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March 2014

PLUS How to Ace All Your Presentations PAGE 12



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42 T he Traits of the Ideal Indexed Annuity Buyer By Cyril Tuohy A new study reveals that top annuity sellers share similar best-practice characteristics, leading them to the ideal prospects.



10 m  yRAs Could Be Seeds to Advisor Business, If myRAs Stay Low Value By Linda Koco A look at whether this newly proposed retirement savings vehicle could lead to opportunities for advisors.


22 The Tax Surprise

By Steven A. Morelli The tax season brings more opportunities for advisors who want to ease the financial bite that their clients might face.


32 Unilateral ‘One-Way’ Buy-Sell Agreements for Family Businesses By Russell E. Towers A unilateral “one-way” buy-sell agreement coupled with well-designed estate-planning documents can guarantee business continuation for the owner’s adult children while providing income for the surviving spouse.

12 12 H  ow to Ace All the Presentations of Life

An interview with Tony Jeary Being successful in sales means being a successful presenter. Tony Jeary, presentation strategist and coach for companies such as New York Life, knows the secrets to a successful presentation. In this interview with InsuranceNewsNet Publisher Paul Feldman, Jeary describes how engaging your audience is the key to making an unforgettable presentation.


InsuranceNewsNet Magazine » March 2014

34 Guaranteed Universal Life: The Wolf in Sheep’s Clothing By Josh O’Gara The perception of safety that guaranteed death benefit universal life provides, in all but a very select number of cases, actually puts the client in a very precarious position.


40 A  nnuity Complaints Drop but Annuity Grousing Has Not By Linda Koco A drop in the number of annuity complaints filed is contradicting the buzz that consumers are unhappy with the product.

48 48 E xplaining Health Care Reform to Clients By Andrew Bard Your clients will depend on you to help them understand the fundamentals of this complex law as you work together to obtain health coverage.


52 Tax Alpha: A Predictable Strategy for Boosting Retirement Savings By Douglas Wolff The newest generation of cost-efficient, tax-deferred variable annuities (VAs) may be increasingly important in helping protect a retirement portfolio from erosion by taxes.

54 54 How the 3.8 Percent Medicare Surtax Can Bite Your Clients By Patti S. Spencer An important service that advisors can offer this year is helping clients understand the Affordable Care Act’s unearned income Medicare contribution.

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61 NAIFA: Growing Your Client Relationships

56 R  eady Responses That Turn Chats Into Leads

By John J. Favaloro A few simple questions can help you deepen your client relationship and increase your value to the client.

By Bryce Sanders Almost any social situation can become an opportunity to meet a prospect.


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62 L IMRA: The Lifetime Value of a Financial Professional

58 S OCIETY OF FSP: Debate Over Suitability Standards Rages On

By Patrick T. Leary Engaging a financial professional over a lifetime means developing a value proposition at each of four career stages.

By Richard M. Weber Should an agent be held to a “client’s interest above my own” standard or to the lesser “suitability” standard of securities brokers?

64 The Last Word: Be Proactive in Protecting Your Clients’ Personal Information

60 MDRT: Achieve More Leads With These Simple Steps

By Larry Barton Take the necessary steps to keep your clients and your practice safe from a data breach.

By Guy E. Baker Some prospecting strategies that will help you jump-start your production.

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14 INN 02.14 March 2014 » InsuranceNewsNet Magazine 5



See page 52 for more Tax Issue coverage

Tax Time Diamonds


t’s a really good time to be you. Americans all across the economic spectrum need guidance. This month’s feature focuses on this year’s leading tax story, which is the impact on the top earners and highest-net-worth households. They are getting hit from many angles, and some will be feeling a little stung by the bottom line. Our industry has many answers for them, given the tax benefits of life insurance and annuities, along with trust strategies involving those products. But those options are a few among many out there in the loud world. It is also not just the volume of choices but the crossfire among them. If a client met with an agent who advised that an annuity would be an appropriate part of a tax or income strategy, that client would likely go home and type in “Should I buy an annuity?” on the Google machine. What comes back isn’t pretty. That first page (the only one most people will view) is full of reasonable-sounding arguments from the financial world about how only idiots buy annuities. In fact, the first item from what appears to be a news or informational source is an Investopedia entry from Forbes that includes this sentence: “While an annuity may turn out to be a good investment, that’s not the right reason to buy one.” It doesn’t get a whole lot better from there, with headlines such as, “7 Reasons Not to Buy an Annuity” and, in case that was too subtle, “If You Own Annuities, Chances Are You Are Being Ripped Off.” Both of those were from news sources, by the way. The ads, which are difficult to discern from news, don’t convey a warm feeling about annuities. The top item on the page is “Warning! Top Annuity Flaws” – and that is from somebody selling annuities. So, clients and prospects might click out of there with a sense of unease about their advisors’ recommendations. Rather 6

InsuranceNewsNet Magazine » March 2014

than bring it up and be subjected to an opposing sales pitch, clients might prefer the “Thanks, I’ll think about it” route. More information is not leading to greater clarity. Quite the opposite, in fact. Study after study shows that consumers become paralyzed when confronted by too many choices, especially conflicting ones. Americans already are saving too little and not doing enough to protect their families and their futures. We are all aware that fewer families are insured now than at any time since World War II. A study commissioned by TIAA-CREF last year showed how deep the distrust goes. The survey showed 48 percent of

Americans find it difficult to know which source of financial advice to trust, 37 percent don’t like talking to anyone about their finances, 58 percent want one source for their financial advice, and 46 percent say that more than ever, they need a place to go for financial advice. It is obvious that people need advisors, but they also need advice on which they can act. LIMRA outlined some tactics based on research that can help guide clients rather than overwhelm them. LIMRA Assistant Vice President Delores Freitag offered three of these tactics in InsuranceNewsNet’s December issue. They were:

» Share personal stories to overcome irra-

tional optimism. Because people don’t fully

appreciate their risks, they need to hear cautionary tales. Ones with happy endings serve as good models for what to do.

» Avoid ambiguity. Advisors should be

clear about recommendations. Their clients are seeking advice, after all. But the recommendation should not be one imposed by the advisor; rather it should be arrived at with the client. They can be led through collaborative discovery interviews that include meaningful discussion. In the end, clients should not only be clear about the solution, but “invested” in it as well.

» Use rules of thumb. This is part of be-

ing clear about the message. Freitag used the example of the well-known “rule” that a bridegroom should expect to pay two months’ salary for an engagement ring. By the way, that was part of a brilliant series of marketing campaigns that standardized the practice of giving diamond engagement rings. The salary figure was arbitrary. Even though the engagement ring rule was arbitrary, it gave guys the security of knowing they were doing the right thing. Of course, insurance agents and financial advisors have more to offer than arbitrary numbers. They have real processes for helping clients arrive at ways they can protect their income and families. Tax time brings many questions about what to do to avoid paying more taxes than people should and saving more money for their future. Agents and advisors have straight answers that consumers can rely on.

Now, that’s a real diamond. Steven A. Morelli Editor-in-Chief

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Insurance products and services are offered by Mutual of Omaha Insurance Company or one of its affiliates. Products not available in all states. Each company is solely responsible for its own contractual and financial obligations. March 2014 Âť InsuranceNewsNet Magazine 7 For producer use only.

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myRAs Could be Seeds to Advisor Business, If myRAs Stay Low Value A  dvisors are looking cautiously at the implications of a “starter” plan to nudge workers toward saving for retirement. By Linda Koco


resident Obama’s plan to create a “starter” workplace retirement plan for workers could affect insurance agents and financial advisors in subtle ways. Depending on how the program unfolds and how advisors respond, that impact could either introduce stressors for advisors or open opportunities. Called myRA, for My Retirement Account, the program will enable low- and middle-income workers who lack access to workplace retirement savings plans to purchase a “starter” plan through payroll deduction at work. Obama debuted the plan in his State of the Union address, and the probable startup will be in late 2014 (see highlights in box). Key trade groups have generally endorsed the presidential nudge to save for retirement, but they have also cautioned against making any changes to the tax benefits in current retirement products. For instance, John Nichols, president of National Association of Insurance and Financial Advisors (NAIFA), wrote on his organization’s blog that “NAIFA supports the president’s goals of achieving financial security for all Americans, but urges modifications to approaches that would make saving for retirement more difficult or expensive.” The last was a reference to proposals to curtail current tax features in life insurance, annuities and employer-provided benefits. The Insured Retirement Institute (IRI), the American Council of Life Insurers (ACLI) and the Investment Company Institute (ICI) have made similar statements. LIMRA LOMA Secure Retirement Institute (SRI) said that expanding access to a workplace retirement savings program is a “laudable goal.” But it cautioned that this alone will not improve Americans’ re10

President Barack Obama introduces myRAs in his State of the Union speech. The investment vehicles would only be starters because they top out at $15,000.

tirement savings behaviors. “Our research reveals that access coupled with automatic enrollment would significantly increase participation,” SRI said in a statement.


As the reaction unfolds, questions are surfacing about the impact myRAs would have on insurance and financial advisors. Some examples follow, along with observations that producers will need to consider within the limits of their licensure. Will there be sales opportunities that spin off of this program? Yes, but not for a while. Once myRA accounts reach the 30-year mark or $15,000 in value (whichever comes first), account owners must roll their plans into “private-sector retirement accounts.” That’s a rollover opportunity for agents, carriers, online services or other private sector firms. The rollover amounts won’t be huge, but they can form a foundation for future growth. Can producers provide myRA advice or consulting services to employers? Not exactly, and maybe yes. The “not exactly” is because the Department of the Treasury (DOT) is “reaching out” to employers directly, asking them to participate. The “maybe yes” is because employers, particularly smaller and medium-sized employers, might want to consult with their benefits advisors before deciding whether to participate. Initial plan details say nothing one way or another about this or about follow-up advice and counsel, so that’s the “maybe” part of this. Still,

InsuranceNewsNet Magazine » March 2014

since benefits advisors routinely provide all sorts of guidance, such involvement is likely a given. Isn’t this just a government-run individual retirement account that will compete with producer efforts to sell individual IRAs or IRA-annuities? Not exactly. First, the myRA will not be a traditional IRA such as those sold in the retail market or in payroll deduction plans. It will be structured as a “lite” version of a Roth IRA. But it will have distinguishing features – such as only one investment (a government retirement savings bond) and a force-out after 30 years or $15,000 – that take it out of the running when compared to a Roth IRA. It’s worth remembering that the monthly or biweekly crowd doesn’t top the charts of IRA contributors anyhow. For instance, a Congressional Research Service (CRS) study of third-quarter 2012 ICI data found that more funds flow into traditional IRAs from rollovers from employer-sponsored pensions than from regular contributions. Besides, the number of households owning traditional or rollover IRAs has been in decline, according to a CRS report that spanned the years 2007-2010. That was based on analysis of data in the Federal Reserve’s Survey of Consumer Finances. Might myRAs be a competitive threat for advisors who serve the 401(k) market? That’s a no, and a maybe yes. On the “no” side, the myRA will target the small business market, where retirement plans such as 401(k)s are not commonplace. In a March 2013 report, the U.S. Bureau of Labor Statistics (BLS) found that retirement benefits are available only to 49 percent of workers at smaller establishments versus 82 percent at medium and large establishments. Besides, as SRI has reported, even when such plans are available, not all workers participate. “The dollars and cents are so low in the small business market that many agents and financial professionals just won’t go after the business,” David Kinder, a chartered

MYRAs COULD BE SEEDS TO ADVISOR BUSINESS, IF MYRAs STAY LOW VALUE financial consultant in Riverside, Calif., said in an interview. For that reason, he thinks the presence of the myRA program will not compete with private sector plans and representatives. As for employers that do have 401(k) plans installed, Treasury Secretary Jacob Lew has been saying that the myRA will be compatible with such plans. Seasoned advisors have three words for that: “We shall see.” As for the “maybe yes,” this has to do with a perhaps unlikely, but still possible, outcome. Some employers, especially smaller employers that struggle for profitability, may view the myRA program as an enticing, low-cost alternative to keeping an existing but burdensome 401(k) program. Then again, shutting down an existing 401(k) program involves a pile of work, and it would sharply curtail workers’ retirement savings prospects, making the cure worse than the disease. Hence, swap-outs seem iffy. Will agents and advisors be able to offer wraparound services to employers that participate in myRA? Some advisors might find a way to make it “work financially,” said Kinder, for instance by partnering up with a bank or other firm that bundles payroll deduction, checking, credit card accounts, small saving accounts, etc., for employer clients. Although he said he is not sure what that might look like, he is sure of one thing – that commissioned and fee-based advisors are not going to go after this business without compensation. Can producers coordinate other benefits programs around myRA? The answer is, why not? If an employer client has agreed to participate in the myRA program, that could become a platform for discussions with the client about 1) other voluntary benefits programs; and/ or 2) other retirement solutions in the individual as well as the workplace market. Agents and advisors use new programs as door openers all the time, and this will be no exception. Will the heightened publicity around myRAs spark renewed consumer interest in small-deposit flexible-premium fixed annuities? Probably not. It’s true that some of these individual, privatesector products have attributes that are very similar to those of the myRA. But Danny Fisher, publisher of The Fisher Annuity Index, said the dominant trend

is definitely away from carriers offering small-premium contracts, whether flexor single-pay. “We have 69 companies in The Fisher Annuity Index,” he said in an email. “Only eight of them have fixed annuities that will accept monthly premiums of $100 or less, and most of them are heavy in the tax-sheltered annuity market that requires smaller premiums. In years gone by, there were lots of flex-pay contracts that would accept smaller monthly premiums. Not so anymore. Companies just don’t want to fool with smaller amounts.” Then again, Kinder predicted that some professionals will take to viewing myRAs as if they were small annuity transactions – ones that will help workers build up savings for rollovers down the road. But, he asked, will savers in the target market keep on saving once they have started the plan? “Just think of what younger workers do with their 401(k),” he said. ”They will cash it out or loan it out if they need the money for something else.” The big question he has is, who will be there to be sure the worker is making good decisions?

