, not the impression you’re making on yourself. Research on impression management, where you’re scripting what you say and how you say it in order to please others, shows that this worry is distracting. It’s taking you away from the actual conversation. You’re meta-analyzing what others think of you, and you’re usually wrong about that anyway. Be who you are, listen to what they’re saying and you let go of that meta-analyzing. It will not help you. You have to be some kind of social genius to be able to move fast enough and have the cognitive bandwidth to make those adjustments and do it right. If not, it comes across as inauthentic, and you come across as distracted and you kind of blow it.
derstand what it was that they needed. Listening to things allows you not only to defuse stress and anger, but it also allows you to collect information. Ask them how you can help. It sounds like such a crazy question, but it’s so much better than doing what my bank does. Every time I go to my bank, they try to sell me stuff. They never say, “How can I help you? Is there anything we can do to make banking easier for you?” Instead, they instantly go into sales mode, and I’m totally turned off by that. It’s like you don’t understand me. Why would I possibly buy more of your services? But it’s the same agent type of work where you’re selling a service. You can run into skepticism and doubt, partly because it’s been done poorly by so many people who came before you. So change it. That’s powerful in itself — it’s unusual not to be that guy who’s just pushing stuff. That makes people say, “Oh, this feels different. I’m actually going to listen.”
FELDMAN: You have some insight into the insurance sales process because of
CUDDY: But they do sell. They don’t explicitly, conspicuously push stuff. We
FELDMAN: Some of the most successful advisors and agents I know swear that they don’t sell anything. They’ll even say they’re the worst salesmen that you’ve ever seen, because they just listen.
April 2016 » InsuranceNewsNet Magazine
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INTERVIEW THE POWER OF THE POSE have such a horrible stereotype of sales, and it’s kind of based on automobile sales, which is so pushy and inauthentic. It’s such a game, and people hate it. Young people coming up model themselves after those caricatures of what
ly more applicants than there are jobs. So most people don’t get hired for the jobs they apply for. But how often do employers call the applicant and say, “I know this is hard, and I’m sorry you didn’t get the job, but I wanted to give you some feed-
The Dangers of iPosture “Just before walking into a meeting, many of us are hunched over our smartphones, reading and responding to emails and reviewing last-minute notes. Following this frenzied attempt to efficiently manage our time, we have to be on our game in the meeting. Recent research documenting the benefits of adopting expansive (versus contractive) body postures — “power posing” — suggests that hunching over our smartphones before a stressful social interaction, like a job interview, may undermine our confidence and performance during that interaction.”
— iPosture: The Size of Electronic Consumer Devices Affects Our Behavior Amy J. C. Cuddy, Maarten W. Bos
salespeople are instead of realizing that the best salespeople are the ones who actually shut up and listen. My financial advisor is amazing. He’s never pushing anything. In fact, he’s talking me out of some stuff. It makes me want to give him all my business. FELDMAN: That leads into what you describe as letting presence speak for itself. Would you tell us more about that? CUDDY: Letting your unembellished presence speak for itself allows you to be the recipient of what others need to share. That is a way of building trust. Just being there, showing up, is very important. Especially when it’s not an easy thing to show up to. Think of how impressive this can be. For example, statistically, there are usual28
InsuranceNewsNet Magazine » April 2016
back because I’d love to see you do well in the future.”? That is such a hard conversation to have. But just to show up, be present and have that kind of conversation — that speaks volumes. FELDMAN: You have talked about power but what about powerlessness? How do we identify it and overcome that feeling? CUDDY: It’s characterized by behavioral inhibition. When we are pessimistic about our chances of doing things well and avoid taking risks, those are the characteristics of powerlessness. Noticing those things in ourselves tells us that something is a little off here and that’s not the orientation that will help you go through life successfully. “Successfully” to me does not mean
winning. It means feeling a sense of peace that you’ve represented yourself accurately and honorably. Powerlessness is when you see yourself avoiding things, feeling really cynical and not being willing to get back in the saddle. You start to physically collapse and take up less space. All of those things are signals that you’re powerless. FELDMAN: What are some strategies to overcome that feeling? CUDDY: When you stay powerless, you don’t trust yourself. Trying to talk yourself out of powerlessness is futile. It’s a futile exercise. You feel that you’re lying to yourself, and it only accentuates the feeling of powerlessness. So that’s the worst way to go. The connection between open, extensive body language and power and confidence is a tight link. Instantly, when we cross the finish line first, we throw our arms up in the air in a V. All around the world and in dozens of cultures this has been shown. There’s not a culture where this hasn’t been shown. If that’s what we do instantly when we win, then why not do that when we feel like we’re losing and turn things around? Forcing yourself open, pulling your shoulders back, pushing out your chin, taking longer strides, slowing down your speech, taking pauses will lead you to feel more powerful. FELDMAN: Would you say your main point is that the body leads the mind? CUDDY: Exactly. If that’s what people take away from this, I will be thrilled. The body is in charge. It’s constantly talking to your mind, and the content of that conversation is in your control. FELDMAN: You also talked about how using technology drains our power. You call it iPosture. Would you explain that? CUDDY: When clinicians see somebody walk into their office for the first time, they look at body language. They’re looking for things like how much you’re slouching and collapsing, because that signals that you’re feeling pretty bad, pretty depressed. The problem is th at the exact posture
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INTERVIEW THE POWER OF THE POSE that’s associated with depression is exactly what we do when we’re holding our phones. Not against our ear, but when we’re holding it to look at email and texts. It forces us to pull our shoulders in, pull our chins down, collapse our chest, and hold our arms and hands close together, pulling us into that slouched, depressed posture. That seems to undermine our sense of confidence and productivity. You can hold your phone up higher, and you can try to spend less time on your phone, but I’m not that hopeful that people will do that.
Instead, I encourage people to make their phone their ally instead of their enemy by setting reminders every hour to check your posture. It might be frustrating, but you will start to notice how much you slouch and you will start to correct it. It takes a while, and it might be a little frustrating, but it really changes your posture over time. When you’re bending over your phone, the load on your neck is really heavy. That leads to all kinds of problems. Doctors are starting to see teenagers with dowager’s hump, which they used to see in elderly women with osteoporosis. It is like a frozen knot you get in your neck. It’s not something that you can just shrug off and it goes away. You actually have to work it out with really intense massage therapy. FELDMAN: I also wanted to talk about the imposter phenomenon. Certainly 30
InsuranceNewsNet Magazine » April 2016
most people have experienced it at some point. Would you tell us a little bit about that phenomenon and how we can break it? CUDDY: It’s equally common in women and men, but I think men feel more afraid to talk about it. So, it can be an extra burden for men. That’s sad, because people have labeled it a woman’s problem, which is bad for women and men. It is that feeling that everyone else is smarter than you are, more confident, and you’re just skating by, and at any moment you’re going to be found out as a
fraud. It’s pervasive, and it seems like at least 80 percent of people experience it. It’s debilitating because it’s distracting. It’s a constant sense of social judgment, and it causes us to withdraw. It causes us to not take opportunities. It’s the same thing as powerlessness. We start to see challenges as threats instead of opportunities. If you’re really, really in the wrong job, leave, but you’re probably not in the wrong job. This is just a common experience that most people have because most of us are walking around acting confident. So, we think, “Oh my God, I’m the only one who feels this way.” Well, you’re not. The other thing is to accept that this will happen. I got that from the author Neil Gaiman, who has won like every literary medal that there is and has something like 20 best-sellers. Still, every time he writes a new novel
or does a new project, he has that feeling of being an imposter. But now he knows that he’ll get over it, because every new challenge can trigger those same fears and anxieties. You just have to know that it is going to keep popping up and that you will be able to conquer it every time. So, don’t start panicking when you feel that way. Know that it will pass. FELDMAN: You also wrote that when people are lying, their body betrays them. How can you tell somebody is lying? CUDDY: You can tell by looking for inconsistencies between what they’re saying and the tone of their voice, what they do with their body. If you’re telling a happy story, the words should match your facial expressions, posture and movements, so we become synchronized and harmonious. When we’re lying, we’re telling a story we don’t believe, so we’re trying to suppress the guilt that comes with it. We’re also trying to choreograph our movements, and we don’t have the cognitive bandwidth to do all those things, so we come across as asynchronous and disharmonious. You’re not looking for things like eye contact, because that’s a terrible predictor. There are all kinds of cultural and personality differences in how much eye contact people make. Basically, lies leak out through these inconsistencies. Being inauthentic might not be the same as intentionally trying to deceive someone, but it comes out in the same way. FELDMAN: Once we implement all of these techniques and strategies that you mentioned, how do you know that they are working? CUDDY: I would say it’s not so much about concrete, measurable outcomes right away. It’s about how do you feel when you face these challenges. Do you leave wanting a do-over and having that sense of regret, like “I didn’t show them who I really am”? Or do you leave feeling “I did the best I could, and I can accept the outcome”? That’s how you know.
Financial Insights
with Dean Zayed
A Revolution for Financial Advisors
B
rookstone Capital Management is on a mission. In just the last year, CEO Dean Zayed has doubled his staff, created an open architecture solution with highly reduced fees, launched a robo-solution, initiated a partnership with the largest asset manager in the world, and forged several enterprise contracts with software vendors to provide sophisticated software services to the advisor. And all of this is offered at absolutely no cost to the advisor. What has propelled Dean Zayed to do all of this? His conviction is that a powerful advisor investment platform will greatly empower Brookstone-affiliated financial advisors and position them for massive growth. In this interview, Zayed discusses how Brookstone is responding to the evolutionary changes the industry is undergoing and building the most flexible and competitive RIA platform in the industry today.
What must advisors do in 2016 to stay relevant? A: First, advisors must communicate on a regular basis with their clients. This includes having an RIA partner who can provide meaningful, substantive content to assist with that communication. Second, it’s essential they incorporate more technology into their practice. Technology is transforming the way clients use and interact with financial advisors. Not to mention that this technological revolution is happening quickly and will force some unprepared advisors out of the industry in the next 10 years. In fact, during the second quarter of 2016, we will provide our advisors with a completely digital solution (robo-like) to more effectively onboard new clients and manage these relationships in a seamless and efficient manner. This can all be done directly from the advisor’s website, providing clients the information they need on demand and freeing up the operational resources of the advisor. Finally, it is imperative that advisors provide sophisticated, 21st century advice and not just plain vanilla or unproven investment strategies. Portfolio construction will be a major factor that clients use in deciding to hire and fire advisors.
Brookstone advisors don’t act alone in a vacuum as we provide them with a tremendous amount of collective intelligence and resources. Over the last 10 years, Brookstone has assembled a team of 45 investment professionals who are “on call” every day to service our advisors and has built the most comprehensive asset management platform in the industry today. What do adivsors need to know about the aging bull market? A: If you lack sophisticated tools and don’t work with an RIA that has decades of experience in asset management, you will find this seven-year-old aging bull market to be very problematic as it likely heads toward a large correction. Advisors must have specific strategies in place to stabilize a portfolio during the most volatile times. These strategies are often sophisticated in nature and not offered by many RIAs, since many RIAs simply lack the intelligence and resources to incorporate them. To meet this challenge, Brookstone’s platform includes a thoughtful blend of both strategic and tactical strategies that will meaningfully minimize targeted drawdowns. Advisors have the option to act as “portfolio manager” by selecting the strategies and allocations they think are best for each client. Alternatively, we have also built multiple, globally diversified, risk-based models that utilize the latest advances in portfolio construction as overseen by our investment committee. Why is the open architecture platform important to advisors? A: A true open architecture platform provides advisors a tremendous number of investment funds, strategies and money managers to choose from in constructing portfolios. It’s not just the number of choices a platform offers that is important but the quality and mix of choices is equally as important. Our team of CFAs along with our investment committee has built a rigorous due diligence structure to evaluate every money manager and strategy that we allow on the platform. This provides a sophisticated layer of protection to our advisors and clients who have the confidence that the strategies they are using have been properly vetted and will undergo continuous oversight. Most other RIA platforms we have seen offer a limited number of strategies and these RIAs do not have a true investment
S P O N S O RED CO N T EN T
committee that understands how to properly analyze a money manager. What is Brookstone’s impression of fee compression? A: Fee compression is happening in the industry and will likely accelerate over the next several years. The robo-advisors and discount brokerage firms have made advisory fees a central topic in their national advertising campaigns. Add to this the movement towards a uniform fiduciary duty and the drive for total transparency in what an advisor is compensated, and you can see that the writing is on the wall. I see some RIAs still charging close to 3% in fees! We think 2% is too high and that advisors who don’t work with an RIA with a progressive fee schedule will quickly lose their competitive edge. I firmly believe that both commissions and fees will come down across the industry and only those RIAs with critical mass and scalability will survive. Why do advisors need to be concerned? A: Let’s start with the movement towards a fiduciary standard and compensation transparency. This has already forced commissions down for many securities products in the broker-dealer world. It will likely impact the insurance and annuity space next. Advisors that have grown accustomed to large commissions for product sales stand to lose a substantial amount of that upfront revenue as commissions come down. If they don’t plan ahead, advisors may experience some really lean times ahead as they seek to replace that lost income. My best advice is for advisors to begin building their fee-based income now so that future commission reductions have a minimal impact on their firm’s viability. To do so, working with the right RIA partner is critical. It’s hard to be competitive when your RIA has a high fee schedule and is unwilling to compromise. Brookstone has recently made a meaningful reduction across our entire fee schedule without impacting the advisor’s fee. We hold the advisor’s portion of the fee to be sacred and recognize how important it is for our advisors’ fee to be consistent and reliable. Our size and scale have allowed us to lower our fees without impacting any aspect of our business or what we provide advisors •
For more information on Brookstone, visit www.BrookstoneAhead.com April 2016 » InsuranceNewsNet Magazine
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LIFEWIRES
MetLife Parting Ways With Its Agents The MetLife agent could be a thing of the past now that MassMutual is acquiring the MetLife U.S. retail advisor force. MassMutual will acquire the MetLife Premier Client Group — a retail distribution operation with more than 40 local sales and advisory operations and approximately 4,000 advisors across the country. The move will give a major boost to MassMutual’s existing career agency system of more than 5,600 financial professionals. As part of the transaction, MassMutual and MetLife have also agreed to enter into a product development agreement under which MetLife’s U.S. retail business will be the exclusive developer of certain annuity products to be issued by MassMutual.
This expanded distribution network will put MassMutual in position to become the top provider of individual life and whole life insurance in the U.S. MetLife is currently the largest life insurance company in the nation, with $2 trillion of coverage in force. MetLife announced earlier this year that it would carve off its U.S. life business as part of its bid to become small enough to shed its federal designation as “too big to fail.”
LINCOLN CEO: NO IMMEDIATE SPLIT-OFF PLANS
Fresh off a disappointing fourth-quarter earnings report, Lincoln Financial Group CEO Dennis Glass said the company is not ready to follow a similar path as MetLife. But he also didn’t rule it out. Speaking on a conference call with analysts, Glass did not directly respond when asked whether Lincoln Financial might follow a route similar to that of MetLife. “I’m just going to answer that by saying we believe in the businesses that we are in,” he said. “We’re making progress overall, some things to do better.” Lincoln Financial reported fourth-quarter 2015 net income of $283 million, a 19 percent drop compared to the year-ago period. The company said it no longer benefited from funds flowing in from previously reinsured life insurance contracts. But Glass pointed out that Lincoln Financial has a very diverse product line and strong distribution network. The company sells twice as much life and annuity as MetLife, he told analysts.
DID YOU
KNOW
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HALF OF CHINESE-AMERICANS OWN INDIVIDUAL LIFE
One segment of the population that has embraced individual life insurance is the Chinese-American community. According to LIMRA, half of Chinese-Americans own individWho Owns ual life insurance, Individual Life compared with 39 percent of the U.S. general population. LIMRA uncov- Chinese-Americans ered differences in why Chin e s e -A m e r i c a n s General Population buy life insurance, compared with the general U.S. population. While eight in 10 Chinese-Americans said replacing the primary wage earner’s income is the most important or second most important reason for buying life insurance, fewer than six in 10 American consumers give that same reason for buying life insurance. A third of Chinese-Americans buy life insurance to pay for their children’s education, compared with just a
50% 39%
54 percent of U.S. life customers don’t recall a meaningful contact with their advisor in the past 18 months, and 46 percent say they expect and desire more relevant communications. EY report, “Life Insurance Distribution At A Crossroads: Introducing The Agent Of The Future”
InsuranceNewsNet Magazine » April 2016
QUOTABLE
Email has transformed the way agents do business, becoming the default channel for many interactions with prospective customers, current customers and underwriters. — Novarica’s agent/broker survey titled “What Agents Really Want”
quarter of the general population. “Chinese-American households are more likely to be multigenerational, and therefore maintaining the family’s income is more important, as more people rely on that income,” LIMRA’s Nilufer Ahmed commented. “In addition, three in 10 Chinese-Americans have immigrated to the U.S. since 2000. Like others who have immigrated in the past, having the means to provide a good education is very important to families as they settle in the U.S. So it is not surprising that education is a higher priority for this market.” According to the study, three-quarters of Chinese-American consumers said they prefer to purchase life insurance face-to-face from a financial professional.
REGULATION SPECTER LOOMS OVER LIFE INSURANCE
Principle-based reserving, the Department of Labor fiduciary standards, solvency assessments and the influence of regulators factor among the top trends facing life insurers in 2016, a new report states. The Federal Insurance Office (FIO), the Financial Stability Oversight Council (FSOC) and the Office of Financial Research (OFR) are already having a “significant impact” on the life insurance business, according to the report. The report on top regulatory trends in 2016 was published by the Deloitte Center for Regulatory Strategies. “Not only are there more regulators for some insurers to satisfy — more regulations to comply with — but there is also a more aggressive tone in the air as various regulatory entities jockey for position and assert their authority,” the report said.
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hij abc INSURANCE | INVESTMENTS | RETIREMENT
Please keep in mind that the primary reason to purchase a life insurance product is the death benefit. Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. Securian Financial Group, Inc. www.securian.com Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. 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 ©2016 Securian Financial Group, Inc. All rights reserved. F82624-30 2-2016 DOFU 2-2016 38639
For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it would be accessible to the general public.
April 2016 » InsuranceNewsNet Magazine
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LIFE
Protecting Family Businesses From Expected IRS Rules ransferring the economic benT efit of a life insurance policy to an insurance-limited partnership can help transfer family assets to the next generation. By Lawrence J. Bell
P
roposed changes in regulations affecting the transfers of family-owned corporations or partnerships can open the door for financial professionals to use life insurance to transfer family assets from one generation to another without running afoul of the taxman. The U.S. Treasury Department is considering changes in regulations that would restrict or end discounts for transfers of family-owned entities such as corporations, family-owned partnerships (FLPs) or limited-liability corporations (LLCs). Valuation discounts in estate planning permit the transfer of assets from one generation to another in an economically efficient manner. Two of the various discount methods are claim lack of control (minority interest discount) and lack of marketability. The IRS traditionally has objected to these approaches in transferring assets within families. Congress has been unsuccessful in its attempt to legislate these loopholes away, and the Treasury Department is considering new regulations to accomplish this goal. In the past, the IRS position was that a minority interest discount was not available in valuing an interest in an entity (corporation, partnership or LLC) that was controlled by family members. Revenue Ruling 93-12 reflects that the IRS was unsuccessful in maintaining that position. The ruling involved a shareholder who owned 100 percent of a corporation and made gifts of 20 percent of the stock to each of his five children. The IRS ruled that the family’s control of the corporation would not be considered in valuing the gifts of minority interests. After the ruling, FLPs and LLCs became more popular estate planning vehicles because the 34
InsuranceNewsNet Magazine » April 2016
available valuation discounts allowed for more wealth to be transferred free from estate, gift and generation-skipping transfer (GST) taxes. Although the White House has not been successful in three earlier attempts to pass the law, it is a part of the two-year budget package passed by Congress in October. Now the IRS is taking steps to obtain the same results via regulations. These new regulations would expand existing provisions of the Internal Revenue Code that authorize the IRS to provide guidance in this area.
Possible Regulations Would Impose Restrictions
The Treasury Department announced that it is considering issuing regulations that would restrict family valuation discounts. These regulations would include placing limits on minority interest and lack of marketability discounts. The limitations would apply to interests in family-owned entities such as corporations, FLPs and LLCs. The regulations probably would target only entities that do not operate an active trade or business. Any transfers of interests in family entities that took place before the regulations were issued would be grandfathered. The IRS could not use the new regulations to combat transfers at discounts that used discounting methodologies.