Macro Question


MyRA Profile Target market: People looking for a simple, safe and affordable way to start saving — especially new savers. What it is: A starter retirement savings plan available with no fee through payroll deduction at participating employers. Voluntary: Workers and employers elect to participate. Portable: Workers can move the account from employer to employer. How to begin: Workers sign up online and then arrange for payroll deduction with the employer. Deposits: Initial deposit will be $25 or more and subsequent deposits, $5 or more per payday. Investment: Each contribution is invested in government savings bond (one bond, not a series of bonds), which is backed by the full faith and credit of the United States. Earnings rate: The account will earn interest at the same variable rate as the Government Securities Investment Fund in the Thrift Savings Plan for federal employees.

Some industry professionals are pondering myRA at the macro level. In particular, they are wondering whether the program is actually privatized Social Security in sheep’s clothing. The myRA is set up to roll into a private-sector retirement plan at a future date, they point out, so wouldn’t that be privatizing the money via a government-plan doorway? The administration is not positioning it that way. It’s promoting the program as a voluntary starter retirement plan, not a virtually mandatory social insurance program. Besides, the maximum value of a myRA account is so low as to be minimal for meeting retirement income needs. Then again, Social Security started out in the late 1930s as a supplement to a primary worker’s pension and personal savings, and look where it is today. That is what gets the skeptics going. Could myRA mushroom and morph into a Social Security replacement someday? If so, how would agents and advisors wrap around that?

Employer’s role: Set up the payroll deduction plan and send the direct deposits to each participating employee’s myRA on payday. May distribute myRA information but will not administer employee accounts or contribute to them.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at linda.koco@

Implementation: The government aims to start a pilot version of the plan in late 2014.

Cost to employer: Little or nothing. Structure: It is a type of Roth IRA and will be subject to the same tax treatment and rules. Eligibility: Workers with annual incomes of less than $129,000 (individuals) or $191,000 (couples) can participate. These limits will be subject to annual cost-of-living adjustments. Withdrawals: Contributions can be withdrawn tax-free at any time, and earnings can be withdrawn tax-free after age 59 and a half. Plan maximum: Account holders can build savings for 30 years or until their myRA reaches $15,000. Force-out: Once a worker reaches the plan maximum, the account must be rolled into a private-sector retirement account.

Source: Department of the Treasury documents

March 2014 » InsuranceNewsNet Magazine



InsuranceNewsNet Magazine Âť March 2014




ou are probably really good at making presentations. InsuranceNewsNet readers tend to be advanced sales professionals, and people do not achieve that level of performance without being excellent presenters.

You probably also want to be great. People who read this monthly feature want to improve themselves in every way they can. This month, we’re featuring someone who has coached many people who are doing great things. He is Tony Jeary, also known as Mr. Presentation. In addition to being the author of more than 40 books, he is a well-sought-after executive coach and presentation strategist. He frequently coaches the world’s top executives from companies such as Wal-Mart, Ford, Texaco and New York Life. In this interview with InsuranceNewsNet Publisher Paul Feldman, Tony shows that it does not take magic to become a presentation master. It takes engagement. Not only does that mean getting your audience involved, it also means you must invest in understanding your audience and soliciting feedback. Tony says that by stocking your arsenal and sharpening your practices, you can present like the masters.

March 2014 » InsuranceNewsNet Magazine




FELDMAN: You say that life is a series of presentations. Can you expand upon that? JEARY: Most people think that presentations are just formal opportunities in front of large groups. In reality, we are presenting all the time: to our spouse, our kids, our friends, our colleagues and our customers. Every time we have a conversation, we are presenting. In business, there are many types of presentations – phone calls, one-onone encounters, spontaneous meetings, sales presentations, email, voice mail, meetings, major talks, etc. Each of them contributes to your overall brand. Recognizing each of them as opportunities will increase your effectiveness at getting more of what you want. Presentations take many forms. In my signature book on the subject, Life Is a Series of Presentations, the concept is that we’re presenting all the time. We’re presenting in person, but we are also presenting by email and the phone. In person or by phone, it’s planned or impromptu. Or in email, it’s a delayed presentation. But on the phone or in email, so many people have not taken the time to really dissect the nuances of what you can do to influence people. When you look at it, so many of our presentations today are by email and on the phone. FELDMAN: I see that so many emails are almost diatribes. Should people just keep it short and perhaps use bullets? JEARY: Yes. So many people have grown up with the idea of paragraphs. If you look at the people in their 40s and 50s who are in the insurance arena, the whole paragraph thing was part of our lives. When you look at people in their 20s, it’s now bullets and even shorter sentences. Today’s world is really into how do you do things fast? So I would ask myself, “Am I really being efficient with the way that I’m communicating by email, including bullets, including the ‘whys’?” Another question to ask is “am I front-loading my emails?” That’s a concept in a new book of mine called We’ve Got To Start Emailing and Meeting Like This! To be more persuasive today, you really need to hit people right 14

If you’re giving a presentation, invite people to come early and begin talking with them, getting your voice warmed up, and getting feedback and insight so you can make adjustments.

upfront with the benefit and then give more of the bullets and the details later. FELDMAN: Is the key really thinking through your objectives first? JEARY: Yes, another piece of this is the clarity of objectives. Whether you’re making a phone call, sending an email, delivering a seminar or even building your own website, all those items are types of presentations. We should always be asking, “What’s the objective that we’re wanting to communicate or present?” and then look for the best ways to do it. Is the best way to do it a direct communication? Is it to hold a meeting? Is it to send a package? That becomes the differentiator. It’s not just how well you speak in front of people or how good your body language or tonality are, although those are important. It’s really taking a strategic approach to how to get the result you want. FELDMAN: Do you find people don’t give their email communication the respect it deserves?

InsuranceNewsNet Magazine » March 2014

JEARY: Most people don’t realize it, but they’re burning an hour to two hours a day on email. That’s the main presentation that people are making today. You have to recognize that email is the way we do business today, and you have to get good at it. As a matter of fact, you have to get better than good. To sell people in person, you have to get them there and then you have to follow up. FELDMAN: How can people evaluate their own presentations? JEARY: When you look at your presentations, break them down into three pieces: preparation, delivery/facilitation and follow-up. Many people will realize that they need to be better at follow-up. Well, guess what? A big piece of follow-up today is email. After a meeting, do you immediately send an email and say, “These are the four actions we agreed to”? Most agents don’t do that to the level they could. And it’s so simple. It’s so easy to get people to take action. And that’s what so many people in the insurance arena want to have happen. You want to be




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Ke p in mind that as an ac eleration of the death benefit, the payment of long-term care rider benefits wil reduce both the death benefit and cash values of the policy. Ad it onal y, loans and withdrawals wil also reduce both the cash values and the death benefit. Care should be taken to make sure that your clients’ life insurance ne ds continue to be met even if the rider pays out in ful , or after money is taken from their policies. There is no guarante that he rider wil cover the entire cost for al of the insured’s long-term care, as this may vary with the ne ds of each insured. Your client’s fear that money Life insurance is is ued by Nationwide Life Insurance Company or Nationwide Life and An uity Insurance Company, Columbus, Ohio. Nationwide, Nationwide Financial, the Nationwide framemark and YourLife CareMat ers are service marks of Nationwide Mutual Insurance Company. Let’s Face It Together is a service maput rk of Natiotoward nwide Life Insurancelong-term Company. © 2013 Nationwidecare Life Insurance Company. Al rights reserved. will be lost if they don’t use it. NFV-07 0AO (10/13)

enefit paid to payout—Maximum he monthly benefit paid to the • Fullt receive benefits policy owner once they qualify to receive benefits

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your • Return of premium—Guaranteed return of your client’s premium for unexpected needs

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Guarantees and protections are subject to the claims-paying ability of the issuing insurance company. Subject to change. Nationwide Financial competitive intelligence research on linked-benefit products, May 2013.


ly, loans Keep in mind that as anand acceleration of the death withdrawals benefit, the payment of long-term care rider benefits willwill reduce both the death also benefit and cash values of the policy. Additionally, loans and withdrawals will also r money reduce both the cashis values andtaken the death benefit. Care should from be taken to make sure that their your clients’ life insurance policies needs continue to be met even if. the rider pays out in full, or after money is taken from their policies. There is no guarantee that the rider will cover the entire cost for all of the insured’s long-term care, as this may vary with the needs of each insured.

tionwide Life insurance is issued byframemark Nationwide Life Insurance Company or Nationwide Life and and Annuity InsuranceYourLife Company, Columbus, Ohio. Nationwide, Nationwide Financial, the Nationwide framemark and YourLife are service marks of Nationwide Mutual Insurance Company. Let’s Face It Together mark of Nationwide Life Insurance Company. © 2013 Nationwide Life Insurance Company. All rights reserved. ance CareMatters Company. All right sis a service reser ved. NF V- 0770AO ( 10/ 13 )

NFV-0770AO (10/13)

March 2014 » InsuranceNewsNet Magazine




able to take your clients and get them to buy. It’s all about taking action.

But if you say, “Well, I was thinking we had about 45 minutes,” they say, “Well, no. Could you do it in 30?” And if you know that ahead of time, that’s so much better than getting squeezed when someone says, “Well, gotta go,” and then you really haven’t prepared.

can hand them a brochure and a highlighter, they can highlight. It really gets people involved and allows for breathFELDMAN: It certainly makes sense to ing space. send what is basically a call to action Let’s say you’re in a seminar scenario. after the meeting. Don’t clients appreHaving everybody kind of talk to their ciate it, too? spouse or other people for a minute gets people involved. The energy can JEARY: They love it. Just being able to FELDMAN: You have a formula for really go up if you’ve got 15, 30 people be polite and saying, “If you don’t mind, delivering the perfect message called in a room. You can just say, “Hey, talk to I’m going to zap you an email with the IPRESENT. Can you tell us about it? the person next to you about this for 30 four things we agreed on so we seconds.” So, in a sales seminar can be in tune.” And your professcenario, you are encouraging The IPRESENT Model includes four sionalism goes up, your brand is people to ask questions, write preparation items and four delivery items that positively impacted and, in most things down and talk to the peohelp when designing a key presentation. The cases, you’re probably going to ple next to them. acronym stands for: get better action. FELDMAN: How do you preInvolve your audience – getting your FELDMAN: One of the trends pare your audience for an audience involved keeps them engaged. that we’re starting to see more event? of is agents doing online prePrepare your audience – set up the sentations and not going to JEARY: I say the engagement expectations for an exceptional experience. visit clients. What are some starts at the invitation stage. So, strategies for presenting for example, you can invite peoResearch your presentation arsenal – online? ple and then you can ask them ensure you use all the best tools. to respond back and say, “This Explain the “why” – let them know what’s JEARY: Have real clarity on letis what I was thinking on the coming and what to expect. ting people know at the beginagenda. Can you give me a couple ning what the objectives are. Let of other pieces that are importState management – achieve the proper people know the time frame of ant to you?” If they send back an mental state of the participants. your Web meeting. Sometimes email, then they’re engaged, and it’s good to even send a couple you have some distinctions of Eliminate the “unknowns” by turning them of things ahead of time and ask what’s important to them. Then into “knowns” - prepare for the “what ifs.” people to have them printed out you begin your meeting, presenso you can have multidynamtation or whatever with what’s kNow your audience so that you can speak ics going on. Then it’s not just important to them. It’s just like to them in the ways that are valuable. watching the screen. You can magic. say, “Well, that printout that you I also always suggest that you Tailor the presentation throughout and have there? Well, why don’t you “touch them before you talk.” If adjust as needed. underline that piece or highlight you’re giving a presentation, inthat piece?” Then when you hang vite people to come early and beup, for them it’s not like, “Oh, everything JEARY: The IPRESENT model is an gin talking with them, getting your voice disappeared.” They literally have stuff in acronym for the eight essentials for warmed up, and getting feedback and their hand and they have written actions, delivering the very best message you can insight so you can make adjustments. It and it just becomes much stronger. deliver each and every time. Four of them gives you a chance to create champions They will pay more attention and take are based on delivery and four are based before you even begin speaking to the more action – that’s right. So, the strat- on how you really prepare. group. egy is the three Ps: Purpose, Process and Payoff. Purpose is the objectives, the FELDMAN: The first step, which FELDMAN: The next step in the model process is the agenda and the payoff is might be the most important, is to is “R”esearch and build your presenletting people know how they’re going involve your audience and keep them tation arsenal. What is an arsenal and to win. engaged? what types of things should everyone A good setup is to agree on the time have in it? on the Web, so when you have a Web JEARY: I really encourage asking quesmeeting, you say, “I was thinking we tions. So many times when you ask JEARY: The arsenals have a huge impact have about 20 minutes or so. Is that what people to get involved, you fail to set on your confidence and your ability to get you were thinking?” And they agree, and it up where it’s easy for them to have people to buy into your message. you say, “Great!” something to write down, so if you The first one is what you have in your



InsuranceNewsNet Magazine » March 2014



Large Group Sample 3-D OUTLINE Title: Opening Presentation

Date: 00/00/0000

Attendees: 100

25 min total

Objectives: Get the attendees excited about attending the conference Convince attendees that ABC is a great partner for them Educate and inform participants about the opportunities available at the conference Make participants feel that they will be better and more successful because of their attendance STEP






3 min


• Make participants feel valued

• Purpose

• Get participants excited about the conference

Discussion/ icebreaker

• Process

• Grab participant attention

• Payoff

• Get participants to believe that they will improve based on their participation in the conference • Help participants understand what is to be accomplished and why they should care


5 min

Review their expectations for the conference

• Communicate that we understand their needs • Demonstrate that I am a credible host and ABC is a credible partner

• Review the input from boomerang • “We listen and act”


5 min

Review ABC’s expectations for the conference

Educate participants and set the expectation

Review our objectives for the conference


10 min

Review the agenda

• Educate participants

Review the conference agenda, opportunities for networking, etc.