Using an Insurance Limited Partnership
The financial professional can follow another avenue toward helping clients transfer these assets to the next generation. That is having the donor transfer the economic benefit of a life insurance policy to an insurance-limited partnership. Let’s look at why this may be attractive. In President Obama’s most recent budget proposal, a cap is placed on transfers to an irrevocable life insurance trust (ILIT). The annual exclusion from gift tax allows a donor to make gifts of up to $14,000 per recipient each year, or $28,000 if the donor is electing to split gifts with a spouse. The proposal would eliminate taxpayers’ ability to use the annual exclusion from gift tax for gifts falling within a new category of transfers. This new category would include transfers into trust (with a few minor exceptions) and transfers of interests in passthrough entities and other interests that cannot be immediately liquidated by the recipient. Instead, donors would receive a separate aggregate annual exclusion amount of $50,000 for gifts falling within this new category of transfers. The transfer of a life insurance policy to an ILIT traditionally is valued at the premium that is paid annually. To transfer a permanent policy with a large face amount would exceed the annual gifting limits and thereby eat into the exempt
amounts if there were insufficient Crummey beneficiaries. For gift tax purposes, the transfer of death benefit in a group policy is measured by the economic benefit and not the premium costs. When the splitdollar rules were modified and codified, the modification of Revenue Ruling 66-110 was not affected, so the valuation technique is still allowable. The July 2015 U.S. Tax Court ruling in Our Country Enterprises v. Commissioner established the basis for this technique. In that ruling, the court determined that the transfer of policies using the death-benefit-only arrangement and the insurance-limited partnership approach complies with the insured having a right to the death benefit only as long as they are an employee of the employer. The cost of the current life insurance protection takes into account the life insurance premium factors that the IRS sets forth in Revenue Ruling 66-110. The amount of the current life insurance protection is the death benefit of the life insurance contract (including paid-up additions) reduced by the sum of the amount paid by the insured. The economic benefit provisions apply to this situation because no-split dollar loans are involved and the insured does not make any premium payments on the insurance contracts. The employer, as the owner of the death benefit, has therefore provided economic benefits to its employees. The insured only has a right to the death benefit, so the only income or economic benefit is the governmentgenerated rates based on amount of coverage and age of the insured. There is no other income or economic benefit transferred to the insured. Using this method of gifting the death benefit will permit the continued transfer of wealth by way of life insurance without being limited by the change in minority and lack of marketability discounts. The measure of the gift is the economic benefit, and the gifting terminates when the funding ends. Lawrence L. Bell, JD, LTM, CLU, ChFC, CFP, AEP, has served as tax bar liaison to the IRS for 10 years. He may be contacted at Lawrence. bell@innfeedback.com.
LIFE
AG 49 Targets Fantasy Returns in IUL Illustrations, Policy Loans ou can’t spell “illustration” Y without “illusion.” By Cyril Tuohy
T
he National Association of Insurance Commissioners (NAIC) ushered in a new era in the illustration of indexed universal life (IUL) products last month when Actuarial Guideline (AG) 49 went into effect. AG 49’s latest provisions focus on policy loans and illustration disclosures used to map out the future growth of cash values and death benefits. Some observers say the changes will install some longoverdue corrections in what they described as questionable behavior. “Actuarial Guideline 49 means nothing to the agent presenting realistic proposals to their indexed life prospects,” said Sheryl J. Moore, president and CEO of Moore Market Intelligence, the publisher of Wink’s Sales & Market Report. “However, to agents that are trying to pitch indexed life as a way to ‘make money off your life insurance,’ it has an impact. Gone are the days of illustrating 10 percent returns and 4 percent loans, which results in a positive arbitrage of 6 percent. Now, you are forced to under36
InsuranceNewsNet Magazine » April 2016
sell and over deliver.” But what will agents be able to show? Companies will need to help fill in the blanks. “The carriers will need to come up with disclosure language — and a heavy dose of training for the agents,” said Richard Weber, managing director of The Ethical Edge, a fee-only insurance advisory in Pleasant Hill, Calif. A heavy dose, indeed. AG 49 limits interest rate differences that can be illustrated between the rate credited to the loaned amount and the corresponding loan rate charged to the loan balance. If the illustration includes a policy loan, the illustrated rate credited to the loan balance cannot exceed the illustrated loan charge by more than 1 percent, according to a product bulletin issued by American International Group (AIG) in August. That means that for a carrier charging 6 percent loan interest, for example, the maximum illustrated rate on the loan balance cannot exceed 7 percent. In other words, AG 49 slammed the brakes on wide interest-rate differentials, also referred to as “loan arbitrage,” which played into the hands of skilled agents.
Separate from the loan illustration disclosures, agents also have to present three other new illustration disclosures as of March 1. New disclosures include, according to the AIG product bulletin: » A ledger illustrated at the fixed account interest rate. If the illustration includes a loan, the illustrated rates credited to the loan balance cannot exceed the illustrated loan charge. » A table showing the minimum and maximum of all the 25-year look-back rates derived under new maximum illustrated rate calculations. » Another table showing actual historical performance over the most recent 20-year period for each index account, along with hypothetical interest rates that would have resulted based on the product’s cap, participation and floor rates. The illustration disclosures are designed to help agents and clients better understand how IUL products perform over time.
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LIFE AG 49 TARGETS FANTASY RETURNS IN IUL ILLUSTRATIONS, POLICY LOANS Weber said the changes are “just another moving part amongst the many, and it is not easy to see the interaction between all those parts.”
Leveling the Playing Field
In September 2015, the first of AG 49’s changes took effect for new IUL policies by lowering the maximum crediting rates that could be illustrated. This was a first attempt to reconcile the fact that any constant rate assumption cannot accurately
“This guideline does a good job of strengthening uniformity,” he said. Nor can carriers and financial advisors cherry-pick the look-back period used to derive illustrated index returns, whereas in the past some carriers would look back 15 years while others would look back 25 years when making annual point-to-point comparisons, the crediting method used for the bulk of indexed life sales. Recent studies reviewing point-topoint annual returns in a 12-month
“We can make the illustrations show just about anything we want — but what does the client want and need?” reflect the way index returns will ultimately affect a policy under “real-world,” volatile conditions. To get a sense of the changes AG 49 brought to rate illustrations, one of three iterations within AIG’s Value+ IUL product line, for example. Based on caps and participation rates from Aug. 12, 2015, it went from a maximum illustrated rate of 6.86 percent to a maximum illustrated rate of 6.06 percent, the AIG document shows. One of AIG’s two Elite Index II IUL configurations from the same date dropped from 7.51 to 6.56 percent. Proponents of AG 49 said the changes would help most agents compete on a more level playing field as index returns calculated with the same metrics — absent loads and charges — turned up the same result. Although, ideally, two agents illustrating the IULs using the same index selection and product structure from two different carriers should be identical or nearly identical, there are still differences in policy expenses and other factors between different carrier products that cannot be readily addressed by regulation alone. De-emphasizing high assumed crediting rates should allow agents to emphasize contractual elements such as loads and charges that aren’t projected as part of the index return, said Tim Pfeifer, president of Pfeifer Advisory, an insurance and annuity specialist in Libertyville, Ill. 38
InsuranceNewsNet Magazine » April 2016
look-back period from August 2011 to August 2010 found that the one-year Standard & Poor’s 500 index returns (before applying the guaranteed minimum or cap) ranged from -.03 percent to 16.82 percent, Weber said. “So the point is, we can make the illustrations show just about anything we want — but what does the client want and need?” Weber said. “Remember that the word ‘illusion’ is contained in the word ‘illustration’!” Weber also said. “It’s much safer to use a conservative crediting rate assumption at the outset, and then manage future payments to the actual accomplishments of the policy.”
Ravenous Appetite for IUL
The end of higher assumed rate illustrations, which in the past most benefited creative carriers and fueled the sales libidos of aggressive distributors with annual index projections of 8 percent, 10 percent or even 12 percent, injects a far more realistic long-term premium scenario to fund IUL policies. That said, it’s also important for agents to remember that while AG 49 is a limitation on the maximum crediting rate assumed in the illustration, it has no impact on index performance and cap rates, Weber said. “Again, all things being equal, a lower crediting rate assumption will result in a higher planned premium calculation,” Weber said.
Accurate renderings of how index performance affects policies over the long term should matter to agents and to policyholders, if for no other reason than the rise in volume of indexed life products being sold. Consumers drawn to the idea that they can share in market gains while preventing the pain of market losses are buying IUL products at a steadily increasing clip. The result is that IUL products are growing fast, racking up growth far in excess of overall life insurance sales. In the third quarter of 2015, IUL new annualized premium rose 20 percent over the year-ago quarter and was up 19 percent year-to-date compared with yearago numbers, according to the latest data available from LIMRA. IUL represents 54 percent of universal life and 21 percent of all individual life premium sold during the first three quarters of 2015, LIMRA also reported. For a longer-term perspective, annual indexed life premiums reached $1.56 billion in the fourth quarter of 2014, a 15 percent increase over the year-ago quarter, according to Wink’s Sales & Market Report. Third-quarter year-to-date 2015 indexed life sales were already at $1.31 billion, and 2015 is expected to be a record year for indexed life sales, according to Moore of Moore Market Intelligence. In 2004, annual indexed life premiums registered only $139 million in the fourth quarter, according to Wink’s. IULs offer more planning flexibility for mass affluent and even middle-class Americans in search of supplemental retirement income in a low-interest-rate environment, said John Crosby, owner of Individual Financial Services in Middletown, N.J. Employees who have maxed out on their employer-sponsored savings plan but have another $10,000 or $20,000 to invest can invest in an IUL and derive tax advantages, build their savings and even consider premium waivers should they suffer a disability, he said. InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@ innfeedback.com.
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ANNUITYWIRES
Indexed Annuities Break Records
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Indexed annuity sales continue their meteoric rise, breaking quarterly sales records after eight consecutive years of positive growth. That’s according to LIMRA figures, which showed indexed annuity sales totaled $16.1 billion in the fourth quarter, 32 percent higher than the prior year. In 2015, indexed sales reached a record-breaking $54.5 billion — an increase of 13 percent from 2014. “The growth was driven by many companies rather than just the top players as we have seen in the past,” said Todd Giesing of LIMRA. “We also are seeing some companies that have traditionally been strong in the variable annuity market focusing more attention on the indexed annuity market.” Overall, total annuity sales improved for the third consecutive quarter, driven by strong fixed annuity results. In the fourth quarter, annuity sales were $61.4 billion, 5 percent higher than the prior year. Sales of fixed annuities jumped 23 percent in the fourth quarter, to $29.7 billion. In 2015, fixed annuity sales increased 7 percent, to $103.7 billion. This is the first time fixed annuity sales have surpassed $100 billion since 2009.
MAJORITY OF WORKERS ONLY EQUALING EMPLOYER MATCH
The good news is that workers are saving for retirement. The bad news is that they are saving only up to a point. New research from LIMRA Secure Retirement Institute reveals that workers from for-profit and not-for-profit organizations will save only enough in their defined contribution (DC) plan to receive the full company match. Even with robust saving habits, preretirees surveyed have no plan for how they will withdraw the assets from their DC plans once they retire. Just one-third have calculated their savings and expenses in retirement. The study found nearly half of preretirees said they plan to withdraw 9 percent or more of their assets each year in retirement.