• Get participants to plan their time to accomplish their and our objectives • Keep participants excited about the conference and our investment in our partners


2 min


mind. When you watch other people – for example, newscasters, whoever is presenting – and say, “Hey, that’s something I can remember,” you peg it in your mind, so you have your mental arsenal. Then you have your physical arsenal, which might be something you carry in your briefcase or your backpack or save in your desk. This can include photos, articles, videos, emails, etc. The phone is one of three common arsenals that people forget. A lot of people think about having things on their computers or tablets, but they don’t really think about what they can

Excite and motivate them

Call to Action – get the ball in their court to take action

carry in their phone. The phone can be so rich. I have testimonials where I can go click, click, click to show or send. I have URLs and videos I can send to people. I have everything just a few clicks away. FELDMAN: I think one of the most powerful aspects of the IPRESENT model lies in the “E”xplain the “why.” It’s so simple that it can be easily overlooked. JEARY: If we want to be more influential and want people to buy into our

message, we must recognize the power of the “why.” Why are we doing the things we do? When most people are preparing, they focus on the “what.” They don’t look at the “why” and the “how.” Years ago, we created what we refer to as the 3-D Outline, which looks at the three dimensions of a presentation. Step one is to make sure that you define your objectives. You want to write down three or four core objectives that you want to accomplish no matter what type of presentation you are preparing. These objectives should use action words such

March May 2014 2013 » InsuranceNewsNet Magazine



HOW TO ACE ALL THE PRESENTATIONS OF LIFE of video free every day? Pick a subject. You want to be exceptional at facilitation? Well, go study facilitation five minutes a day for two months on the Web, and let me tell you, you’ll get pretty good.” FELDMAN: You have said that part of being a constant learner is having people watch you and give you what you call the “correction of errors.” Do you recommend that also with a group? Should people survey the audience whenever they speak to a group?

Remember, your presentation is not about being perfect; it is about “connecting with others” and delivering a sincere message. as “teach,” “encourage,” “motivate” and “inspire.” Step two is to define your audience – how many people will attend, who they are. You should mentally see whom you’re going to speak to, whether it’s one person, three people or a hundred. The next step is to plan ahead. What are the specific things that you need for the presentation? Will you have handouts, brochures, workbooks or giveaways? What types of supplies will you need, and so on? FELDMAN: What advice would you give to people who already consider themselves experts? What are things they should be working on? JEARY: Accept the fact that we all have blind spots and there are four ways to do that. One is mentors. If you have mentors who are helping you see things you don’t see, that’s powerful. Mentors help you by watching your presentations and seeing how you’re selling, communicating on the phone and doing seminars. 18

No. 2 is coaches. The difference between a coach and a mentor is a coach is usually paid and a mentor is usually giving. Both of those are great to have. I’ve had the same coach for 28 years, and it’s very beneficial to me to have that coach help me see things I haven’t seen. The third item is your trusted colleagues. They could be people you work with or friends. There are all kinds of different trusted colleagues. The last one would be resources such as books, audios and videos. Web videos are just so powerful to be able to help you uncover distinctions of what you’re not seeing. So, even if you’re exceptional, being a constant learner can be played out in those four ways. FELDMAN: The point about watching videos of great speakers is particularly good. There is such a wealth of video readily available online for free. JEARY: It’s something I tell people: “Instead of just reading books, why don’t you also just go watch five minutes’ worth

InsuranceNewsNet Magazine » March 2014

JEARY: Yes, especially if you have team members who can help you with that. I survey the audience electronically. I survey the audience verbally and ask people to give me insights. I survey people even when they first walk into the room. They walk in, and I go over and shake their hands. I encourage others to do this: “Hey, today we’re going to talk about this. Do you have any thoughts on this?” And that little survey can give you nuances of what’s important to them or what they like, and, presto, you become much stronger. FELDMAN: Who do you model yourself after? JEARY: I watch people who really have sharpened their abilities on TV. Generally, people who have been on TV for a decade or more really have honed their effectiveness of presenting. Preachers, newscasters – I’m constantly looking at people who have been around for a long time and watching the distinctions of their body language and how they set things up. That’s the answer for me: someone who’s been there, done that and keeps doing it. Remember, your presentation is not about being perfect; it is about “connecting with others” and delivering a sincere message. This task is so much easier when you are the real you. Audiences want to hear from people who are genuine. I like to tell people not to model other successful presenters. Model their successful characteristics. Once those characteristics are identified, add them to your own style so that you have developed your own mold as opposed to copying someone else’s.

– Only



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March May 2014 2013 » InsuranceNewsNet Magazine



A subsidiary of Legg Mason has agreed to pay about $21 million to settle U.S. government claims that it concealed losses to investors.

When Yellen Speaks, the Markets Listen

QUOTABLE Janet Yellen

Janet Yellen presented her first testimony before Congress since taking the helm of the Federal Reserve. And when she finished, the markets rose up in applause. Yellen said she wouldn’t make any changes to the central bank’s schedule for trimming its market-friendly stimulus, while Congress agreed to advance legislation that extends borrowing.

All 10 S&P 500 sectors rose on the day of Yellen’s testifying, with most climbing more than 1 percent. The benchmark index was 1.4 percent away from its record closing high,

recovering much of its recent weakness, which took the index down as much as 6 percent. Yellen, who has just stepped into the Fed’s top job, emphasized continuity in the central bank’s policy strategy of cutting asset purchases by $10 billion a month, saying she strongly supports the approach of her predecessor, Ben Bernanke. In her first public comments as Fed chief, Yellen also said that while the U.S. unemployment rate has fallen recently, labor market conditions needed to improve further. The Fed’s policies have been credited with driving the market’s steep gains in 2013, and those accommodative measures are expected to keep a floor under stock prices for as long as they continue. However, had the pace of ending the program been slowed, it may have raised concerns that the economy was still not strong enough to grow on its own.


The U.S. economy said good-bye to 2013 with a solid 3.2 percent increase in the fourth quarter, setting the stage for significantly stronger growth in 2014. The estimate of gross domestic product in the final months of 2013 “cements the conclusion that U.S. economic growth has finally accelerated from fair to good, and provides evidence that this acceleration will continue,’’ said Doug Handler, chief U.S. economist for IHS Global Insight. Overall, growth was slower than the 4.1 percent posted in the third quarter, but the second half of 2013 was the strongest six-month stretch since late 2011 through early 2012. But unlike the third quarter, when growth was driven by a huge buildup of inventories for products no one had yet bought, this quarter had much better growth in consumer spending, which makes up 70 percent of the economy. But economists warn there may be a DID YOU




slowdown in the early part of the year. One reason is the bad weather that has cut into housing and other construction.


Alan Greenspan hasn’t sat in the Fed chairman’s seat since 2006, but that hasn’t stopped him from worrying about the state of the economy. His most recent concern? Greenspan told CNBC he’s worried about the spread between 30-year and five-year Treasury notes. “That is the measure of the degree of long-term, very long-term, lack of confidence. And that spread is at the widest level in American history,” Greenspan said. The spread between the five-year and 30year Treasurys – which measures the difference between the yields – stood at around 218 basis points. The spread became elevated during the financial crisis and in 2009 moved above 200 basis points, where it has stayed. While peaking above 300 in 2010, it remains at historically high levels.

WHEN THE FEDERAL MINIMUM WAGE first became law in 1938, it was 25 cents. Adjusted for inflation, that would be worth $4.13 today. Source: CNNMoney

InsuranceNewsNet Magazine » March 2014

I’m not sure this is the year for the long-term fiscal challenge to be dealt with. We have a little time to deal with the longer term. — Treasury Secretary Jacob Lew, on the nation’s fiscal outlook

“Typically speaking, when we’ve been over 200, this has been connected to or associated with the onset of a recession and Fed easing,” David Ader, chief Treasury strategist at CRT Capital, told CNBC. “In this situation, we’re staying over 200 even though the [Fed] easing is slowed. So this is new,” he said. Greenspan said he’s also concerned about the so-called “cyclically adjusted deficit, which is draining private savings, and in fact is a major problem.”


The jingle and glitter of the holiday shopping season was marred by news of a massive data breach affecting more than 100 million Target shoppers. But shoppers weren’t the only ones affected by the breach. U.S. banks have spent more than $153 million so far replacing 15.3 million debit and credit cards after the huge data heist, and the numbers are only growing. The Consumer Bankers Association announced the numbers, saying that as more retailers announce breaches, the price tag for banks could grow to “hundreds of millions of dollars, and possibly billions.” The trade group estimates that it costs an average of $10 for banks to replace a card.


More financial advisors are at the age where they can claim a senior discount. A Cerulli Associates report found that 43 percent of financial advisors are older than 55 years old, and nearly 33 percent fall between 55 and 64 years of age. What does the aging of advisors mean for the industry?

[NEWSWIRES] The industry can expect more consolidation as advisors merge or sell their businesses to larger practices. It also means new opportunities for young advisors looking to break into the field, especially as broker/dealers struggle to recruit young advisors to compensate for those approaching retirement, the report said. The Cerulli report recommended that companies encourage advisor teams to recruit junior advisors and train them in such areas as estate planning or retirement products to lower attrition rates, which is key as veteran advisors leave the industry faster than they can be replenished. Financial services distribution industries are well aware that they are competing with other industries for top talent. The financial advisor profession suffered a minor bruise this week when U.S. News & World Report found that advisors ranked No. 41 out of the 100 Best Jobs in 2014, down from No. 32 last year and No. 23 in 2012, the first year the list was published. Financial advisor jobs ranked high in terms of employability, growth and work-life balance, but low in terms of stress levels.


The wave of baby boomers entering their retirement years has forced one financial services firm to hire its first gerontologist. Bank of America Merrill Lynch announced that its newly appointed director of gerontology will help its 15,000 advisors better assist their aging clients through training and educational seminars. And, having worked as an advisor herself, Cynthia Hutchins knows what advisors and their clients are up against. Many Americans not only have to plan for longer retirements than their parents or grandparents had, but they – and their financial advisors – have many additional costs to consider, Hutchins said. Do they want to retire to a warmer climate or stay in the home they reside in now? What do they want to do in retirement? “From a financial planning aspect, if I want to travel the world, then there’s a cost for that. That needs to be planned for,” Hutchins said. And clients’ concerns are

67% Would Buy Insurance From Banks or Online Here’s another sign that the traditional means of purchasing insurance could be history. A vast majority of insurance customers, 67 percent, are open to the idea of purchasing insurance products from companies other than insurers, according to a multinational survey by Accenture, a management consulting company. Of those surveyed, 23 percent said they would consider buying from online outlets such as Google and Amazon. “Overall, there is a significant switching risk, and we estimate that up to $400 billion in insurance premiums could change hands within the insurance industry over the next 12 months,” said Michael Lyman, global managing director for management consulting in Accenture’s insurance industry practice. He said that the switching risk is especially likely in emerging countries such as China and Brazil. On the multiple choice survey, 43 percent of participants said they would consider buying insurance from banks, 23 percent from online service providers, 20 percent from home service providers such as telecommunication or home security companies, 14 percent from retailers and 12 percent from car dealers, Accenture said. Forty percent of those surveyed said they likely would switch auto or home insurers over the next year; 25 percent said they would likely cancel life insurance contracts; and 35 percent said they likely would take out a new contract with a new provider in the next 12 months. The top two reasons consumers would switch, Accenture said, are lower prices, cited by 87 percent, and more personalized service, cited by 80 percent; 41 percent said they would pay more for personalized advice when buying insurance. not limited to just traditional retirement issues, she says. Some clients may have elderly parents who need to be cared for. They may have adult children and grandchildren who need assistance too. Many Americans also have to consider what kind of inheritance they want to leave to their descendants – assets or life experiences? More and more clients are looking to their financial advisors to help them balance these many needs and goals, Hutchins said. If gerontologist is the newest member of the financial advising team, what is next? Real estate agent? Child psychologist? How about an employment counselor to help find that 20-something boomerang kid find a job and move out of mom’s basement?


If you’re looking to serve mass affluent clients, then you might want to forget about looking for them in Michigan or

Arkansas and start seeking them out in North Dakota and New Hampshire. That’s according to a 2013 survey of where the nation’s millionaires are located. The traditional states harboring millionaires – Maryland, New Jersey, Massachusetts and Connecticut – once again top the 2013 research for millionaire household densities. But recent energy booms have created new millionaires in Texas, North Dakota and Pennsylvania. Maine, Maryland, New Hampshire, North Dakota and Nebraska recorded some of the highest percentage increases in their millionaire ratios in 2013 compared with 2012, the research found. Conversely, Arizona, Florida, Idaho, Nevada and Michigan recorded some of the highest percentage decreases in their millionaire ratios over the same period. There were approximately 53,000 more millionaire households in the U.S. in 2013 than in 2012, according to the research. There are an estimated 6.15 million millionaire households in the country, the research found.

March 2014 » InsuranceNewsNet Magazine



TAX SURPRISE Top Earners Are in for a Fright When They Pop for This Year’s Taxes By Steven A. Morelli


InsuranceNewsNet Magazine » March 2014

ALSO TAX PREP: Even though tax preparation does not yield much revenue in itself, it is a way for advisors to offer full service and it shows advisors where clients could use help with their financial plan. PAGE 29 SURTAX IMPACT: The 3.8% surtax will hit estates and trusts harder than individuals. PAGE 52 VAs TO THE RESCUE?: Variable annuities offer a way to help finances thrive despite higher taxes. PAGE 54

March 2014 Âť InsuranceNewsNet Magazine





dvisors have a good news/ bad news proposition for wealthy clients this tax season. The bad news is mostly for the clients. The good news is that tax season brings planning opportunities for financial advisors and insurance agents. The bad news is that between new taxes, old taxes with new increases and existing taxes, the 2013 bite will gobble up about half the income of high-earning clients in some states. The good news, besides the business for advisors and agents, is that the chomp won’t get worse when this year’s taxes are prepared next year. Here are some of the teeth that make up the 2013 tax bite: » HIGHER TOP TAX RATE: 39.6 percent bracket for incomes over $400,000 for singles and $450,000 for married couples.

$100,000 earner is married to a $151,000 earner, then – blammo! – here comes the Medicare surtax on earned income over $250,000. Well, maybe “blammo” would be overstating it, because it is a 0.9 percent tax on top of the 1.45 percent they would already be paying in Medicare payroll tax. It is stealthy, however, because the surtax is not deducted from paychecks. Lynne Stebbins said she is expecting some couples to be surprised by that tax this year. Stebbins, JD, AEP, CLU, CHFC, is a principal and senior legal consultant at Mercer H&B Executive Benefits & Private Client Life in New York City. “I think a lot of people haven’t recognized what the actual impact of this is going to be,” Stebbins said. “There’s no withholding for the extra 0.9 percent for the Medicare surtax.” That is one reason advisors can expect many startled clients this year. “Probably after this year, then they’ll figure it

» CAPITAL GAINS: The increase in rate from 15 percent to 20 percent on qualified dividends and capital gains for singles earning more than $400,000 and couples over $450,000. That increases to 23.8 percent if the net investment income tax applies. » MEDICARE SURTAX: In case the $200,000/$250,000 crowd didn’t feel picked on enough, they get another 0.9 percent tax on their income. Clients might be confused about this in light of the 3.8 percent tax on investment income, but this tax is on earned income. It all adds up to a whopping tax bill this year for wealthy clients, even for some who didn’t necessarily think of themselves as wealthy. The headline has been that new taxes are aimed at people making more than $200,000, but if a 24

Don’t Forget the AMT

Another tax trap is the alternative minimum tax (AMT), which snares more people each year because, until recently, it was not indexed to inflation. Over the years, the AMT lowered the standard on those considered wealthy but not paying their share of taxes because of write-offs. Stebbins said this is a particular problem in high-tax states, such as New York, because high deductions can trigger the tax. “Usually you deduct state income and property taxes, but all this gets added

The 2013 bite will gobble up about half the income of high-earning clients in some states.