GROUP ANNUITY RISK TRANSFER SALES TOP $14 BILLION
With five separate companies reporting buy-out sales above $1 billion, group annuity risk transfer sales increased 54 percent in 2015, totaling $14.4 billion, according to LIMRA. A group annuity risk transfer product allows an employer to transfer all or a DID YOU
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portion of its pension liability to an insurer. In doing so, an employer can remove the liability from its balance sheet and reduce the volatility of the funded status. “In prior years, significant market growth was a result of one or two jumbo deals, like the deal between Prudential and General Motors in 2012,” noted Michael Ericson, LIMRA Secure Retirement Institute analyst. “This year we saw broad growth across the industry, and many of the sales came from smaller plans. Companies reported selling more than 300 separate contracts under $100 million.” In the fourth quarter, single-premium buy-out sales were $5.6 billion, which marks the first time sales have exceeded $3 billion for three Growth in annuity risk transfer sales consecutive quarters. in 2015 For the year, buy-out products accounted for more than 95 perTotal in transfer cent of the total group sales in 2015 annuity risk transfer market, totaling $13.6 billion. This is a 61 percent increase from 2014 levels. Single-premium buy-in product sales were $7.2 million, down 95 percent from 2014. To date, there have
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InsuranceNewsNet Magazine » April 2016
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GENWORTH SPIA TARGETS LTC NEEDS FOR OLDER CLIENTS
It’s never too late to plan for guaranteed income needs, and that’s the philosophy behind a new annuity product. Genworth has introduced a single-premium immediate annuity aimed at prospects in the 70-95 age bracket. This group of older seniors may not have planned ahead for their guaranteed income needs and now find that their age and health work against them in obtaining longterm care insurance or another annuity product. IncomeAssurance Immediate Need Annuity is a medically underwritten SPIA that provides a lifetime of monthly income payments for those ages 70 and older. The income can be used for any purpose, but the SPIA is designed to help those with adverse health conditions offset the costs of care with guaranteed monthly income. IncomeAssurance is designed for prospects who are concerned about outliving their assets and need guaranteed income. However, unlike many annuities, IncomeAssurance is aimed at those who are less healthy and could benefit from a larger monthly income payment than they would likely receive from a traditional nonmedically underwritten immediate annuity.
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41
ANNUITY
Source: Beacon Research
FIAs May Be Reaching Saturation W here fixed index annuities are concerned, the independent producer sales channel has almost reached a saturation point, according to a researcher.
“Unless this channel expands, higher sales of FIAs will have to come from somewhere else,” said Beacon Research CEO Jeremy Alexander in a recent briefing on the 2016 outlook for fixed annuity sales.
By Cyril Tuohy
Key Distribution Channel Shrinking
F
irst, the high. In the third quarter of 2015, fixed index annuities (FIA) sales hit a record $14.4 billion, an increase of $2.7 billion from the year-ago period, according to Beacon Research in Northfield, Ill. Who sells most of those FIAs? Independent producers and agents. In fact, more than 60 percent of FIA sales came from independent producers and agents last year, far and away the dominant distribution channel for FIA sales. Now, the low. When measured by product category, about 88 percent of independent producers’ and agents’ fixed annuity sales come from FIAs. As far as FIAs are concerned, the independent producer sales channel has almost reached a saturation point, according to Beacon Research. 42
InsuranceNewsNet Magazine » April 2016
FIAs allow owners to benefit from gains when markets rise but limit exposure to losses when markets fall. For a baby boomer in retirement, many financial advisors agree that FIAs have their place. FIAs’ explosive growth adjacent to the humdrum performance of the rest of the fixed annuity world — beset by low interest rates and stagnant sales — makes them superstars by comparison. When FIAs hit the market more than 15 years ago, independent producers and agents were just about the only sales distribution channel in town. In 2002, only independent producers and captive agents were selling FIAs. But the producer and agent channel, still a sales locomotive for FIAs, has been shrinking faster than the polar ice cap ever
since. Independent broker-dealers (IBDs), banks and even a wirehouse or two have warmed to FIA sales and are eroding independent producers’ market share. “Now you are seeing carriers, banks and BDs see that penetration,” Alexander said. “That's the story happening in the index world.” Yet, even as more distribution channels get into the FIA distribution game, none are as aggressive about, or as reliant on, selling FIAs as independent producers. That means FIAs could see slower future growth unless the competing channels boost FIA sales. Since total sales of fixed annuities aren’t growing, the only way for this market to grow is to start seeing other channels embracing FIAs, Alexander said in an interview with InsuranceNewsNet. The question is, will other channels step up? Will captive agents, banks and savings and loans, regional broker-dealers, and IBDs pick up the slack?
Other Channels to the Rescue?
Captive agents derive about a quarter
FIAS MAY BE REACHING SATURATION ANNUITY of their sales through FIAs. But they accounted for less than 10 percent of all FIA sales at the end of the third quarter last year and remain under the control of life and annuity carriers. If carriers want to quash FIA sales for regulatory or financial reasons, captive agents have no choice but to follow suit. Could IBDs and banks emerge as white knights and sell more FIAs? They, too, have their drawbacks. About 70 percent of all fixed annuity sales closed by IBDs are FIAs, according to Beacon. In many instances, insurance carriers own the IBD, and IBDs can control the distribution of annuity sales if they want, Alexander said. In the heavily regulated bank channel, more than 30 percent of fixed annuity sales consist of FIAs, but the bank channel makes up less than 20 percent of all FIA sales by distribution. Besides, banks can get awfully skittish when dealing with index-linked products that take on more risk and aren’t insured by the U.S. government. FIAs, too popular and lucrative to ignore, will see more growth in other
Source: Source:Beacon BeaconResearch Research
distribution channels, Alexander said, but by how much and to what extent is another question as money flows back and forth between fixed and variable annuities. Indexed annuities are on the verge of becoming “mainstream,” if they aren’t already, and that means they are getting a temporary lift from broader market forces: lower variable annuity sales, stock market volatility and even the U.S. Department of Labor’s fiduciary rule proposal.
Now it’s up to the distribution channels to fight over FIAs if distributors are serious about claiming their share of the spoils in one of the few growth stories of the fixed annuity market. InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril. tuohy@innfeedback.com.
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43
ANNUITY
MetLife Deal Signals Hard Times Coming for Variable Annuity Sales A nalysts say the Department of Labor rule will have its heaviest impact on the variable annuity market. By Cyril Tuohy
M
etLife’s decision to sell its career agency insurance channel and broker-dealer to MassMutual Financial Group may signal the contraction of the annuity market that some analysts predicted would come from the Department of Labor’s new fiduciary rule. The controversial rule changes “the landscape when it comes to commissioned-based sales for variable annuities, mutual funds and real estate investment trusts (REIT),” said John McCarthy, senior product manager for Morningstar in Chicago. The $300 million deal would transfer all of MetLife’s Premier Client Group — about 4,000 agents — and its affili44
InsuranceNewsNet Magazine » April 2016
ated broker-dealer, MetLife Securities, to MassMutual’s captive force of 5,600 agents. Even before MetLife’s announcement, broker-dealers, asset managers and insurance carriers were busy re-evaluating their business models. The issue is how to approach commission-based sales of variable annuities in the wake of new DOL regulations proposed last year. Companies are making difficult choices in an annuity segment hobbled by declining sales from a peak of nearly $180 billion in 2007. Some company executives have talked about shifting variable annuity sales to fee-based advisory platforms. Other carriers began shopping their distribution networks. American International Group, for instance, sold its four separate broker-dealers collectively known as AIG Advisor Group in January. In the third quarter of 2015, more than 90 percent of all variable annuity sales
were commission-based, according to Morningstar data.
Shrinking Profit Margins
Here’s the quandary for variable annuity sellers: Low interest rates have made it difficult for carriers to eke out profits on variable annuities, in particular variable annuities with generous living benefits. New DOL rules will make it more expensive to sell variable annuities, industry executives say. Companies are “getting hit on their margins from both directions,” McCarthy said. “That’s going to be for all firms.” Selling its Premier Client Group, MetLife Securities and related assets to MassMutual is expected to save MetLife $100 million this year and $250 million annually thereafter, MetLife said in a securities filing. MetLife is in an unusual position in that as a systematically important financial institution (SIFI), it needs to hold
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ANNUITY METLIFE DEAL SIGNALS HARD TIMES COMING FOR VA SALES more capital than the vast majority of other insurers. MetLife executives, who are challenging that designation in court, have made it no secret that they prefer lower-risk businesses that generate more cash and incur less volatility than variable annuities. Leaders cringe at the thought of regulators viewing variable annuities as nontraditional insurance products, said Steven A. Kandarian, chairman, president and CEO, in a February conference call with analysts. With DOL regulators making it more difficult still to sell variable annuities into qualified retirement plans, executives are asking themselves why they should continue selling the products at all. MetLife’s career agency sale is a signal that carriers are rethinking their entire
of all along since the DOL introduced its rule in April 2015. “MassMutual is picking up 4,000 advisors, but will they pick all of them up to sell into the fixed annuity market?” O’Brien asked. “They may pick up the advisor group from MetLife, but are they picking up annuity sales advisors is the question.” Nearly 70 percent of all nonindexed annuities sold in 2014 were sold through captive distribution channels made up of career agencies, banks and wirehouses, LIMRA data indicated. One less captive agency channel means less choice for those seven out of 10 fixed annuities sold through proprietary distribution networks. “We think this is so harmful and the MetLife-MassMutual action demonstrates the harm, which is that proprietary
“While there are other companies selling indexed annuities primarily through a career agency distribution model, MassMutual will be the largest company distributing this way.” business, said Kim O’Brien, CEO of Americans for Annuity Protection, a Phoenix-based group that advocates for secure retirement financing through annuities. In MetLife’s case, the New York-based giant has decided to completely “decouple” the U.S. retail distribution business from the manufacture of annuities. That has automatically shielded MetLife by placing it in a “more protected space” with regard to the DOL rule, O’Brien said. Will other companies with large career agency sales forces like Northwestern Mutual or New York Life follow suit? Getting out of retail distribution makes economic sense for MetLife, particularly since the Premier Client Group contributed “modest profits” on revenue of between $500 million and $1 billion a year. The upshot for agents and consumers is there will be one less U.S. proprietary retail channel through which to sell fixed annuities when the deal goes through later this year.
Warnings May Come True
Fewer retail outlets is exactly what the annuity industry had warned regulators 46
InsuranceNewsNet Magazine » April 2016
distribution of (fixed annuity) product will limit access to consumers interested in annuities,” O’Brien said. “There’s not a MassMutual agent on every street corner around the country.” MetLife will likely continue to manufacture variable annuities in the near term, as the company still sold $5.2 billion worth of variable annuities in the third quarter of 2015, according to LIMRA Secure Retirement Institute data. The company also maintains a robust independent advisor sales channel to sell into a market that still generated $135.8 billion in new variable annuity sales in 2014. With the acquisition of Premier Client Group, it’s up to MassMutual to figure out how to apply economies of scale to a bigger retail distribution channel while maintaining variable annuity markets in the new fiduciary world, McCarthy said. Should MassMutual decide to merge MetLife Securities with MML Investors Services, MassMutual’s broker-dealer and registered investment advisor, the Massachusetts-based carrier will simply own a larger broker-dealer and claw its
way up the variable annuity league tables. MassMutual ranked 20th, with variable annuity sales of $779.3 million in the third quarter of 2015, LIMRA SRI reported.