» DEDUCTION PHASEOUT: Itemized deduction and personal exemption will begin to phase out on single-filers earning more than $250,000 and $300,000 for marrieds filing jointly. » NET INVESTMENT INCOME TAX: The 3.8 percent additional tax is on passive investment income for $200,000/$250,000 filers.

taxed. Now it is, but it is also hitting the $250,000 ordinary household.” Neither the Medicare surtax nor net investment income tax threshold is indexed for inflation, so as incomes rise, more tax will be collected. The bottom line is that some doingOK-but-not-Trump-style people will be paying more in taxes.

out and do the extra withholding next year,” Stebbins said. “But I think that’s going to be a rude awakening for a lot of people when they have their taxes done.” If that couple has investments that are “unearning” income, then maybe that’s the blammo. That income will be taxed at 3.8 percent. But, of course, taxes being taxes, it gets complicated. “There are different categories of income that get you to the net investment threshold,” Stebbins said. “It’s not the gross amount of investment; it’s a net number. So you get to match capital gains with capital losses. But when you’re a married couple earning more than $250,000 a year and you have net investment earnings, then that’s what gets hit with the 3.8 percent tax. I think this was probably aimed at the hedge fund partners, because it was very clear that some hedge fund income is a carried interest that wasn’t getting

InsuranceNewsNet Magazine » March 2014

back in for the AMT, and you can count only one mortgage and few other standard deductions,” Stebbins said. “So if you live in a high-tax state, the alternative minimum tax is still going to be a problem even though Congress did fix the indexing of the deductible amount.” That fix was in the American Taxpayer Relief Act (ATRA) of 2012, but even though the indexing pulled many people out of the firing line, millions will be hit by the tax. According to the Tax Policy Center, the number will grow from about 3.9 million people in 2013 to 6 million in 2023 because of growth in income. That is far lower than the 50 million people that the center estimated would have had to pay the tax in 2023, but that might be small consolation for those shelling out the extra tax. The tax is not a surprise to the upper-middle echelon of taxpayers, but a stinging “welcome”

THE TAX SURPRISE for debutants in the upper-middle class. When they meet certain conditions, either because of income or high deductions (such as multiple dependents or unexercised stock options), those taxpayers will have to figure their tax both ways and pay the higher one. “There will still be plenty of people who in my opinion shouldn’t get hit with the AMT but do,” Stebbins said. “It was really to get at people who were doing a lot of tax shelters in the ’80s, when there were so many tax preference items that people were paying no tax. Since then, all those tax-shelter loopholes have been legislated out of the code, but they let the AMT stand.” It might relieve those folks to know that although they have to jump through these hoops and cut a larger check, wealthy people avoid the 28 percent AMT bracket by playing in the elite 33 to 39.6 percent league. People playing in the big leagues will start seeing the bigger bite this year, said Barry Picker, CPA, CFP, and a partner in the Picker & Auerbach accounting firm. “Over the years, rates were fairly constant and people’s income was fairly constant,” Picker said. “Maybe they paid $20,000 a quarter in estimated taxes and that was increased to $22,500 last year. But with everything that’s happened, maybe they will end up having to pay another $5,000 to cover a shortfall and end up with a new rate of $30,000 this year.” Good planning will prevent almost all surprises, but some factors can sneak in. For example, with equities’ meteoric rise in value last year and dividends coupled with the capital gains tax boost from 15 percent up to 20 percent, that can pile up to a steep new bill. “All of a sudden you whack them with this new number and that’s when they’re going to say, ‘Whoa, what happened here?’” Picker said. “But to turn around and say ‘You can get a half a percent a year in municipal bonds’ is not cost-effective. They’re obviously better off getting a higher return and paying taxes on it rather than getting nothing on their money.”


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When Tax Avoidance Ends Up Costing More

But some advisors are in fact suggesting putting money into municipal bonds March 2014 » InsuranceNewsNet Magazine




Sell them life insurance that generates cash value and, it’s amazing, the problem vanishes. because of another reason – they are tax-exempt. This tactic has been touted by some as a way to get income under the $200,000/$250,000 line that triggers new taxes. But besides the low return on the money, Dan McGrath said that strategy will come back to bite people in another way. McGrath is vice president of Jester Financial Technology and co-author of What You Don’t Know About Retirement Will Hurt You. “While you are staring at the Affordable Care Act, you are not paying attention to Medicare,” McGrath said. “Muni bonds actually count in the eyes of Medicare. So all that dividend that you created

that you thought was tax-free is actually going to be used to increase your Medicare premiums, and your Medicare premiums are deducted automatically from your Social Security check.” This is not something down the road. McGrath said some seniors are getting hit with this now because of municipal bonds and what he characterized as misguided investment strategies. “There are people paying top dollar for their Medicare and not receiving Social Security checks,” McGrath said. “They are actually having to write the government a check each month. And then add the little cherry on top – they

Updated for 2014

get to pay tax on the income they’ve never received because it was deducted directly for the Medicare premiums.” His solution might delight most InsuranceNewsNet readers: life insurance. “Sell them life insurance that generates cash value and, it’s amazing, the problem vanishes,” McGrath said. “What I’m starting to see small companies do is buy defined benefit plans that are wrapped in health insurance or in life insurance to benefit employees. They take the income out of the equation and just buy life insurance policies for them that build cash value.” McGrath said he was a financial advisor who got life insurance religion when he saw his own mother struggle with health costs. Back then, he was a “buy-term-and-invest-the-difference” kind of guy. “If I met myself 10 years ago, I think I would have punched myself,” McGrath said. Now he is a big believer in insurance cash value and health-care-related riders. “With a small business owner out of

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InsuranceNewsNet Magazine » March 2014

Cincinnati, Ohio

THE TAX SURPRISE Manchester, N.H., I’m working with, he and his wife are making over $250,000 and they know they are going to be paying big taxes,” McGrath explained. “So, he is taking less income and he’s putting the surplus in a life insurance policy as his defined-benefit plan. He is putting a long-term care rider or critical care rider on it.” So, not only is the business owner avoiding the tax triggers, he is also covering the medical care costs that slam so many seniors. On top of that, he has the inherent insurance and cash value in the policy. “Once again, the solution to everything is going to end up being life insurance,” McGrath said, also warning of the potential health-cost impact from common financial advice. “Just do what the financial planners tell you to do and everything should be all set. You will lose everything you have.”

Planning with Insurance

Stebbins also advocates insurance solutions but in a different way.


A charitable trust is especially helpful if a client has a large asset that would be subject to a large capital gains tax. “We’ve seen an upsurge in the use of private placement life insurance and annuities,” she said, “because if you have 10 large holdings, you can monetize those, dump them into a private placement life insurance contract and not have to worry about the net investment income on any of those earnings.” Private placement insurance contracts are variable universal life vehicles that are custom-made for the owner in collaboration with the insurance company. They are typically single-paying contracts done for income tax purposes, so the object is to fund them significantly to protect earnings. Stebbins said the

strategy is likely to become more popular as taxes grow, particularly in hightax states. It is a strategy that also works with annuity distribution, some of which is added to a net investment earnings calculation. “Whether it’s private placement or just a shelf product that they single pay just to get out from paying the extra 3.8 percent tax on those earnings, they can be very helpful,” Stebbins said. “It’s especially true if those new funds were going to be earmarked for the next generation anyway. Why not wrap it in with life insurance contracts, slap it in the

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March 2014 » InsuranceNewsNet Magazine



See page 52 for more Tax Issue coverage


irrevocable trust, have less income tax during your lifetime, have a tax-free payment to the trust and then ultimately to the beneficiaries?” Another strategy likely to become more popular would involve charitable remainder trusts and charitable lead trusts, because they not only support a favorite charity, but they also divert taxable income. A charitable trust is especially helpful if a client has a large asset that would be subject to a large capital gains tax. The tax-exempt charity can sell the asset and not be liable for the capital gains tax. Then it can pay the client an income for life.

Using Insurance’s Tax Benefit

Then there are insurance products themselves, with their tax-favored status. If clients are worried about gains boosting their taxable income, many varieties of products offer the buildup under the insurance umbrella: universal life insurance, indexed annuities, variable annuities, for example.

Doug Wolff is president of Security Benefit Life, which is marketing lowcost variable annuities as a way for clients to get equity excitement in insurance tax-protected security. “The challenge for advisors right now is to get clients more income to cover a higher tax burden,” Wolff said. “They either have to stretch for extra risk for return or use traditional methods of harvesting tax losses.” Older clients who have a relatively fixed amount of savings are not necessarily wanting to bet on the unpredictable stock market, but Wolff suggested that the second option is also not sustainable. “We don’t think tax harvesting is all that scalable,” Wolff said, “and many people don’t have a lot of risk tolerance after the two historic sell-offs that we had recently.” A VA can have the “look, smell and feel” of mutual funds without the annual 1099, Wolff said, who added that his company’s VAs are low in cost because they are stripped of bells and whistles

such as riders that other companies are offering. Others argue that the riders, such as long-term care and others, make annuities and insurance an even more essential product because, as McGrath said, seniors are seeing their life savings being drained by health care costs. Whatever the strategy or product, taxpayers across the spectrum are grappling with multiple challenges at tax time. This year that is particularly true at the upper end of the scale where new taxes introduce themselves. “It is up to advisors,” Wolff said, “to help people fight a rising tide of income tax.” Steven A. Morelli is editorin-chief for InsuranceNewsNet. He has more than 30 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@


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Tax Planning Unlocks Door to Other Business T  ax preparation and planning are getting more attention as a way for insurance and financial professionals to build business, but they are also key to helping clients. By Steven A. Morelli


llan Turoff, CFP, CPA and board member of the Society of Financial Services Professionals, said the tax return is the key to understanding clients. In fact, tax planning grew into other businesses because of problems and questions that clients’ tax returns would uncover. “We morphed from tax planning to what to do about college, what about retirement, what about this, what about that, and I found myself doing more and more of that and having more fun,” Turoff said. “For the most part, I do what I call comprehensive planning.” He does tax preparation now when people ask, but he finds that it helps generate other business. “With the taxes, you also see the income, the interest and the dividends, and see where it's coming from,” Turoff said. “And very often, I will end up getting clients. For example, I'll see that every year, they have a $3,000 capital loss. Then I ask, ‘Are you doing it on your own, or where are you getting your advice?’” The central question that moved Turoff from tax prep to financial planning was the plaintive “what can I do about this for next year?” “There's always stuff you can do, especially if you have enough time,” Turoff said. “Some things take planning, like if you have a 403(b) or you have a 401(k). But you can't wake up in December and say, ‘Gee, I want to put another $5,000 into my 401(k).’ The further ahead you plan, the better it is for everything. It's just the way it is.” But the opposite reaction is also a golden opportunity. Clients might be

happy when Turoff tells them they are getting a refund. “They'll say, ‘Yeah, I like getting a big check,’ ” he said. “Well, you're giving Uncle Sam the tax-free dollars. You could have put away a couple of hundred dollars a month into an IRA or a mutual fund or something.” An essential tax time message that Turoff conveys is that tax time isn’t just in March and April. “It's not something you should really do once a year,” Turoff said. “It's something that should be reviewed in September. The broker/dealer that I work with gives us a quarterly update on Schedule D, which is very nice. So, I can just pull out a September statement and say, ‘OK, your gains or losses are this.’ Should we do some tax equalization? If you've got big gains and we have to have loss carryover, you can take the big gains this year and not pay any taxes. If you've taken some losses, maybe you have some gains you might want to harvest.” Tax planning also blends into retirement account and Social Security planning. “They build up these wonderful 401(k)s, IRAs and then when it starts to come

out, they will pay on it,” Turoff said. “Uncle Sam knows he's going to be around forever and as this stuff grows and grows and grows, he's going to get the same or a higher percentage of the bigger nut.” So that’s when careful blending has to occur. “When do you take your IRA and when do you draw Social Security?” Turoff said these are questions he works out with clients. “There are a bunch of factors. You have to look at their family history, what the longevity is.” Longevity was an interesting factor in a recent case of his. “I have a client who is 75 and in good physical shape,” Turoff said. “I reviewed his insurance and told him I could do much better for the same amount of money by switching to a different policy.” Turoff got a quote for a policy with a larger death benefit along with a longterm care rider and a home health care rider built in at no extra cost and presented it to the client. “He looked at it and said, ‘This is only good 'til 95.’ I said, what do you mean? ‘Well, my mother is 106 and my father lived to 96 or 97. I don't want a policy that's only going to last 20 years.’”

March 2014 » InsuranceNewsNet Magazine



Advisors prepare for “the great transition decade”

Big Changes in Branding for Three Major Carriers


Branding was the big story for some of the major players in the industry, with one shedding its old name, another shortening its name and a third revitalizing its name. ING U.S. is rebranding itself as Voya Financial, effective April 7. Along with that change, ING U.S. Investment Management will rebrand to Voya Investment Management in May. Then, on Sept. 1, all other ING U.S. businesses will begin using the Voya Financial brand and all remaining ING U.S. legal entities that currently have names incorporating the ING brand will change their names to reflect the Voya brand. The name change marks a turning point in ING’s history. In 2009, the firm’s Dutch parent, ING Group N.V., announced it was going to divest certain global businesses, including ING U.S. The spinoff was part of a debt repayment plan stemming from the Dutch government’s bailout of the parent company during the recession. Meanwhile, AXA Equitable is taking an ax to its name, trimming it to Axa so it will conform in the United States with the French-based company’s brand elsewhere. The name change will be supported with what is to be a big increase in marketing spending, to an estimated $85 million. The most the company has spent in a recent year was $9.8 million in 2008. American International Group is best known as AIG. Company officials announced that AIG would rebrand its American General agent force as AIG Financial Network, extending its name to another line of business.