Fixed Index Annuities to Benefit
In contrast to fixed annuities, with nearly 70 percent being sold through captive distributors in 2014, nearly 80 percent of fixed index annuities (FIAs) were sold through the independent channel that year. FIAs have quickly become the industry’s new “it” product that protects investors from loss but allows them to participate in market gains. Any new FIA backed by the strength of MetLife and distributed by a blue-chip company like MassMutual can only be good for buyers and an annuity market segment in the midst of a boom, according to Sheryl J. Moore, president and CEO of Moore Market Intelligence, a market-leading annuity research company. FIA sales hit $54.5 billion last year, an increase of 13 percent compared to 2014, according to LIMRA data. The increase outpaced all fixed annuity sales, which rose 7 percent in 2015 compared to 2014, LIMRA data show. Separate data published by Wink’s Sales & Market report show 2014 indexed annuity sales reached $46.8 billion, an increase of 21.3 percent from 2013. More companies selling FIAs means more choices, and that appeals to agents and consumers, Moore said. As part of the deal, MetLife will also develop an FIA for MassMutual to distribute exclusively. Since MassMutual primarily distributes its annuities through a career agency model, its agents will be selling primarily MassMutual annuities and new annuities developed by MetLife under the terms of the deal. “Ultimately, MassMutual won’t necessarily be in competition with anyone,” Moore said. “While there are other companies selling indexed annuities primarily through a career agency distribution model, MassMutual will be the largest company distributing this way.” InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril. tuohy@innfeedback.com.
April 2016 Âť InsuranceNewsNet Magazine
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HEALTH/BENEFITSWIRES Insurer Warnings Cast Doubt on Exchange Future The Affordable Care Act has been plagued by everything from political uncertainty to technical glitches. Now there is one more thing threatening the law’s future. Many insurers are bleeding red ink from the health insurance exchanges created by the act. The nation’s largest, UnitedHealth Group, could lose as much as $475 million on its exchange business this year and may not participate in 2017. Another major insurer, Aetna, has questioned the viability of the exchanges. And a dozen nonprofit insurance cooperatives created by the law have already closed, forcing around 750,000 people to find new plans. More insurer defections would lead to fewer coverage choices on the exchanges and could eventually undermine the law, provided the next president wants to keep it. But there are some bright spots in the ACA. Enrollment is growing. More young people are obtaining coverage. Insurers also are learning more about their new customers and adjusting their coverage to do better financially. The future of the exchanges depends on whether those improvements continue and some other big worries ease.
-$475B
CENTENE IS AN ACA SUCCESS STORY
One health insurer reports that it is thriving as a result of the ACA. Centene, whose core business is managed care for state-run Medicaid programs, has found a growing, lucrative niche in the federal and state-run marketplaces. Instead of offering a broad range of plans, the company is narrowly focusing on low-income individuals who have lost their Medicaid eligibility and need to find a private health insurance plan. By selling insurance to consumers the company already knows, Centene plays to its strength. The vast bulk of Centene’s business is managing the care of Medicaid recipients or poor individuals on behalf of state governments. Centene provides care to 3.5 million Medicaid members in 19 states, according to its latest annual filing with the Securities and Exchange Commission.
? 43%
DID YOU
KNOW
48
ACA WEBSITE FAILURE STEMMED FROM INCOMPETENCE
More than two years have passed since the federal exchange website, HealthCare. gov, famously crashed and burned. Now the Department of Health and Human
Services has released a study that looks back on the factors leading up to the website’s doomed debut. Only six people in the entire country were able to get HealthCare.gov to work well enough to select coverage on the day
of Americans said they expect to pay more for health care in 2016.
InsuranceNewsNet Magazine » April 2016
Source: Business Wire
QUOTABLE Sometimes I think of (the exchanges) as a little campfire that’s going to grow, but right now it needs a little more oxygen or kindling. —Katherine Hempstead, director of health insurance coverage programs for the Robert Wood Johnson Foundation
it launched in 2013. The website faced “a high risk of failure” from the start because it was a complicated task on a fixed deadline, according to the study released by the HHS inspector general. It ultimately failed because of several factors, the inspector general concluded, including poor technical decisions and wasting too much time developing policy and not enough time creating the website
2017 MEDICARE ADVANTAGE RATES TO RISE AROUND 3.5%
The federal government released a favorable early assessment of factors affecting Medicare Advantage rates. As a result, Medicare Advantage health plans will face less pressure to cut benefits or leave some markets next year. The Centers for Medicare & Medicaid Services laid out a payment and policy update for 2017. The announcement includes an assessment of several variables that can affect the price of coverage. Analysts say it boils down to a rate increase of around 3.5 percent when including adjustments made to account for the health of patients covered by a plan. Rates for 2017 will be finalized this spring, and the actual change will vary depending on factors such as where the plan is located.
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HEALTH/BENEFITS
Benefits That Matter: Give Workers Choices They Want Many workers believe their employers could go further in the diversity of voluntary benefits offered in the workplace. By Elizabeth Halkos
I
ndividualization, customization — call it what you want. It’s certainly the operative word in today’s benefits world. The more benefits, the better. Workers want benefits that suit their needs. Employers who offer a variety of benefits are more successful with their recruitment and retention efforts, even if many of the offerings are voluntary benefits — ones that workers usually pay for in full, without employer contribution. Both traditional and nontraditional voluntary benefits are now considered essential elements of a benefit program that attracts and retains employees. It’s no mystery why voluntary benefits have gone mainstream. With voluntary benefits, employees can choose products that complement their company-sponsored core benefits and round out a benefit portfolio that suits their individual needs. In many cases, the voluntary benefits that employees choose are products that enhance their lifestyle, allow them to acquire products and services they might not otherwise be able to afford, and further their personal improvement and financial wellness. Traditional voluntary benefits such as gap coverage, short-term disability, cancer, critical illness, dental and hospital supplemental policies are important offerings that augment employees’ health care coverage needs. But it’s the virtual smorgasbord of nontraditional voluntary benefits that gives employees perhaps the most leverage to customize their employee benefits preferences. Nontraditional products include everything from banking and buying options to lifestyle and convenience options to personal care and improvement options to financial safety nets. 50
InsuranceNewsNet Magazine » April 2016
Why Employees Choose Voluntary Benefits
Employees look to voluntary benefits to fulfill various wants and needs. In June, full-time employees were asked in a Harris Poll to list the purposes that voluntary benefits serve for them, and 73 percent of respondents answered that at least one of
Many factors contribute to an employer’s selection of voluntary benefits. These factors can include corporate culture, demographics, employee demand, corporate policies, overall perceived value and existing gaps within the core benefits offering. However, at the heart of the decision, companies want to find more ways
Among surveyed workers...
86% 93% 48% say offering voluntary benefits is very or somewhat important.
say it is very or somewhat important that they be able to choose benefits based on their particular needs.
the following applied to them. Here are the highest priorities among those who responded: » Provide me with a financial safety net — 44 percent » Allow me to access benefits at a group rate rather than a higher individual premium — 43 percent » Protect my overall well-being — 39 percent » Make life easier/more convenient — 38 percent » Allow me access to services that I couldn’t get on my own — 33 percent » Support my long-term goals — 33 percent
of those whose companies do not offer voluntary benefits would like them to.
to engage with their employees. A comprehensive and well-thought-out benefits package shows employees that their company cares about them as individuals.
Seeing Things Differently
Voluntary benefits certainly make the employee benefits package more attractive for both recruitment and retention purposes, but many workers believe their employers could go further in the diversity of offerings. Findings from surveys of workers in the Harris Poll, as well as from employers as part of a Human Resource Executive survey, show that there is a differing opinion on some aspects of voluntary benefit offerings. Here’s what we found: 1. Employers and workers agree on the importance of voluntary benefits. Ninety percent of employers and 86 percent of workers say offering voluntary
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51
HEALTH/BENEFITS BENEFITS THAT MATTER: GIVE WORKERS CHOICES THEY WANT benefits is very or somewhat important. 2. Employers and workers disagree on whether the voluntary benefits offered by their company reflect the diversity of the workforce. Among the employers surveyed, 78 percent think that the voluntary benefits their company offers reflect the diverse needs of their workers, yet only 29 percent of workers strongly agree that they do. 3. It’s important to have choice. Among workers surveyed, 93 percent say it is very or somewhat important that they be able to choose benefits based on their particular needs, such as ones that enhance their lifestyle, protect their well-being and improve their financial wellness. 4. Offering nontraditional voluntary benefits is important. Only 29 percent of workers say their or their spouse’s employer offers nontraditional voluntary benefits, but 48 percent of those whose company doesn’t offer these benefits would like them to. Further, 54 percent of employers say they don’t offer nontraditional voluntary benefits, and 78 percent of employers say they don’t anticipate offering any additional nontraditional voluntary benefits.
Which Voluntary Benefits to Offer
Meeting the multigenerational and diversity needs of today’s workforce is important, and voluntary benefits aren’t one-sizefits-all. Workers have varying needs, and they want a variety of benefits from which to choose. The latest benefit trends study from MetLife shows that the more voluntary benefit options employees have, the happier and more loyal they are. This certainly demonstrates to employers that they need to offer a variety of voluntary benefits. In fact, the MetLife study reported that increased employee satisfaction is found at companies that offer 11 or more benefits. The variety of voluntary benefits offered by employers should include both traditional and nontraditional products. According to the Eastbridge 2015 Voluntary Survey, the five most frequently sold traditional voluntary products are term life insurance, short-term disability, dental insurance, accident insurance 52
and critical illness insurance. The same survey reports that the most popular of the nontraditional voluntary products sold are wellness programs. Others include identity theft coverage, legal plans, discount health programs, pet insurance, computer/appliance/furniture purchase programs and vacation programs. Today’s diverse workforce spans three generations who look at work, life, money and finances in totally different ways and thus have varying benefits needs and preferences. Nontraditional voluntary benefits provide options for these gener-
al tools, online programs, one-on-one in-person meetings, group in-person meetings and benefit fairs are all tactics that can help to make sure workers receive the information they need to make better benefits decisions. When evaluating voluntary benefits offerings, employers usually focus on worker demographics. But using data analytics to target employees more specifically leads to better success in creating an appropriate voluntary benefits package. Using an advanced analytical approach, creating an employer benefits profile
The five most frequently sold traditional voluntary products are term life insurance, short-term disability, dental insurance, accident insurance and critical illness insurance.
Source: Eastbridge 2015 Voluntary Survey
ations’ diverse needs. From pet insurance to cybersecurity insurance, from elder care to legal plans, from employee purchase programs to identity theft protection — there’s something for everyone. The ability to choose benefits that meet their life-stage needs is something workers want. The employee benefits package often is viewed as an indication of how an organization values its employees. That is especially important to millennials. According to a study by Aon Hewitt, not only will millennials make up half of the workforce this year, but nearly one half of them plan to change jobs in the next year. Millennials job-hop to advance their careers and improve their pay and benefits. In addition to offering a variety of benefits, it’s imperative that employers tailor communications to help workers understand everything that is available to them. Communicating during open enrollment season may not be enough. Year-long communications, education-
report through an employer profile analysis, and implementing worker segmentation and predictive modeling can yield higher business value and a better worker experience. As a result, employers who have added more voluntary benefits — both traditional and nontraditional — are finding that their recruitment and retention objectives are bolstered and that their workers are more satisfied and loyal. Elizabeth Halkos is chief revenue officer at Purchasing Power, a voluntary benefits provider of an employee purchase program. Elizabeth may be contacted at elizabeth. halkos@innfeedback.com.