It seems as if life carriers spent the past few years courting female consumers. Can it be that carriers are ready to move on and begin wooing another segment of the population? Two major carriers are turning their attention to the Hispanic population with the recent release of competing studies. When Prudential Financial unleashed its 2014 Hispanic-American Financial Experience Study, MassMutual saw fit to send out its own media release announcing what its year-old survey – the State of the American Family Study – found regarding Hispanics. In announcing its survey results, Prudential noted that Hispanic Americans face “distinct challenges” to achieving long-term financial goals. DID YOU




MassMutual, meanwhile, announced that its study results underscored the importance of education and planning for Hispanic-Americans looking to attain the American dream. Both surveys were based on results from households earning more than $25,000 annually and came to similar conclusions. Hispanic-Americans prefer paying off debt before turning their attention to traditional investing, the surveys found. Educating children is of paramount importance to Hispanics; children, in effect, are their investment, the surveys also found.


Carriers are not just pursuing female and ethnic customers. They are also seeking out advisors who reflect those markets. New York Life announced it will hire more than 3,600 financial representatives

FIFTY PERCENT OF U.S. HOUSEHOLDS (58 MILLION) say they need more life insurance. Source: LIMRA

InsuranceNewsNet Magazine » March 2014


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in 2014, with a focus on women advisors and advisors dedicated to serving African-American, Chinese, Hispanic, Korean, Vietnamese and South Asian markets. Last year, 62 percent of the company’s new hires in the field were women or “individuals who represent the cultural markets,” the company said in a statement. Guardian Life, which ended the year with a strong push to recruit women financial advisors, announced it hired 892 new financial representatives in 2013. It is the fourth consecutive year the company has exceeded its recruitment goal. Women accounted for almost a quarter of recruits during the fourth quarter, the company said.


Minnesota Life, the life insurance unit of Securian Financial Services, has joined the list of life insurers making it possible for policyholders to enroll for term life using their mobile devices. MyLife Select offers up to $250,000 of coverage for up to 20 years, with level premiums. Signing up via mobile devices complements direct mail and online marketing services offered by the company, Securian said. Mobile sales channels represent new opportunities for the life insurance industry, which is looking for new ways to penetrate the consumer marketplace. Insurance companies are quickly adopting the mobile channel to make it easier for consumers to buy simple life insurance coverage using smartphones and tablets. Not only are mobile devices ubiquitous and quickly supplanting desktop computers, but their form factors have forced developers and distribution technology to offer uncluttered, simple and elegant interfaces.

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For Agent/Broker-Dealer Use Only. Not for Use With Consumers. March 2014 » InsuranceNewsNet Magazine



Unilateral ‘One-Way’ Buy-Sell Agreements for Family Businesses H  ow to provide the solution to guarantee business continuation for the owner’s adult children while providing income security for the surviving spouse. By Russell E. Towers


inancial professionals often encounter successful family-owned C corporations, S corporations or limited liability corporations where the founder of the business owns 100 percent of the shares. Typically, there are one or two members of the family’s younger generation whom the sole shareholder would like to see take over the business at some future time in order to keep the business as an ongoing enterprise when the sole shareholder dies. In addition, the owner wants to make sure that a surviving spouse has enough income to keep “the lifestyle to which he or she has become accustomed.” Are there planning concepts that could be put in place now that would essentially guarantee the results described above? And could business dollars be used to finance such a plan? The answer is yes! A unilateral “one-way” buy-sell agreement coupled with well-designed estate-planning documents can provide the solution to guarantee business continuation for the adult children while providing income security for the surviving spouse. A “one-way” buy-sell agreement works in tandem to guarantee both business continuity and spousal income security. A unilateral agreement between the sole shareholder and the younger family members (who are usually adult children working in the business) is drafted by your client’s law firm. These adult children will buy the shares from the founder’s estate for a specified price when the founder dies. These younger family members are the ones whom the founder wishes to take over the business. They will become equal owners and equal beneficiaries of 32

a life insurance policy on the life of the sole shareholder. The policy will have a face amount equal to the buyout price specified in the buy-sell agreement. The business can advance the premium in the form of Section 162 bonuses to the younger family members. If desired, a “trusteed” unilateral agreement also may be used. In this case, a third-party trustee may be designated as the fiduciary-administrator of the agreement both in life and after death. The sole shareholder also executes the usual basic estate-planning documents (i.e., pour-over will and revocable trust). The trust can provide the surviving spouse with unlimited access to all the income and principal after the business owner’s death. Here’s a simple fact pattern: Assume A (age 60) owns an S corp with a value of $3 million as part of a total gross estate of $5 million. A is married to B, who will need significant income to support an accustomed lifestyle. C (age 34) and D (age 32) are A and B’s children and have worked in the business for many years.

Case design and life insurance solution

A executes a unilateral buy-sell agreement with C and D in which C and D

InsuranceNewsNet Magazine » March 2014

agree to buy A’s shares of the S corp for $3 million from A’s estate at death. C and D are listed as equal owners and equal beneficiaries of a $3 million life insurance policy on A’s life from a competitive carrier. The S corp advances tax-deductible Section 162 bonuses to C and D to pay the premium. C and D must report the bonuses as taxable earned income, which is also subject to FICA taxes. A also executes the usual pour-over will and revocable trust for the surviving spouse and family to provide portfolio asset management after A’s death. At A’s death, C and D receive $3 million of income-tax-free proceeds, which they use to buy equal shares of the S corp from A’s estate. A’s estate now has $3 million in cash to distribute to the revocable trust via A’s pour-over will. This trust automatically becomes irrevocable at A’s death. The surviving spouse has unlimited access to the income and principal of the trust for life to satisfy lifestyle needs. Are there any other ways to fund a unilateral buy-sell plan? Often, business owner clients believe the annual premium for a permanent life insurance policy is more expensive than what they thought would be needed to fund the plan adequately. However, the real question is, what will it cost if certain

UNILATERAL “ONE-WAY” BUY-SELL AGREEMENTS FOR FAMILY BUSINESSES alternative funding methods are chosen instead? Here is a summary of the most common alternative buy-sell funding methods and the disadvantages of each when compared to the advantages of life insurance funding:

needs. Plus, the annual interest, dividends or capital gains on the fund are subject to income taxes. These tax and timing hurdles make it difficult to accumulate an adequate “sinking fund.”

» Personal funds of the buyers (i.e., the adult children): Most business owners and key employees who may take over the business do not keep large sums of personal liquid assets easily accessible. They may have their personal funds available as potential paid-in capital or loans to the business in an emergency, or they may simply wish to keep funds altogether separate from the business for their personal retirement needs.

» Funds borrowed from a financial institution: The loss of the majority shareholder may impair the creditworthiness of the business and place a financial strain on the surviving family members who will become shareholders. Interest costs, in addition to loan principal payments, may be excessive. These future loan payments will have to come from the future operating revenue of the business and may seriously hinder the firm’s economic viability in tight economic times.

» Sinking fund in the business: Such a fund will be inadequate if the majority shareholder parent dies prematurely or the timing of the future buyout is uncertain. And so-called business-owned “sinking funds” have a way of being depleted over time due to economic downturns and other emergency business

» Installment payments made by the buyers to the deceased’s estate: The new shareholders (i.e., adult children) may find the principal and interest payments on the installment note to their deceased parent’s estate to be too burdensome. Most if not all of these installment payments would be paid to the


spouse of the deceased majority shareholder and may create an extended operating cash flow burden on the business. Life insurance owned by the buyers (i.e. , adult children) to pre-fund the purchase of the shares from the majority owner’s estate offers the following advantages: An actuarially leveraged and contractually guaranteed death benefit is available no matter when the majority shareholder dies; the death benefit is income-tax-free as a death benefit of life insurance under IRC Section 101; cash values of a permanent cash accumulation type of policy can be withdrawn tax-free as a down payment for a lifetime buyout due to the majority shareholder’s retirement or disability; and the financial cost of the annual premium out to life expectancy is the lowest lump-sum present value cost to fund the buy-sell plan. Russell E. Towers, JD, CLU, ChFC, is vice president, business and estate planning, with Brokers’ Service Marketing Group. Russ may be contacted at

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Guaranteed Universal Life: The Wolf in Sheep’s Clothing L  ack of flexibility and the low interest rates in guaranteed policies could put clients and advisors back in the situation that drove them toward the policy in the first place. By Josh O’Gara


ne of the largest benefactors of the “flight to safety” after the crash of 2008 was the guaranteed universal life insurance policy. Although it was introduced in the 1990s as an alternative to expensive whole life and risky variable life, the product didn’t truly catch on until the 2000s, when interest rates began falling and people sought the certainty of the inherent underlying guarantee. The financial crisis added fuel to the fire, and, according to a LIMRA study, guaranteed death benefit universal life (GDBUL) made up more than 53 percent of all universal life sales in the United States. Many insurance companies experienced a boom of single premiums and 1035 exchanges as clients and advisors exchanged old, underperforming cash value policies and leveraged the money into a guaranteed UL policy that provided multiples of the original death benefit as well as a guaranteed interest rate. Even if there was no money to fund a guaranteed policy upfront, many people came to view guaranteed UL as akin to “lifetime term” that could be purchased at a fraction of the cost of a traditional whole life or universal life policy. At the beginning of the GDBUL sales surge, although the guaranteed interest rates were lower than assumed crediting rate on insurance companies’ general portfolios, they were still in the range of 4-5 percent and the assumed illustrated rates were running at 6-7 percent. This meant that early adopters of GDBUL policies benefited from a relatively high guaranteed interest rate. However, as 34

the Federal Reserve continued to reduce interest rates after 2005, the crediting rate on GDBUL dropped as well. Finally, the Fed essentially reduced its interest rate to zero at the end of 2008. As is typically the case, insurance company crediting rates lagged the decrease in the Fed rate. However, the fact that rates have remained at zero since 2009 has led many carriers to decrease rates all the way to the current 2 percent level. The low interest rate environment has affected not only guaranteed crediting rates. Many carriers are matching their current crediting rate to the guaranteed rate on their policies, the only difference being the maximum insurance charges. A couple of carriers have even gone so far as to completely eliminate a current crediting rate from their illustrations, and they now show only guarantees.

InsuranceNewsNet Magazine » March 2014

Conceptually, it would seem that the guaranteed policy would leave the client in a safe position. As long as clients pay the premium on time, they can rest assured that their policy will remain in force and that their beneficiaries will receive the death benefit. This added security is enhanced by the fact that many clients who purchased variable policies and non-guaranteed UL or whole life policies with a term blend had to increase their premiums (sometimes significantly) to keep their policies in force. The “set it and forget it” nature of GDBUL has mass appeal to both clients and advisors in such an uncertain environment. Unfortunately, the perception of safety that the GDBUL provides, in all but a very select number of cases, is actually putting the client in a very precarious position.

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The main culprit of the unforeseen risk is exactly why GDBUL originally attracted such mass appeal, and that is interest rate volatility. Clients need to be fully informed of these risks so they can make a sound decision regarding which type of product to select. There are four main scenarios where GDBUL could end up negatively affecting clients.

1) Late Premium Payments

Although GDBUL policies are still considered to be “flexible premium” policies, the timing of premium payments can have a significant impact on the guarantees in the policy. Technically speaking, clients can vary their premium payments, and as long as there is enough cash value in the policy, it will remain in force. However, because the guarantee in the policy is typically a “secondary” guarantee, the insurance carrier can lapse the guarantee if the minimum premium is not paid on time, regardless of the cash value. Because of this lack of flexibility, after a typical grace period of 30 days, if the minimum guarantee premium is not paid, the guarantee can lapse and the client must pay a “catch-up” premium to restore the guarantee. This can be especially important for older clients who may have trouble remembering to pay the premium on time – and this could jeopardize their guarantee at the time when it’s needed most. Another area where this could have a significant impact is in trust-held policies where gifts to the trust may not be made in time to pay the premium. For trustees with a fiduciary responsibility, the lapse of the guarantee could expose them to liability in the future.

2) Tiered Premium Designs

One popular design for GDBUL policies was to tier the premiums. Many advisors used this design so they could save their clients money on premium payments. Rather than paying a level premium for a lifetime guarantee, the idea was to pay a premium to guarantee the policy for a certain number of years (e.g., to life expectancy) and then, if the client was still alive at that point, they would pay a catch-up premium for the premiums they 36

had not paid over the years. Unfortunately, it’s largely unknown that the catch-up premiums sometimes were based on non-guaranteed assumptions. Therefore, the premium needed to guarantee the policy may be significantly higher once the end of the guaranteed period was reached. Additionally, even if the catch-up premium was guaranteed, at the time the catch-up premium is due (typically 20 or more years from the date of issue), there is no notification given from the insurance company in a majority of cases. This can result in a lapse of the guarantee, and the whole policy will often lapse.

3) Lagging Crediting Rates

Similar to the way that crediting rates from the insurance companies lagged the decrease in market interest rates, the recovery in crediting rates also will lag the market rates. This means that it will take years of rising interest rates before those higher rates are passed on to the clients who purchased GDBUL policies. This is especially important for polices that were sold with a large spread between the guaranteed rate and the assumed crediting rate. The closer a policy gets to the guaranteed rate in a GDBUL policy, the less likely it is that there will be cash value in the account. Again, it’s very important to recognize this point because obviously the less cash value there is in a policy, the more likely it is that a client will lose coverage if premiums are not paid on time.