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Key person disability benefits allow for funds that may be used however the company sees fit such as to scout, hire and train a replacement employee, or simply provide much needed capital to a business in transition.
Disability • Life • Medical • Contingency
Petersen International Underwriters www.piu.org • piu@piu.org (800) 345-8816
April 2016 » InsuranceNewsNet Magazine
53
FINANCIALWIRES
QUOTABLE
Longevity Needs a Reality Check Who wants to live to be 100? Seventy-seven percent of Americans say they do, but only one in three of us is making a serious effort toward a high-quality life, according to a survey conducted by the Stanford Center on Longevity. How many In the survey, Americans said they understand the importance Americans want of financial planning for a long life, but they readily admit they are to live to see 100 not where they need to be. Here, there is a major gap between their years old desires and their actions. • More than a third of Americans expect to live past age 90. • Only one-third of Americans feel happy with their financial situation. Don’t think they • Of Americans who actively pursue the goal of living a long life, have the money to do it most are concentrating on improving their physical health, while ignoring their finances. • Of Americans under 65 who want to retire before they are 65, only 41 percent think they will not have the financial means to support living to the age of 100.
77% 41%
GENERATION X: THE FORGOTTEN GENERATION?
The baby boomers are charging ahead toward retirement, while the millennials are getting launched into adulthood. Squeezed in between is Generation X. But don’t write off this age group — they have disproportionately more investable assets ($7.2 trillion) than any other age cohort. They’re also considered more quiet and self-reliant than the gregarious baby boom generation that preceded them, which may explain why many financial advisors have overlooked the opportunity to serve this wealthy class of investors. This is one of several conclusions from a recent survey by Weber Shandwick. The study indicates that not a single financial services company that segments its websites by generation is focused on Generation X. Yet the study also finds that this generation of 60 million people is increasingly worried about financial security, particularly in the DID YOU
KNOW
?
54
64%
aftermath of the Great Recession. Gen Xers are in the middle of their lives, deep into busy careers and families. Many of these wealth accumulators also have accrued substantial money. At least 4.2 million people between the ages of 34 and 50 have at least $1 million in investable assets, according to the July 2014 Shullman “Luxury, Affluence and Wealth Pulse” study. As their wealth increases, they’re becoming more concerned about protecting it. Yet they are concerned about their future, with 44 percent saying they are not confident about having enough money for retirement.
Argentinians were the keenest to retire soon, according to HSBC, with 78 percent hoping to retire within the next five years. This compared with 77 percent of French people, 75 percent of Chinese and British people, and 72 percent of Americans. Respondents in the Middle East were not so eager to retire, with only 15 percent of Egyptians and 29 percent of people living in the United Arab Emirates aspiring to retire within the next five years. Of those who would like to retire but were unable to, 64 percent blamed insufficient savings, with dependents and excessive debt also cited.
UNTIL DEBT DO US PART Forget long walks on the beach — most Americans are more interested in the condition of a potential mate’s finances.
Early retirement is a dream of people around the world, according to an HSBC report. But although most people aged 45
Two out of five people who want to retire early can afford it.
or over would like to quit work and retire within the next five years, only two in five of them will be in good enough financial shape to do so. The survey spanned adults in 17 countries worldwide.
someone who doesn’t hold a college degree.
Source: COUNTRY Financial Security Index Survey
InsuranceNewsNet Magazine » April 2016
— Peter D. Hart, Hart Research Associates
EARLY RETIREMENT? MAYBE NOT
THE AVERAGE RETURNofON AN INITIAL PUBLIC OFFERING 20 percent Americans would rather date a was college this year. The average increase the first day (or “pop”) 13 percent. graduateinwith significant studentis loan debt than Source: Renaissance Capital
Americans admit to having overweight bodies and underweight financial strength in preparing for a long life.
Seventy-eight percent believe someone who is single and dating should be concerned with the amount of debt their love interest has accumulated, while 38 percent consider a large amount of debt to be a relationship “deal breaker.” That’s according to the latest COUNTRY Financial Security Index survey. An even bigger red flag is carelessness. A majority (52 percent) of Americans would end a relationship if their significant other lacked interest in managing their finances. Additionally, over half of Americans believe a person’s credit score (58 percent) and income level (52 percent) are big considerations singles should take into account when choosing a partner.
FINANCIAL
Changing Residency for Taxes Could Lead to State of Confusion I f your client is thinking about changing legal residency from a high-tax state to one that levies lower taxes, there are a few hoops they must jump through. By Russell E. Towers
W
ealthy older clients from high-tax states often will consider moving to a lowertax state to save money. These moves typically relate to state income taxes on retirement benefits and state estate taxes on clients’ net worth or gross estate. You may have heard certain people say, “If I live for more than 180 days in a particular state, then I will have successfully changed my residence for state tax purposes.” This statement has a small degree of truth to it, but it is short-sighted and far from accurate. First, let’s have a brief discussion about state income taxes on retirement benefits. Then, let’s talk about state estate taxes on a gross estate. Finally, we’ll explore the many hurdles to overcome when your client thinks about changing legal residency.
State Income Taxes on Retirement Benefits
Before 1996, certain states would aggressively seek former residents to tax their 56
InsuranceNewsNet Magazine » April 2016
retirement income benefits in the state where the individuals lived during their working careers. In 1996, this state practice was dealt a significant roadblock when “source tax” relief was passed by the U.S. Congress and signed into law by President Bill Clinton. This federal law (Title 4 United States Code, Chapter 4, Section 114) prevents states from taxing former residents on all distributions received from any qualified retirement plans after they become legal residents of another state. Of course, the key phrase is “legal resident.” It makes no difference whether the distribution is in a lump sum or a series of payments over the life of the participant. Only the state of legal residency will be able to levy state income tax, if any, on qualified plan distributions. Before this anti-source tax law, certain states such as New York and California imposed income taxes on qualified plan benefits based on a “source” theory of taxation. For example, someone might spend their working life in New York (a state with a high personal income tax rate) and retire to Florida (a state with no personal income tax). Or someone might have worked in California (which has a high personal income tax rate) and retired to Nevada (which has no personal income tax). In fact, New York, California and other high-income-tax states had carried out an
active campaign to tax qualified plan benefits when received by former residents. The tax collection tactics of these high-tax “source” theory states were rendered illegal by Title 4 USC, Chapter 4, Section 114, which prohibits taxing nonresidents on qualified plan income. Qualified retirement income is defined as distributions from employer-provided pension plans under Internal Revenue Code Section 401 (defined benefit, profit sharing and 401(k) plans), simplified employee pensions (SEP) under IRC Section 408(k), tax-sheltered annuities under IRC Section 403(b), individual retirement accounts under IRC Section 408, and IRC Section 457(b) “eligible” plans for nonprofit or government employees. In summary, the key question is, did the individual actually become a legal resident of the new state? We’ll explore some of the requirements to become a legal resident shortly.
State Estate Taxes at Death
The second major state tax that may affect certain individuals is found in those states that levy estate taxes upon the death of a legal resident. About 20 states tax the gross estate of an individual at death. Many of these states are found in the northeastern part of the U.S. Generally, the tax rates progressively range from about 6 percent to 16
CHANGING RESIDENCY FOR TAXES COULD LEAD TO STATE OF CONFUSION FINANCIAL percent, with a variety of state exemptions. For estates over $10 million, the maximum rate on the excess ranges from 12 percent to 16 percent, depending on the state. There is a federal estate tax deduction for any state estate taxes actually paid. Again, the state of legal residency is the key question that determines whether an individual will be subject to state estate taxes. Based on state income taxes and state estate taxes alone, certain individuals and couples often decide that it would be in their best interest to move permanently to a state with lower taxation. States that have both zero income taxes on retirement benefits and zero estate taxes would be particularly favored as choices for permanent residency. These states include Florida, Texas, Nevada, New Hampshire, Alaska, South Dakota and Wyoming. Note No. 1: New York and Maryland are in the process of phasing in an increase in their state death-tax exemptions over the next few years. Eventually, the New York and Maryland exemptions will be equal to the federal estate-tax exemption by 2019. Note No. 2: Keep in mind that any real estate your client owns in their former state will still be subject to estate taxes in that state upon your client’s death. Rental income and capital gains upon any subsequent sale of the property will be subject to income and capital gains taxes in that former state as well.
Changing State of Residency
Now that we have summarized state income taxes on retirement benefits and state estate taxes at death, let’s look at how to determine that an individual has actually become a “legal” resident of a new state. If your client has not become a “legal” resident of a new state, then the former state would still have the possibility of taxing retirement benefits during lifetime and levying estate taxes at death. Changing residency is not as easy as you may think. Many states impose a subjective test that looks at an individual’s connections to each state to determine residency. What are some of the steps that must be taken to sever ties with the old state and establish strong connections with the new state to document a change of residency? Many states determine tax residency by looking at a person’s domicile or the place where the individual has the closest connections. As a subjective test, state courts
2016 Summary of Selected State Estate Tax Exemptions and Maximum Tax Rates • Massachusetts $1,000,000 exemption and maximum estate tax rate of 16% •R hode Island $1,500,000 exemption and maximum estate tax rate of 16% • Maine $2,000,000 exemption and maximum estate tax rate of 12% • New York (4/1) $4,187,500 exemption and maximum estate tax rate of 16% (Note No. 1) • Vermont $2,750,000 exemption and maximum estate tax rate of 16%
• Connecticut $2,000,000 exemption and maximum estate tax rate of 12% • Maryland $2,000,000 exemption and maximum estate tax rate of 16% (Note No. 1) • New Jersey $675,000 exemption and maximum estate tax rate of 16% • Pennsylvania $0 exemption and a maximum inheritance tax rate of 4.5% (children)
• South Carolina $0 state estate tax • Florida $0 state estate tax • Virginia $0 state estate tax • New Hampshire $0 state estate tax • California $0 state estate tax (but has high state income taxes) • Texas $0 state estate tax
and tax authorities will consider many factors to determine residency for tax purposes. Here is a list of some of those important factors:
» The location of real estate.
» The location of the individual’s principal residence and whether the residence is owned or rented. If an individual has more than one residence, the courts and tax authorities will look at where the individual keeps their personal belongings, lives with family and intends to live indefinitely.
» The location of any safe deposit boxes.
» Time spent in the new state versus the old state. » The location of the individual’s spouse and children. » The state in which the individual’s car is registered. » The state issuing the individual’s driver’s license. » Where the individual is registered to vote. » The location of the individual’s bank accounts. » The location of the individual’s brokerage accounts and the origination point of the individual’s financial transactions. » The location of the individual’s health care providers, such as doctors and dentists. » The location of the individual’s accountants and attorneys. » The location of a place of worship or social clubs of which the individual is a member.
» The address listed on Form 1040 federal income tax return.
» The state where estate planning documents have been executed (i.e., wills, revocable trust, durable powers of attorney). Generally, the facts and circumstances based on this list will determine the state with which the individual is most closely associated. The strength of those connections created in the new state will ultimately determine residency for state tax purposes. Your clients who are considering moving to a new state should have a plan of action to sever connections with their old state. A successful change of residency can save hundreds of thousands or even millions of dollars of combined state income taxes and state death taxes. Keep in mind that no matter in which state your client is seeking to establish residency for state tax purposes, federal income taxes will still be due and payable on their retirement benefits. And gross estates in excess of the federal exemption amount will still have federal estate taxes due and payable no matter where their assets and property are located in the U.S. Russell E. Towers, JD, CLU, ChFC, is vice presidentbusiness and estate planning with Brokers’ Service Marketing Group. Russ may be contacted at russell.towers@ innfeedback.com.
April 2016 » InsuranceNewsNet Magazine
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BUSINESS
Four Generations = Four Different Sales Approaches D on’t treat the youngest ones like juniors, but don’t call the oldest ones seniors.
nuances among generations and tips for interacting with members of each of the four key adult age cohorts.
By Mark Peterson
Millennials (born: 1980-2000)
T
he gap between generations is the stuff of songs and movies. In the insurance and financial services industry, a failure to respond to key distinctions between generational attitudes and behaviors can keep agents and advisors from engaging with consumers, building a strong rapport with them, and closing the gap between their needs and appropriate solutions. However, financial professionals whose approaches transcend generations may be able to develop and grow bonds more easily with consumers of any age. The definitions of generational boundaries vary by source, and each prospect or client deserves a custom-tailored approach, as individuals don’t always fit labels. Keeping that in mind, here are some insights into 58
InsuranceNewsNet Magazine » April 2016
America is home to 83.1 million millennials, according to a June 2015 U.S. Census Bureau estimate. Additionally, millennial spending power is projected to reach $200 billion annually by 2017 and ultimately exceed $10 trillion, according to a Forbes report earlier this year. Given this generation’s vast size and strength, it likely will continue to influence development and distribution of financial products and services for many decades. Yet millennials often are referred to as misunderstood; a Google search of the Web for the word “misunderstood” with “millennials” returns approximately 114,000 results. Consider the following strategies for gaining mindshare and forward motion with millennials:
» Be succinct. As a blog post by Gavin Finn on CustomerThink.com relayed, millennials have been perceived falsely as having “the attention span of a gnat,” but the reality is they have been trained to digest a high frequency of information. For that reason, he said, the volume of information shared with them must be condensed. » Be transparent. A Mashable post by communications professional Joel Kaplan explained, “Millennials love give-andtake. …This generation craves transparency and dialogue with the products they love.” It may be difficult for millennials to embrace a product or even continue a dialogue about it if they’re unsure they’ve received the needed details. » Be customer-centric. Acknowledge each millennial’s personality and preferences. An Accenture report earlier this year included the viewpoint of a millennial consumer who relayed, when describing
FOUR GENERATIONS = FOUR DIFFERENT SALES APPROACHES BUSINESS the ideal shopping experience, that “there is [something] about the product and its cost, but there’s also a big part about being treated like a valued customer.” Here’s a tip that may culminate in matching millennial needs to solutions: Foster your professional online presence (be sure to check for compliance with your agency’s or broker/dealer’s policies), but also suggest offline time with clients and prospects. Invite millennials to meet you with some of their BFFs for a brief, no-strings-attached “lunch and learn” session geared at helping them become more savvy about personal finance matters.
Generation X (born: 1965-1979)
Gen Xers make up a hardworking, well-educated part of the workforce, according to a Center for Work-Life Policy report. According to Forbes, only 25 percent of adults in the U.S. are members of Gen X, but they have disproportionate spending power, with 31 percent of total U.S. income and 29 percent of total net worth. However, at ages 37-51 this year, many in the Gen X group face preparing for their own future as well as for their children’s education and for the care of aging parents. Following are some potential ways to foster a meaningful relationship with the Gen X consumer: » Offer an annual needs assessment. Convey that you realize a plethora of priorities may be competing for their attention. These priorities can include college funding, planning for sufficient income in retirement, covering potential long-term care costs, helping to pay the mortgage in the event of untimely death, and more. » Show empathy. Explain how you’ve managed your own similar priorities (as applicable) or helped other clients with needs akin to the Gen Xer’s challenges. » Explain value propositions. People are not always aware of appropriately priced solutions for financial needs. According to LIMRA research, Gen Xers overestimate the cost of life insurance by 119 percent. Try this tip for closing the gap with with Gen X clients and prospects:
Educate them about the role of products designed with utility in mind. Consider reviewing policies with available or integrated riders that may be leveraged to help counter financial fallout from a chronic illness, costly accident or disability.
has explained, one group reached adulthood during World War II and was known for its patriotism; the other was known for its pre-war stoicism and its ability to take adversity in stride. Here are some tips for fostering positive interaction with matures:
Baby Boomers (born: 1946-1964)
» Don’t call them “senior citizens.” Advances in medical science have enabled matures to live longer, but that doesn’t mean they like the term “seniors.” Instead, refer to them as “seasoned” people in the prime of their lives.
Baby boomers are “entering their retirement years and reinventing what it means to be retired,” according to an Urban Institute data project. This reinvention includes staying on the job longer. However, there is some evidence that the baby boomers’ trend toward good health could be reversing. Moreover, boomers are increasingly entering their retirement years with debt. Still, boomers are projected to transfer $30 trillion in wealth to younger generations. Try the following strategies for relating well with this populous, wealthy generation: » Exhibit positivity. The American Management Association has characterized boomers as “more optimistic and open to change” than those in the generation that preceded them. » Provide face time plus online resources. Ninety-six percent of boomers who participated in a recent Harris Poll reported spending five or more hours on the Internet per week, and 54 percent reported spending 20 or more hours online per week. Boomers may like being able to delve into details on your agency’s website. » Choose verbiage carefully. Boomers may respond well to a clearly expressed goal that hones in on their unique needs and helps with personalized solutions. Consider this approach to help bring interactions with boomers to fruition: Take an assertive, straightforward tack. Simply ask whether you’ve earned their trust and their business. Boomers have been exposed to traditional marketing tactics for most of their lives.
The Matures (born: before 1946)
America’s matures, from age 71 upward, actually include members of two different generations. As the Society for Human Resource Management (SHRM)
» Review solutions from familiar brands. Important spending attributes of the matures include brand loyalty and the desire for security. » Discuss products that offer flexibility. Matures who live on fixed incomes may appreciate a solution such as guaranteed universal life insurance with a return-of-premium (ROP) rider. This type of product, which can sometimes be issued up to age 80, offers the opportunity (when the terms of the contract are met) to recoup a portion of paid premiums if priorities change and the death benefit no longer is needed. Consider this strategy to facilitate trust with matures: Demonstrate that you remain available as a resource while matures are considering which solutions are right for them. Matures take their time making decisions. Give them some space, but reach out from time to time to let them know you’re ready to supply more information or answers to their questions. Being aware of varying generational preferences and knowing how to address them may help you get a physical or “virtual” foot in the door. Embracing a willingness to assist clients across the generational spectrum just may set you apart from the crowd. Mark Peterson is senior vice president, brokerage distribution, of AIG’s life insurance business. Mark may be contacted at mark.peterson@ innfeedback.com.
April 2016 » InsuranceNewsNet Magazine
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MDRT INSIGHTS
The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.
Four Ways to Attain Client Loyalty P roviding exceptional client service, positioning yourself as an expert, and learning from your peers are ways to achieve and sustain success. By Donald P. Speakman
T
he financial services business is built on integrity, personal relationships and perseverance. It is one of the greatest industries to be in, and it allows you to build something for yourself and your clients. If you act in your clients’ best interests and stay true to their unique financial profiles, you can attract loyal and long-term clients. I encourage you to follow these tips to help lead the way to achieving and sustaining success.
activities are a meaningful way to help strengthen and build relationships. We take groups of clients to sporting events and on boat rides. We also hold a Monte Carlo night to raise money for charity. Another special thing we do is send out a copy of Guideposts, which is a monthly Christian magazine filled with positive stories. We send it to any of our clients who want it. This helps keep our name in front of our clients with something positive that they enjoy.
3) Have a Great Team Beside You
I’ve learned over the years that having a strong team in place is fundamental for success. My team is the key to my successful practice. I’ve always had a larger
organization because of the incredible amount of information and knowledge they provide. I’ve built fantastic relationships with other MDRT members and developed a study group that was formed by members I met at meetings. The insight members share is immeasurable. Joining an organization that brings you into contact with other top-tier advisors is critical to your continued success. As I am a longtime financial advisor, these simple tips have been critical to improving my client retention, attracting new clients and ultimately improving my bottom line. Clients not only invest their money, but also invest in us. It’s important to deliver exceptional results tailored to each client’s needs and objectives. In
1) Conduct Public Seminars
One thing that has helped our office generate clients over the years is offering public seminars. For more than 35 years, we have conducted lunch-andlearn seminars as well as evening seminars. This is an efficient method to get in front of prospects in a cost-effective way. The seminars I present are for people who want some type of guarantee behind their retirement accounts. I try to appeal to people who are risk-averse and don’t want to gamble in picking stocks and mutual funds. Offering public seminars has helped build our client base to around 750 clients, with roughly $250 million under management, and almost all of it is in annuities. Public seminars coupled with good service can attract your ideal clients and ultimately increase your bottom line.
2) Show Client Appreciation
Client appreciation is essential to client retention in any business. In my office, we have a multitude of activities to show our clients we value their loyalty. Client 60
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staff than most financial advisors have, but that’s because I want to give clients tremendous service. I have a full-time staff of about 10 people, and two of them are licensed professionals. Our clients are very relationship-oriented and like to know about our family. We work hard to share our lives with them to create a bond, instead of talking about performance and rate of return for investments. If you take time to get to know your clients, give them great service and treat them right, they’re going to stay with you.
4) Join a Financial Association
It’s important to join a professional
my practice, we provide these results with financial solutions, quality investments, creative ideas, guidance and unsurpassed customer service to give clients a unique experience. Donald P. Speakman, MSFS, CFP, joined the financial services industry in 1978 and owns The Speakman Financial Group, Pittsburgh, Pa. He has an active financial practice focusing on annuities and is a 37-year Million Dollar Round Table member, a 31-time Court of the Table member and a 31-time Top of the Table qualifying member. He may be contacted at donald.speakman@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.