4) Internal Charges

One of the largest factors affecting the performance of an insurance policy over the long term is the internal charges within the policy. As the policy ages and the clients get older, the insurance charges within the policy typically increase. Although GDBUL policies do have guaranteed maximum charges that the company can levy, those are typically much higher than the charges being shown at the time the policy is sold. If maintaining the policy becomes prohibitively expensive assuming current insurance charges, then the company can increase those charges. There are two ways in which policies can become too expensive for the insurance company to maintain. The first

InsuranceNewsNet Magazine » March 2014

way is if the company experiences higher-than-expected mortality. The second way is if the company experiences lower than expected returns on its general account. With insurance companies experiencing very poor performance due to the low-interest-rate environment, it becomes more likely that they may begin to raise the in-policy charges. This is another situation in which the cash value account performance can be dragged down, making the policy more likely to lapse due to missed premiums. As the saying goes, perception is often not the reality. In the case of no-lapse guarantee universal life, this is true in many instances. Because so many advisors and clients experienced decreasing crediting rates on their permanent life insurance policies throughout the last couple of decades, GDBUL came to be perceived as a “safe” alternative. However, given the fact that interest rates are at historically low levels, it is likely that we will see increasing rates in the long term. Since permanent life insurance is typically intended to be a product purchased with a time horizon many years into the future, it makes sense to make decisions based on long-term projections. Essentially with GDBUL, clients are locking in these historically low interest rates and paying a comparatively high premium to do so. Although there are some situations in which GDBUL may be the best alternative for a client, other options should be explored so that a client is fully informed. Purchasing a product that is priced using current interest rates projected over the next 20 to 30 years is certainly a risky proposition and one that many are ignoring in return for the comfort of a guarantee. The lack of flexibility and the low interest rates in GDBUL policies could put clients and advisors back in the tenuous situation that drove them toward the policy in the first place. Josh O’Gara, CLU, ChFC, CFP, is a brokerage manager at First American Insurance Underwriters, Needham, Mass. Josh may be contacted at josh.ogara@

m BOLD solutions to help Securian Financial Group, Inc. Business Owner Life-stage Design (BOLD) is our marketing system that provides www. com you can help business owners protect what they’ve built. oversecur30ian.ways Our BOLD strategies address:

ductsInsuranceare products areissued issued by Minnesota Lifeby Insurance Company Securian in all states except New York.Life In New York, products are issued by Securian Life ailability Insurance Company, aand New York authorifeatures zed insurer. Both companies are headquartered mayin Saivary nt Paul, MN. Productby availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues. Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2014 Securian Financial Group, Inc. All rights reserved. Help protect your client’s • Tax, retirement and wealth transfer decisions • Benefits to retain top executives • Potential loss of a key employee • Business succession

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ed b Insurance y products S are e issuedc by Minnesota ur Lifei Insurance an Company L in all i states f except e New York. In New York, products are issued by Securian Life fea Insurance tu Company, re a New s York authorized m insurer. ay Both companies va are headquartered ry in b Sainty 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 ©2014 Securian Financial Group, Inc. All rights reserved.

l i c . T h i s m a te r i a l m For financial ay professional use only. Not for use with the public. This material may F80494-5 2-2014 DOFU 12-2013 o th e g e n e r a l p u bnot lbe ireproduced c . in any form where it would be accessible to the general public. A04731-1213

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Interest in SPIAs Grew in 2013


YEAR NO. OF PERCENT OF Advisor searches for income annuity payout inforINQUIRIES ALL INQUIRIES mation galloped ahead in 2013, rising by more than 60,293 11 2013 15 percent from the previous year. 19,411 5 2012 The numbers come from analyses of figures pro20,301 4 vided by CANNEX USA, a database that annuity 2011 advisors use to obtain payout and related policy in- Source: Data extracted from 2013, 2012 and 2011 Annual Survey Experience reports. Data formation for clients who are interested in buying a CANNEX reflect advisor and distributor searches on income annuities in the U.S. market, rounded. single premium immediate annuity (SPIA). In 2013, CANNEX recorded more than a half million (559,800) hits to the firm’s online database. The numbers are up by roughly 15.3 percent from the year before and up by 35.7 percent from 2011, the year when CANNEX first started publishing survey activity. The figures seem to correlate with the substantial increase in income annuity sales that the annuity industry saw last year. In the first nine months, those sales jumped nearly 11 percent and set a new record totaling more than $7.5 billion, according to Beacon Research. Another increase that the CANNEX report picked up is a whopping 211 percent jump in inquiries involving SPIAs with an income start date beginning sometime after the first 365 days of policy ownership. In 2013, the CANNEX system recorded nearly 60,300 such inquiries, representing nearly 10.8 percent of all surveys for the year. That is more than three times the number of such inquiries in the two previous years.


President Barack Obama’s initiative to create small-deposit workplace retirement savings plans (myRAs) with a savings bond has annuity professionals buzzing about how small deposit annuities could serve the same purpose but without creating another government program. More specifically, they are small deposit flex-premium fixed annuities. These small deposit annuities allow consumers to make very low initial and ongoing deposits – $25 to $100 or more – and to have the benefits of annuities, including tax deferral, death benefits, guaranteed payouts and more. The products have interest rate guarantees too, promoters point out. The idea that gets floated around is that an agent who is licensed with a carrier that offers such a policy could piggyback on the publicity surrounding the myRA and stir up some new business. Or maybe someone could point the administration to the existence of these products, to use instead of the myRA bonds? The problem is that insurance companies don’t want to deal with the tiny contracts. For example, of the 69 companies in The Fisher Annuity Index, only eight have annuities that would accept monthly payments of $100 or less. 38


Changes are afoot in the retirement plan market that could affect the nature and future of the group annuity business – and annuity practitioners who work in and around that business. Group annuities are fixed or variable annuities used in employer-based retirement plans on both the defined benefit (DB) and defined contribution (DC) sides of the insurance business. The rule that the Department of Labor (DOL) implemented in mid-2012 is putting pressure on fiduciaries to be “completely transparent” and to put plan participants’ best interests first in ways that many had not done before, he said. Now called Section 408(b)(2) of the Employee Retirement Income Security Act (ERISA), the rule says the fiduciary must “act prudently and solely in the interest of the plan’s participants and beneficiaries.” It spells out disclosure obligations for selecting and monitoring service providers and plan investments. Included are requirements for plan fiduciaries to perform benchmarking, plan and cost disclosure, and “reasonable” compensation assessments, among other things. Fiduciaries that don’t comply can be held personally liable and face big penalties. Specifically, they can be slapped with an ex-

InsuranceNewsNet Magazine » March 2014


From what I hear from the annuity carriers, the DIAs are attracting younger buyers, in their mid-to- late 50s.

— Gary Baker, CANNEX president

cise tax of 15 percent of the amount involved, and it can go higher, up to 100 percent, if not corrected in the taxable period.


Guardian Life has debuted a variable annuity that includes an optional deferred income annuity rider. The darlings of the up-and-coming annuity crowd, deferred income annuities (DIAs) are deferred immediate annuities that let the policyowner defer their retirement income start date for several years, even for 10, 20 or more years. DIA sales have risen from next to nothing a few years ago to $555 million in third quarter 2013 – a 106 percent increase from third quarter 2012, according to LIMRA. Now, Guardian is broadening the DIA’s reach and changing the DIA game. The company has added a rider version of its own standalone fixed DIA to a new variable annuity, the Guardian Investor ProFreedom, a B-share variable annuity. Putting the fixed annuity product inside of the variable annuity offers policyholders a way to build a guaranteed income stream that will last a lifetime or for the period selected, said Douglas Dubitsky, vice president of product management and development for retirement solutions.

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March 2014 Âť InsuranceNewsNet Magazine



Annuity Complaints Drop But Annuity Grousing Has Not A  look behind the decreasing number of annuity-related complaints as tracked by regulators. By Linda Koco


eported complaint activity involving annuities is down, and not by just a hair. In 2013, it was down in the neighborhood of 20 percent compared to the year before and by even greater percentages when compared to the two years previous to that. The improving data contradicts reports


about “all those annuity complaints” that some people have heard, including the continuing buzz that complaints keep on rising. It’s not that complaints against annuities don’t occur. They do. But the numbers – and the percentage declines – in complaints have been going down for the past four years if not longer. Somehow, the message is not getting through. The percentages are based on 2013 data posted on the websites of two national regulatory bodies that track annuity complaint activity – the National

Association of Insurance Commissioners (NAIC) and the Financial Industry Regulatory Authority (FINRA). A review of the numbers may help agents and advisors understand what has happened, so they can help customers get a more balanced picture.

A Closer Look

The NAIC reports complaint activity as “closed complaints.” These are complaints that state insurance regulators found to be valid and that they closed after resolution. The NAIC website shows that the

CLOSED CONFIRMED CONSUMER INDEXED ANNUITY COMPLAINTS Source: Data extracted from NAIC Closed Confirmed Consumer Complaints by Coverage Type as of December 30, 2013.


441 335

2010 40

InsuranceNewsNet Magazine » March 2014




ANNUITY COMPLAINTS DROP BUT ANNUITY GROUSING HAS NOT number of closed complaints in the “annuities” category has fallen substantially since 2010. In 2013, they numbered 335 – down 24 percent compared to 2012. The 2013 complaints are also down by 23 percent compared to 2011, and by 40 percent compared to 2010. The strengthened suitability regulations that states started adopting after NAIC published them in 2010 may have contributed to the improvements. NAIC reports on “group annuities,” too. For all of 2013, group annuities had only 13 closed complaints. That’s down 48 percent compared to 2012, down 26 percent compared to 2011; and down 19 percent compared to 2010 (when there were only 16 closed complaints). Other complaint categories in the NAIC table – such as “equity-indexed,” “fixed,” “single premium” and “variable” – also show decreases. The numbers don’t appear here, however, since the NAIC table does not indicate whether the categories reference annuities only, life policies only or annuities-and-life combined. States submit this data voluntarily, so the numbers may not be all-inclusive. Even so, the NAIC tables provide a broad nationwide picture of state-level annuity complaint activity, and it’s definitely down. The FINRA data tallies “arbitration cases” filed. Arbitration cases are a measure of complaint activity for a variety of securities products, including variable annuities. The FINRA data shows that in 2013, variable annuity arbitration cases in numbered 174 – down 21 percent from the 220 cases reported in 2012, 18 percent from 2011, 38 percent from 2010 and 40 percent from 2009. The decline is notable because case filings dropped even though certain carriers implemented some then-unpopular measures to adapt to prevailing economic conditions. For instance, between 2012 and 2013, some carriers imposed moratoriums on deposits into in-force products with living benefit guarantees, sold existing books of business and offered buy-out deals to existing customers. Due to the industry tumult those steps caused, some observers had expected complaints to rise, when they actually did not. They fell. How does the FINRA variable annuity data compare to complaints involving mu-

tual funds and common stocks? In 2013, these complaints also declined, and by percentages that are close to the percentage decline reported for variable annuities. For instance, the arbitration cases involving mutual funds fell to 308 in 2013 from 392 the year before – a decline of 21 percent. And arbitration cases involving common stocks in 2013 dropped to 561 from 736 the year before, making for a 24 percent decline. When compared to previous years, complaints for mutual funds stocks declined by greater percentages. For instance, the 2013 mutual fund cases were down by 53 percent compared to 2011, 64 percent compared to 2010 and a whopping 80 percent compared to 2009. So variable annuity cases, though smaller in number, have have been slower to decline, but they still declined.

Due to industry tumult, some observers had expected complaints to rise, when they actually did not.

What About the Chasm?

How to understand the chasm between reports that annuity complaints are rising and data showing the opposite? Annuity advocates sometimes blame annuity critics for intentionally disseminating incorrect information about annuities. That might be true in some instances but other factors are likely at work as well. For one thing, some people may be unwittingly using out-of-date data. During the 2008-2009 recession, complaints rose precipitously about all kinds of insurance


and financial products, including annuities. (It happened in and after the previous recession too.) Stories about that may still be circulating even though reported complaints are now down. The slowness of the decline may account for some of that. As the NAIC and FINRA data illustrate, complaints declined gradually following the recession-era highs. But since gradual change can be harder to see than explosive change, the four-year shrinkage in annuity complaints may have gone unnoticed. Complaint reports attributed to other sources might be muddying the waters too. Take the Securities and Exchange Commission (SEC), for example. Data attributed to the SEC has been widely sourced as proof of rising complaints involving variable annuities following the Great Recession. But repeated visits to the SEC website in recent weeks produced only a chart of the Ten Most Common Complaints as of 2012. Annuities are not on that list; data from previous years is absent; and there is no data for 2013 as of yet. So it is difficult to validate remembered reports of SEC data about rising annuity complaints and also to compare trends. In addition, some data gatherers just peel off of a complaint category without much fanfare. For example, the North American Securities Administrators Association (NASAA) did include both variable annuities and equity indexed annuities on its list of “most reported products” in its 2011 report (on enforcement activity in securities in 2010). However, neither product line appears on the comparable list in NASAA’s 2012 and 2013 reports. Other complicating factors may include word-of-mouth chatter about local annuity complaints or simple misunderstandings. As a rule, the regulatory and self-regulatory bodies that publish complaint activity data tend to warn the public about rising problem areas, not declines. So, if they do not put the word out on annuity improvements revealed in their data, who will? It would seem to be in the public interest for annuity professionals and carriers to take on this task. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at linda.koco@

March 2014 » InsuranceNewsNet Magazine



The Traits of the Ideal Indexed Annuity Buyer A  dvisors who recognize the characteristics of the ideal indexed annuity prospect reap the benefits in increased sales. By Cyril Tuohy


dvisors may not be doing enough to sell indexed annuities, but for those who are, there are some common best-practice traits these advisors share. Those who sell the most indexed annuities are more likely to target consumers between the ages of 40 and 49. These advisors are also more likely to present annuities to clients with medium-risk investment appetites, and they have clients who pay for annuities through a wide range of sources, a new survey finds. The findings, contained in The Future of Retirement Income survey released by Genworth Financial, reveal that high-volume IA sellers are more likely to target investors with a moderate risk tolerance than they are to chase after conservative investors. “The findings suggest that producers need to consider a broader target profile for annuity prospects,” said Charlie Gipple, national director of indexed products with Genworth Financial. “Successful sellers are recommending annuities to younger, more risk-tolerant consumers and positioning them as a vehicle for a wider array of retirement funds.” Clients who invest in annuities also tend to do so through qualified retirement savings, money market accounts, certificates of deposit and bonds and through exchanges of other annuities, the survey found. Sales of indexed annuities broke through the $10 million mark in third quarter 2013 for the first time, an increase of 15.1 percent over the year-ago period, according to Beacon Research. The outlook for IA sales remains strong, Beacon also said in its Fixed Annuity Premium Study. 42

Many analysts expect interest rates to rise in 2014 as the Federal Reserve eases up on its bond-buying program. Higher interest rates mean more income for annuity investors. The Genworth survey also revealed good news for future annuity sales. A total of 68 percent of people who don’t own annuities have a “neutral to positive” impression of the investment product, and many investors who would consider an annuity have never been presented with the opportunity to do so, the survey found. “Many financial professionals simply don’t present annuities to their clients, perhaps believing that these products have a bad reputation among consumers,” Gipple said in a news release. Some consumers are hesitant to purchase an annuity. For example, 58 percent of consumers believe they already have enough predictable income to satisfy their retirement needs and therefore don’t need an annuity. Slightly more

InsuranceNewsNet Magazine » March 2014

than half of consumers who said they were considering annuities had second thoughts because they would rather invest directly in the market – a potentially risky move for money intended to provide income for a lifetime. A nearly equal percentage of consumers said they object to annuities because they are uncomfortable with a product where they

Retirement timing can be unpredictable. Source: Genworth



Actual Retirees


46% 28% 4%

When expected

Sooner than expected

6% Later than expected

nce E


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(2-14) March 2014 » InsuranceNewsNet Magazine




can’t access their money without penalty for a period of time. However, 78 percent of those who do own annuities said they are satisfied with their access to their funds. The takeaway from this is that the more consumers learn about annuities, the more they like them. And those who do own annuities have better opinions of annuities than those who do not own annuities. The survey showed that 91 percent of annuity owners had positive or neutral impressions of annuities, compared with 68 percent of nonowners. Of those annuity owners, 70 percent said the annuity’s expenses are worth the benefits they are receiving from it. So, providing annuities to your clients and prospects may not be such a challenge as many sellers believe it to be. The ideal annuity candidates, according to Genworth, have several traits in common. In general, they: » Like to work with financial professionals. Eighty-nine percent of annuity owners who have positive perceptions of annuities work with a financial professional, as do 69 percent of those who view annuities positively and are considering an annuity.