Women Want Their Advisors To Talk Less, Listen More W omen don’t want an advisor who “sells”; they want an advisor who will educate and involve them in the process. By Juli McNeely
I
f I told you that women in the U.S. hold 51.3 percent of the wealth and that there are 9.1 million woman-owned businesses in the U.S. generating $1.4 trillion of revenue, would it be a market that would interest you? Marketing to women will become a must in the future as these numbers begin to rise. Sixty percent of all graduate degrees and 53 percent of all doctoral degrees are earned by women. Women make about 70 percent of household buying decisions — and that includes decisions related to financial services. Nine out of 10 women will manage their finances alone at some point in their lives because of their tendency to marry later in life, divorce or outlive their husbands. Women tend to be very loyal and refer others to their advisor if they are happy. If they aren’t happy, you can expect them to seek assistance elsewhere. Seventy percent of widows leave their financial advisor within a year of their husband’s death.
Retaining Your Female Clients
So what’s the best way to keep and grow the number of female clients you work with? First and foremost, you must acknowledge the fact that women tend to approach decisions a bit differently from the way men do. Women tend to be more risk-averse and to value working “together” with their advisor. Bottom line: Women want to be involved in the process and understand what they are buying. Here are some tips for working successfully with women:
• Relationship is key. Women tend to value having an advisor who is great at building a strong relationship. The advisor must take an interest in the client, and try
to gain an understanding of who she is and how she operates. • Listen and communicate well. Talk less, and listen more. When you do talk, be sure you are clear and concise in what you are saying. As an advisor, you also need to create a safe space so that there is comfort as well as freedom to conduct candid conversations. Advisors who are skilled in asking open-ended questions and clarifying responses with more questions will do well working with women clients. Don’t assume you already know the solution without vetting the problem together. • Educate them. Women want to understand, and they often ask many questions to find the answers they need before making a decision. You may need to allow more time for appointments or plan for additional meetings so that all questions are answered and you are able to cover thoroughly the solution you have come up with. Women want to collaborate on the final decision and don’t necessarily want to be told what to do. Use real-life stories to make your point, and make note of areas to which additional reinforcement can be made via articles, newsletters, etc., when following up. You also may want to consider hosting informal educational sessions or social gatherings for your female clients. They often have a thirst for knowledge and
a desire to connect with other women. • Engage them. If you are working with both a man and a woman, include the woman in the process and engage her regularly. Watch her body language and eye contact. Make sure you are directing your questions to both of them, not just to the man. Generally, women want to see how their goals can be met and their loved ones protected much more than they want to pick the best-performing mutual fund. Make sure to regularly link the “solution” back to the initial goal so she can see how they align. If you find yourself lacking in any of these skills, you may want to consider hiring a woman advisor and teaming up with her when approaching female prospects. This is a great opportunity to bring new advisors into the industry and fill a need in your firm to reach a growing female market. This is an excellent time to make sure that you and your firm are prepared to attract and retain a growing market of female consumers. I wish you great success! Juli McNeely, CFP, CLU, LUTCF, is president of McNeely Financial Services and NAIFA immediate past president. Juli may be contacted at juli.mcneely@ innfeedback.com.
April 2016 » InsuranceNewsNet Magazine
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THE AMERICAN COLLEGE INSIGHTS
With over 87 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.
4 Tips for Navigating Volatile Markets in Retirement T he topsy-turvy stock market of the past few months has been a wake-up call for retirees and those who advise them. By Jamie Hopkins
T
he beginning of 2016 has been a trying time for investors. The recent volatile markets are garnering the attention of retirees, many of whom are wondering how their retirement income plans will weather the current economic trends. The American College of Financial Services conducted the RICP Volatility Flash Survey, in which it questioned advisors designated as Retirement Income Certified Professionals (RICPs). The results showed that more than 60 percent of RICPs’ clients had reached out for advice more frequently than usual during periods of recent market volatility. Retirees are right to be concerned about market volatility, as it presents a very real risk to their retirement security. The survey found 60 percent of advisors also reported that none of their clients had made changes to their retirement plans during this time of market turbulence. This was despite the fact that more than half of the advisors found that their clients are more concerned about retirement security than they were last year. With volatile markets at the doorstep, let’s take a closer look at four additional planning strategies that can reduce the impact of volatile markets on a retiree’s retirement income plan.
1) Reduce Withdrawal Rates
Most retirees need to sell assets in their investment portfolio in order to generate the income needed to meet their retirement expenses. Taking withdrawals from a retirement income portfolio can subject the retiree to sequencing of returns risk. The risk is that if the retirement portfolio experiences negative returns early in retirement, the retiree’s withdrawals will 62
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be too high to be sustainable throughout retirement. However, if the retiree can be flexible with spending during volatile or down market years, the longevity of the portfolio can be improved substantially by reducing the withdrawal rate.
2) Reduce Portfolio Volatility
While market risk cannot be entirely eliminated through stock diversification, the portfolio’s volatility can be reduced by diversifying among different industries and by including additional asset classes in the investment portfolio. This means the portfolio should contain some defensive stocks — stocks such as health care and consumer staple stocks that do well in down markets. In addition, the portfolio should contain some growth-oriented stocks, such as technology stocks, that tend to do well in expanding economies. Adding asset classes such as commodities, real estate, international stocks and smallcap stocks can reduce the standard deviation of a portfolio and thereby reduce its overall volatility.
3) Incorporate Downside Protections
Another strategy that can reduce the impact of market volatility on a retirement income plan is to make sure downside protections are built into the plan at the time of its development. Downside protections can include purchasing put options through the first five years of retirement. A put option gives the holder the right, but not the obligation, to sell an underlying asset at a set price during a specified time period. However, using put options throughout the entire retirement period is often a bad idea, as it limits the potential growth of the portfolio. Additionally, a variable annuity with a guaranteed living withdrawal benefit rider could be incorporated into the plan to create a guaranteed retirement income floor with some upside potential. Furthermore, low-risk investments can be used to meet short-term
retirement expenses by engaging in asset liability matching.
4) Tap Into NonmarketCorrelated Assets
Another way to limit the impact of volatile markets on a retirement income plan is to tap into assets that are not correlated to the market in order to generate income as an alternative to selling stocks. One strategy is to hold cash reserves to help cover early retirement expenses. However, be careful not to hold too much in cash, as it can be detrimental to retirement security in the long run. Other nonmarketcorrelated income sources include tapping into home equity with a reverse mortgage. A reverse mortgage can be an effective way to generate income in the early years of retirement and put off having to sell investments when the market is down. Finally, cash value life insurance can be an effective way to meet income needs early in retirement, as the cash value is not impacted by market fluctuations and usually can be accessed without any negative income tax implications. The recent volatile markets should serve as a wake-up call for those nearing or already in retirement without a comprehensive retirement income plan in place. Skilled retirement income advisors need to take their clients’ concerns about market volatility seriously and make sure their clients’ retirement income plans are well-equipped to handle market volatility. Jamie Hopkins is co-director of The American College New York Life Center for Retirement Income. He may be contacted at jamie.hopkins@ innfeedback.com.
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AALU
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American Equity
life.american-equity.com
888-647-1371
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American National
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Assurity
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Brookstone Capital
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Celebrity Branding
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Fidelity & Guaranty
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GPM Life
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IFC
Imeriti Financial Network
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Kansas City Life
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Mutual Trust
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NAFA
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NAIFA
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Nationwide
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Ohlson Group
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Paperback Expert
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Peak Pro Financial
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Petersen International
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Protective Life
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Shurwest
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Super G Funding
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Transamerica Employee Benefits
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Tucker Advisors
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ins, BC
United Advisors
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49 43
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LIMRA INSIGHTS
More than 850 financial services companies in more than 70 countries turn to LIMRA first to help them build their businesses and improve their performance.
Using Behavioral Economics to Market Life Insurance T he industry has struggled for years to encourage consumers to make rational decisions about life insurance. Research shows it’s time to take a different approach. By Kimberly Landry and Jennifer Douglas
W
hile many Americans have an unmet need for life insurance coverage, the industry has struggled to motivate consumers to shop for this product. How can we encourage consumers to take action on this important issue? The field of behavioral economics provides insight into this problem. While most people would like to believe they are rational decision-makers, research in behavioral economics demonstrates that many decisions are irrational and subject to a variety of cognitive shortcuts and biases. LIMRA recently studied the impact of these biases on life insurance shopping and whether these concepts can be leveraged to improve marketing messages. Three findings of particular interest relate to the concepts of loss aversion, presentday bias and social norms.
Avoid the Loss
Behavioral economics teaches us that humans are motivated by loss aversion, meaning that we hate losing something twice as much as we enjoy gaining something. As a result, we are hardwired to avoid a small certain loss, even if it means risking a larger potential loss. This bias works against the life insurance industry, since we are asking consumers to accept a small certain loss (paying the premium) instead of risking a large potential loss (dying prematurely while uninsured). LIMRA investigated whether this concept could be turned around to encourage people to shop for individual life insurance. We tested a message 64
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emphasizing what consumers could lose by not shopping for coverage — the opportunity to get a good deal. We found that when framed in a positive light, this message was effective for some demographic groups but not others. In particular, uninsured consumers who were married or had children responded well to this message and viewed life insurance more positively than did those who saw a traditional marketing message.
Live in the Present
Humans also make decisions based on present-day bias, meaning we place more value on things we have right now (or will have soon) than on things we might gain in the future. Unfortunately, life insurance is perceived as something that might provide value in the future but not in the present, so consumers find it easy to put off shopping for coverage. LIMRA tested a marketing message emphasizing the value that life insurance provides right now — namely, the peace of mind that one’s family is protected. This message successfully improved attitudes about life insurance for a number of demographic groups, including married consumers, those with young children and those with higher household incomes. It was also surprisingly effective at improving the perception that life insurance is affordable, even though the message did not mention cost but instead focused on the benefits of coverage.
Follow the Crowd
While most people like to view themselves as independent thinkers, our decisions are strongly influenced by social norms. We tend to adjust our behavior based on what everyone else is doing, allowing for more efficient decision-making. Generally speaking, the more similar the comparison group, the stronger the effect. Unfortunately, life insurance is rarely discussed among friends, so consumers
often have no idea whether others like them have coverage. In fact, only 43 percent of respondents in our study believe life insurance is “something most people have,” when in reality, LIMRA research shows that six in 10 U.S. adults have coverage. LIMRA tested a message telling consumers that most people like them do, in fact, have life insurance coverage, tailoring the message slightly to match the demographics of the consumers reading it. This was the most broadly successful message we tested, improving attitudes about life insurance for all consumer segments in some way. In particular, this message was effective for those groups that were otherwise difficult to reach, such as single people and those without children.
A New Approach
The industry has struggled for years to encourage consumers to make rational decisions about life insurance. By leveraging the power of the irrational, it may be possible to help consumers overcome their cognitive biases and make better decisions for themselves and their families. Kimberly Landry is a senior research analyst for LIMRA’s insurance research program. Kimberly may be contacted at kimberly. landry@innfeedback.com. Jennifer Douglas is associate research director of LIMRA’s developmental research program. Jennifer may be contacted at jennifer.douglas@ innfeedback.com.
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