Money concerns drive retirement uncertainty. Source: Genworth 76% 36% 21% Not enough Expenses money too high



Too much Too much Other debt responsibility

» Engage in personal research. Slightly more than half of the annuity owners surveyed said they do their own research on their financial advisor’s recommendations before making decisions. » Value downside protection and upside potential. Sixty percent of annuity owners and 61 percent of annuity considerers said they would pay additional fees to guarantee that an investment would never lose value in a “bad” year while obtaining some growth in a “good” year. 44

» Have a pessimistic view of the market. Annuity owners said they were significantly less likely to believe the market will show positive growth in the next five years.

Those who indicated they own an annuity were three times more likely to have positive impressions. Source: Genworth

Annuity Owners



Non-annuity Owners

36% 12% Positive

2% Neutral


Not discussed




» Need a source of supplemental retirement income. Eighty-five percent of annuity owners said that a predictable income stream is critical to their ability to have the kind of retirement they want. It’s important for annuity sellers to make sure their clients have realistic expectations, the survey indicated. Satisfaction among annuity owners is directly related to how well the annuity they own meets their expectations. Seventy percent of those whose annuity performed as they had expected said they were satisfied with their annuity, as opposed to 5 percent of those whose annuity did not perform as expected. The message for advisors: Make sure your annuity customers know exactly what to expect before they buy, and they will be more satisfied with their purchase. Annuities are often more difficult to understand than other investment products, and it has traditionally been difficult for investors to change their annuity investment without paying high fees. But with Americans living longer and many not having enough assets to last them through retirement, income-producing investments are attractive for investors. Retirement can be unpredictable. Variables such as market performance, retirement dates and the cost of living can play out in unexpected ways and have a major impact on your clients’ retirement. The Genworth survey showed that an unexpected job loss resulted in 46 percent of current retirees leaving the workforce sooner than planned. This resulted in

InsuranceNewsNet Magazine » March 2014

The high-volume indexed annuity sellers are more likely to target younger clients. Source: Genworth


45% 32%




Age 40-49

High-volume IA Sellers Total IA Sellers

1% 50-59



Over 70

fewer income-earning years and an adverse impact on their retirement nest egg. Of the current retirees who were surveyed, 64 percent found their expenses either increased or stayed the same in retirement. “Senior inflation” may be to blame. Prices for products used by seniors – including medical services, home health care and nursing homes – have increased significantly more than the overall consumer price index, according to The Wall Street Journal. With necessities going up in price, retirees have less disposable income to spend on things they enjoy, such as travel or dining out. So much for retirement being “the golden years” that many envision them to be!

The high-volume indexed annuity sellers are more likely to target moderate-risktolerant clients. High-volume IA Sellers Total IA Sellers

Source: Genworth

59% 46%

Low risk tolerance

52% 40%

Moderate risk tolerance

This combination of retirees’ leaving the workforce sooner than planned, living longer than expected and facing higher expenses than anticipated means that less retirement money needs to go further. Presenting annuities to clients and educating them about the benefits of owning them can help your clients reclaim their retirement. Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@



practice will be trapped from rolling over millions of dollars of annuities you have on the books, regardless of whether it’s in your clients’ best interests.

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Learn the Truth and Escape the Income Rider Trap at Or call us for the full story at 866.268.2640. Peak Pro Financial is not an annuity FMO. We’re a Producer Development Company. We have changed the business plans and lives of agents that write $500K a year and even $20 million a year of annuities. There is no agent to big or too small. March 2014 » InsuranceNewsNet Magazine



Survey: ACA Won’t Change Business Conditions

Another Delay for ACA


Mid-size businesses received yet another delay in implementing their requirements under the Affordable Care Act (ACA). The Treasury Department announced businesses


with fewer than 100 workers would not be required to provide health care to its workers in 2015 or face a fine. It also gave big businesses with more than 100


50-99 Employees


workers more time to ramp up coverage. Instead of 100+ Employees being required in 2015 to offer coverage to 95 perCOVER 70% OF cent of full-time workers, these bigger employers can WORKERS BY 2015 avoid a fine by offering insurance to 70 percent of them next year. Small businesses with fewer than 50 workers have always been exempt from the new coverage requirements but the law originally required all other businesses to start covering their workers or face penalties beginning Jan. 1, 2014. The White House last July pushed that start date to 2015, in response to concerted pressure from the business community. The new policy Treasury announced gives the mid-size businesses – those with 50 to 99 workers – until 2016 year to adapt to the changing health care marketplace. Originally, the employer mandate – which affects companies employing 72 percent of all Americans – was to have gone into effect Jan. 1, at the same time the law began requiring most Americans to have health insurance.

DEADLINE? SCHMEADLINE! When’s the Health Insurance Signup Deadline?

55% of Americans DON’T KNOW

Many Americans are not taking the ACA enrollment deadline seriously. Sixty-two percent of Americans – more than three in five – think the government will push the deadline back to a later date, according to a report.

More than half of Americans (55 percent) still do not know the deadline to sign up for health insurance.

In fact, about one in four Americans (24 percent) incorrectly think the deadline already passed on Jan. 1. And 11 percent wrongly think they have until Dec. 31 to sign up, a full nine months after the March 31 deadline. insurance analyst Doug Whiteman said that although many of those who aren’t paying close attention to the ACA deadlines DID YOU



already have health insurance through work, “It’s especially worrisome that young adults – who are the most likely to be uninsured – are the least informed about the deadline and the most likely to think it will be moved,” said Whiteman. “Obamacare’s success hinges on young, healthy Americans signing up, so if they continue to procrastinate past the deadline, it could cause insurance premiums to increase.”


Medical expenses remain out of control in the United States, where Americans have an “unsustainable attitude” that ignores the increasing cost of health care, Aetna’s chief executive officer said. While the rise in medical costs has slowed since the last recession, the U.S. still needs to switch to a “fundamentally

IN 2010, THE TOTAL COST OF CANCER CARE in the United States reached $125 billion. Source: Virginia Commonwealth University

46 InsuranceNewsNet Magazine » March 2014

different” system that pays for the quality of care rather than the quantity, Mark Bertolini said in a Bloomberg Television interview from Davos. “Our health care costs are not under control right now,” Bertolini said. “We really need to look at how health care is delivered and how we pay for it. Today, we pay for each piece of work done and so we get a lot of pieces of work done.”

Bertolini said he has firsthand experience with a confusing U.S. health care system he described as “a maze.” The CEO injured his spinal cord in a 2004 skiing accident and donated a kidney to his son in 2007.


W hat does housing have to do with health care? According to Illinois Gov. Pat Quinn, Gov. Pat Quinn when someone has a roof over his head, he is more likely to keep himself out of the hospital.

Quinn now wants to expand supportive housing – typically apartments with

subsidized rent and help from social workers – by using federal and state Medicaid dollars.

Quinn’s administration is making its pitch by promising future savings in health care costs. Federal rules don’t allow states to build housing or pay rent with federal Medicaid money, but states can seek permission to try new approaches. The idea is to target poor adults who are homeless or living in institutions because of disabilities, such as severe mental illness or substance abuse. Although the research is mixed on whether the approach saves taxpayer dollars when housing costs are included, some studies have shown it can save money in health care by reducing emergency room visits and hospital stays. The Illinois Medicaid program covers 2.8 million people with a budget of $17.8 billion. With an expansion of Medicaid under the new federal health care law, the program could soon cover 3 million poor and disabled Illinois residents – and the waiver being sought by the state would touch almost all those people.

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Explaining Health Care Reform to Clients A  s the open enrollment period heads into the final stretch, your clients will depend on you to answer their questions as they sign up for coverage. By Andrew Bard


e are into the final month of the first open enrollment period for health insurance coverage under the Affordable Care Act (ACA). This initial open enrollment period runs through March 31, and the next round of open enrollment will begin Nov. 15. ACA will continue to have a significant impact on the health care industry, particularly insurance. The ACA will also have a huge impact on clients and those who are seeking to enroll in coverage. The ACA document itself contains around 20,000 pages of rules and regulations, meaning that it isn’t exactly light reading material. But there are specific points in the document that your clients will need to know. Large group coverage – that is, coverage of more than 50 lives – is not greatly affected by the reform, but small group coverage will see many changes that have ramifications for both individuals and small businesses. In its shortest, simplest form, it means two things: An insurance provider cannot deny coverage, and the government will help subsidize coverage for those who have a relatively low income. These points are not black and white, however. Like many rules and laws, they come with their exceptions.

Pre-existing Conditions

Quite simply, if your client is sick with a pre-existing condition, the insurance company must provide coverage. This does come with a small catch, however. Either your client must apply for coverage during the open enrollment period, or your client must have a “qualifying event” occur. 48

There are two categories of qualifying events. The first category requires enrollment within 30 days, and the second category requires enrollment within 60 days. Qualifying events include any of the following: Your clients have 30 days to enroll if they or their dependents lose coverage because of:

» The group enrollee’s initial enrollment for Medicare. »L  oss of group coverage for retired enrollees, their spouses or any other dependents because of bankruptcy filed by a former employer on or after July 1, 1986. Your clients have 60 days to enroll if:

» Termination of employment or reduction of hours.

» They or their eligible dependents lose minimum essential coverage.

» Death of the enrollee.

» Th  ey acquire new dependents through marriage, birth or adoption.

» Divorce or legal separation. » Loss of eligibility as a dependent child.

InsuranceNewsNet Magazine » March 2014

» Th  ey become citizens, nationals or lawfully present individuals in the U.S.

EXPLAINING HEALTH CARE REFORM TO CLIENTS » Th  ey are qualified but experience an error in enrollment. » Th  ey are enrolled in another qualified health plan and can successfully demonstrate to the exchange that it has substantially violated a material provision of the contract. » Th  ey are newly eligible or lose eligibility for advance payment of the premium tax credit, or they experience a change in eligibility for cost-sharing reductions. » Th  ey become eligible for new qualified health plans offered through the exchange because of a permanent move.

Employers With 50+ Employees

Large group coverage isn’t being affected dramatically by the ACA. There is one change, though, and it’s straightforward: Any business that employs 50 or more employees must provide health care benefits or pay a penalty. If that describes your large group clients, then you may have already noticed some change, though it’s not likely to be much. There may have been some premium increases, but your large group client may have absorbed those additional costs or potentially passed them on to the employees. In either case, employees should not see much difference in their existing coverage.

Individual Mandate

The individual mandate states that everyone must have insurance. Beginning in 2014, every individual will be responsible for obtaining “minimum essential coverage” for themselves and for their dependents. Otherwise, those individuals not obtaining coverage will pay a penalty. The penalty for an individual who fails to obtain coverage will be paid as part of their income tax return. In 2013, the penalty was $95 or 1 percent of the individual’s income – whichever is greater. By 2016, though, the penalty increases to $695 or 2.5 percent of the individual’s income. For families, the maximum penalty is three times the individual flat-dollar penalty (e.g., 3 x $95 in 2014). For dependent children who do not receive coverage, the penalty is half the cost of the individual’s flat-dollar penalty (e.g., $47.50 in 2014).



An exchange gives people additional access and more opportunity to buy insurance – more than they have experienced previously, although exchanges have existed for a while. There are two primary types of exchanges. A public exchange is run by either the state or federal government, or the two may work together. Every state has a public exchange available to its residents. For those who shop for coverage via public exchanges, subsidies and tax credits will be available to make insurance more affordable. Small group employers (fewer than 50 employees) can buy and offer insurance through an exchange as well. A private exchange is not run by a government but by a private sector company, like a health plan or a consulting firm. These exchanges already exist today, but you can expect them to become more popular as employers look for new ways to offer affordable benefits to their employees.


Subsidies are granted by the government to keep premiums affordable. Anyone within 100 percent to 400 percent of the poverty level who purchases through an exchange will be eligible for a subsidy, as long as they are lawful citizens of the United States. These subsidies will be granted in the form of a “premium tax credit” to reduce the ultimate cost of the premium. The Henry J. Kaiser Family Foundation has an online calculator at that can help you and your clients figure their subsidy eligibility. ACA is a very complex bill, and it’s not one that’s easy for the average person to understand. Your clients will depend on you to help them understand the fundamentals as you work together to help them obtain the coverage that suits their needs. Andrew Bard is the vice president of sales for HCC Medical Insurance Services, a provider of international and travel health insurance plans. He serves as president of the Indianapolis Association of Health Underwriters and received the Global Benefits Leadership award in 2011. Andrew may be contacted at andrew.bard@

March 2014 » InsuranceNewsNet Magazine


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Global Assets Under Management To Exceed $100 Trillion By 2020

U.S. Deficit To Drop To $514B $1.4T

DEFICIT AS PERCENTAGE The U.S. budget deficit is on its way 10.1% OF GDP Source: CBO Projections down. The deficit is set to fall to $514 billion this year, down substantially from $836B $1.03T $1.07T $514B $539B $655B last year and the lowest level by far since 3.7% 4.2% 4% 3% 2.8% 3.1% President Barack Obama took office five years ago, a congressional report said. 2009 2014 2016 2018 2020 2022 2024 PR OJ EC T I ONS The Congressional Budget Office credits higher tax revenues from the rebounding economy and sharp curbs on agency spending as the chief reasons for the deficit’s short-term decline. But budget experts see the long-term deficit picture worsening by about $100 billion a year through the end of the decade because of slower growth in the economy than they had previously predicted. To keep the number in perspective, the 2009 deficit, swelled by the costs of the Wall Street bailout, hit a record $1.4 trillion, while the deficits of 2010 and 2011 both registered $1.3 trillion.


While the baby boomers have been lining up to take their ride through the “Retirement Shoot the Chutes,” Generation X is 2012-2014 waiting at the turnstile. And those Gen Xers might have a bumpy ride when they finally get their turn at retirement, according to the Insured Retirement Institute (IRI). IRI research shows that GenXers, born

Retirement Savings


between 1962 and 1981, reported that their retirement savings have dropped 15 percent over the last two years, from

median retirement savings of $70,400 in 2012 to $59,800 today. During the same time, the percentage of GenXers lacking confidence in having sufficient savings to live comfortably in retirement doubled from 20 percent in 2012 to 42 percent today. When it comes to financial matters, 30 percent of GenXers rate themselves as being highly knowledgeable, and only 11 percent have the same self-assessment when it comes to investing. Despite these low levels, 77 percent of GenXers are not DID YOU




consulting a financial planner. Yet those who are working with a financial professional have median retirement savings of $90,400, more than double the $45,500 accumulated by their peers who are planning for retirement on their own.


On average, nearly half of a financial advisor’s book of business comprises retail individual retirement accounts. That’s the word from Cerulli Associates, which examined rollover market sizing and trends, direct providers, and advisor rollover challenges.

Financial advisors, on average, capture larger rollovers than direct providers do,

with the largest balances going to existing advisory relationships. Cerulli expects that advisors will continue to win rollovers. Although investors typically manage multiple advice relationships, financial advisors delivering a holistic view of a client’s financial picture will benefit from integrating all assets into an overall financial plan. As a result, asset managers working closely with advisors should continue to benefit.

THE AVERAGE RETURN ONNEW AN INITIAL OFFERING percent TWO STATES, TEXAS AND YORK, PUBLIC accounted for nearlywas 40 20 percent this The average increase in the in first (or “pop”) 13 percent. of allyear. the new businesses established theday United States is since 2009. Source: Renaissance CareerBuilderCapital

InsuranceNewsNet Magazine » March 2014


Have 529 college savings plans run out of steam? The question facing advisors is how best to reignite 529 plan sales with an economy on the mend. Strategic Insights’ 529 Advisor Study 2013 found that 74 percent of advisors said they – not their clients – usually start the conversation around a 529 col-

lege savings plan. By the end of 2008, there were 8.9 million savings plan accounts and an additional 2.3 million prepaid tuition plan accounts, according to Investment Company Institute (ICI) data. By the end of 2007, before the financial collapse, savings plan assets had ballooned to $112.5 billion. Prepaid tuition plans reached $17.4 billion. Fast-forward to the second quarter of 2013, and the number of 529 plan accounts had risen to 10.2 million. Prepaid tuition plans, meanwhile, were stuck at 1.2 million, where they have been since 2009. Plan assets for 529 savings plans have come back with the robust stock market, reaching $184 billion. Prepaid tuition plans hit $21.9 billion, ICI data show.


More than 13 million U.S. adults fell victim to identity fraud in 2013, an increase of 500,000 from 2012. This increase in the number of victims is the greatest in three years, according to Javelin Strategy & Research. The report also found data breaches to be one of the greatest risk factors, as nearly one in three consumers who received data breach notification letters became a victim of identity fraud.

Although the number of victims went up, the amount criminals stole decreased by $3 billion to $18 billion, reflecting more aggressive actions from financial institutions, identity theft protection providers and consumers. Research shows that the average identity theft case costs the victim $631 out of pocket. It takes a victim an average of 500 hours to repair the damage.

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Read more about the 3.8 Percent Medicare surtax on page 54


Tax Alpha: A Predictable Strategy for Boosting Retirement Savings T  he new generation of variable annuities provides an appealing solution for retirement planning in the present highertax environment. By Douglas Wolff


ncreasing the total return on clients’ retirement savings may be the biggest challenge for advisors today. Interest rates and savings rates are low. Risk aversion is elevated and becoming more pronounced – a trend that is closely correlated with above-average price volatility and below-average economic growth. The combination may be holding clients back from building the retirement portfolios needed to support decades of retirement expenses. To exacerbate the problem, the newest tax laws will further undermine the growth of retirement savings. Broadly speaking, advisors have two options for overcoming the obstacles: pursuing higher pretax returns (alpha) and reducing the net tax exposure on investment returns (tax alpha). Getting clients to the goal of a well-funded retirement portfolio will require creative and skilled use of both, although implementing tax alpha-based strategies, such as the newest generation of cost-efficient, tax-deferred variable annuities (VAs), may be increasingly important and valuable for advisor and client. Built-in tax deferral will help combat erosion by new taxes and can be a more predictable and less challenging approach to amassing retirement funds.

ATRA 2012: More Than Meets the Eye

The American Taxpayer Relief Act (ATRA) of 2012 took effect in January 2013 – to relatively little fanfare or protest. Most discussions focused on the return of the 39.6 percent ordinary income tax bracket and 20 percent capital gains tax rate for the highest-earning taxpayers. However, there’s more to ATRA 2012, as 52

any client in the 28 percent (or higher) tax bracket may now be learning. ATRA raised tax burdens on many Americans by limiting or eliminating itemized deductions and personal exemptions once adjusted gross income (AGI) exceeds $254,200 in 2014 (for single taxpayers; $305,050 for joint filers). Further, it imposes a 3.8 percent surtax on all forms of investment income for single taxpayers with modified AGI above $200,000 ($250,000 joint for filers). This tax, which is in addition to any other taxes due on investment income, is meant to support the future costs of Medicare. April 15 may hold some unpleasant surprises for Americans as the total impact of ATRA 2012 comes to light on 1040 forms. Security Benefit analyzed the 2012 and 2013 tax burdens of eight hypothetical investors with total income from taxable investments and wages/ compensation ranging from $150,000 to $900,000. The result was an increased 2013 total tax burden for all but the lowest income level, and the increase could be as much as 20 percent for some filers. The total tax due on investment income climbed by as much as 55.7 percent. Of all the changes wrought by ATRA, the 3.8 percent Medicare tax may well have the most wide-reaching impact. The tax is not indexed for inflation and, like the alternative minimum tax (AMT) before it, could increasingly become a problem for middle-class clients as their incomes grow over time.

New-Generation Variable Annuities: A Well-Timed Innovation

Well before ATRA, providers began reshaping some VAs. In response to lessons learned during the past decade’s financial crisis, the product structure of these new-generation VAs has been simplified. The price structure is more attractive, with fewer and less costly

InsuranceNewsNet Magazine » March 2014

riders and, in many cases, no surrender charges. In addition, these products offer enhanced investment flexibility. A wider array of investment subaccounts and, in some cases, unlimited no-cost exchanges between subaccounts support broad diversification, use of tactical strategies and rebalancing as necessary without triggering taxable events. These changes, in combination with built-in tax deferral, may make new-generation VAs a more fitting and appealing solution for retirement planning in the present higher-tax environment. Tax deferral can increase annual return pre-withdrawal and total distributions post-withdrawal. And the greater the tax rate, the greater the benefit. Additionally, tax deferral makes it possible to capture these higher returns without pursuing more aggressive investment strategies. According to Morningstar, to achieve an 8 percent net annual total return, after average fees of 1.39 percent, in a new-generation VA requires a gross return of 9.39 percent. (This is based on the total cost of subaccount net expense ratios and applicable mortality and expense or administration fees of simplified-structure VAs offered by three leading providers, and assumes a $200,000 account balance.) Generating an 8 percent net total return in a taxable investment requires a total return, after fees and before taxes, of 11.73 percent (28 percent tax bracket + 3.8 percent Medicare tax) to 14.13 percent (39.6 percent tax bracket + 3.8 percent Medicare tax). If we assume fees of 1.19 percent on taxable investments (i.e., the average annual fee for all open-end mutual funds tracked by Morningstar), the required pretax gross returns are 12.92 percent and 15.32 percent, respectively. Few conservative or moderate-risk investments can consistently generate returns at those levels.


ATRA raised tax burdens on many Americans. Here are some likely scenarios. Approximate Adjusted Gross Income


Single taxpayers

Married, filing jointly, single income, one dependent



(90% compensation, 10% taxable investments)


(80%-90% compensation, 10%-20% taxable investments)


Total Tax Burden 2013

Increase/ Decrease: 2013 vs. 2012

Increase/ Decrease on Taxable Investments: 2013 vs. 2012



















Married, filing jointly, dual income, with dependents

Married retirees, filing jointly, no dependents

















































(80%-90% compensation, 10%-20% taxable investments)

(40% compensation, 60% taxable investments)

Numbers may not add due to rounding. *Reasons are coded as follows: MTR - Higher marginal tax rate, CGR - Higher capital gains tax rate, MT - Medicare tax on unearned income, PHA - Phaseout of itemized deductions and exemptions, TRC - Refers to what is commonly called “tax rate creep,” or the tendency for tax brackets to move slightly higher each year. When income does not move up with the tax bracket, taxes due actually decline. Numbers in BOLD indicate the greatest tax impact.

With new-generation VAs, advisors can achieve better returns without assuming commensurate increases in risk. Further, some products offer another feature for the risk-averse – professionally managed investment strategies designed to manage volatility or generate steady returns.

Prepare Clients for Whatever Comes

As mentioned earlier, more than five years out from the financial crisis, client risk aversion remains elevated for several reasons. Higher interest rates are unpredictable; they could be upon us tomorrow or still be years away. Whenever higher interest rates finally arrive, they can be

counted on to trigger increased volatility in bond markets. On the equity front, the stock market has had a multiyear run into record territory. How long can it continue to climb? Even if the capital markets were to stabilize, income taxes remain a threat. Federal (and some state) income tax rates have increased but remain low by historical standards. In the face of record state and federal debt, aging infrastructure and growing demands on Social Security and Medicare funds, what are the odds they may continue to increase? A new-generation VA may help you and your clients address these and other changes in the investment market and

economic environment that have the potential to threaten the value of clients’ retirement portfolios. At the same time, the more cost-effective VAs available today may help amass retirement dollars while using less aggressive investment strategies and letting easily predicted tax deferral do the work of boosting returns. Douglas Wolff is president of Security Benefit Life, overseeing product development, pricing and operations. Doug may be contacted at douglas.wolff@

March 2014 » InsuranceNewsNet Magazine



How the 3.8 Percent Medicare Surtax Can Bite Your Clients F  or certain clients, this tax relating to the Affordable Care Act may result in an unpleasant surprise. By Patti S. Spencer


n important service that advisors can offer this year is helping clients understand the Affordable Care Act’s unearned income Medicare contribution, a 3.8 percent surtax that became effective Jan. 1 on investment income for individuals, trusts and estates. It is referred to as the “3.8 percent surtax,” the “3.8 percent investment tax” and the “3.8 percent Medicare tax.” This 3.8 percent surtax is found in Section 1411 of the Internal Revenue Code. In an 54

effort to “help” taxpayers understand the new tax, the Internal Revenue Service (IRS) issued final regulations for Section 1411 on Nov. 27, 2013. This “help” is 400 pages long, due to “what ifs,” exemptions and exemptions to exemptions! For individuals, the calculation of the 3.8 percent Medicare surtax is dependent on two numbers: the taxpayer’s net investment income (NII) and the taxpayer’s modified adjusted gross income (MAGI). For each taxable year, the MAGI, after being reduced by a fixed threshold, is compared to the NII. The 3.8 percent Medicare surtax is applied on the lower of the two numbers. This means that for individuals who have little or no net investment income, their 3.8 percent Medicare surtax will be min-

InsuranceNewsNet Magazine » March 2014

imal if not zero. The three thresholds mentioned above are: » $250,000 for married couples filing jointly. » $125,000 for married couples filing separately. » $200,000 for everyone else. Here is an example. Mary Smith, who is single, earned $150,000 in salary for 2013. In addition, Mary earned $75,000 of net investment income. Mary’s modified adjusted gross income would be $225,000, which is the sum of her salary and her net investment income. Her threshold is $200,000. Mary’s MAGI, af-

TAX ISSUE HOW THE 3.8 PERCENT MEDICARE SURTAX CAN BITE YOUR CLIENTS ter being reduced by a fixed threshold, is $25,000 ($225,000 minus $200,000). When compared to her $75,000 of NII, the 3.8 percent Medicare surtax is applied to the $25,000 because it is the lower of the two numbers. On Mary’s Form 1040 for 2013, she will owe additional taxes of $25,000 x 3.8 percent, or $950. For Mary, the effect of the new surtax is $950 in additional tax. Estates and trusts get hit harder. The calculation of the 3.8 percent Medicare surtax is also dependent on two numbers: an estate’s or trust’s undistributed net investment income (UNII) and the estate’s or trust’s adjusted gross income (AGI). Similar to the calculation for individuals, the AGI for the taxable year is first reduced by a fixed threshold amount and then compared to the UNII. The lower of the two is multiplied by 3.8 percent to determine the Medicare surtax for that taxable year. However, the threshold is adjusted each year based on the first dollar amount in the highest tax bracket. For fiscal year 2013, that amount is only $11,950. Compare

AAIt'sPersonalINN1216 12/16/13 11:02 AM Page 1

this to $250,000 for a married couple filing jointly. In order to determine whether the surtax applies, it is important to understand what qualifies as net investment income. Net investment income includes the following items, reduced by any deductions allocable to such income: » Interest, dividends, royalties, annuities, rents. » Income derived from passive activities. » Income from trading financial instruments and commodities. » Net capital gains derived from the disposition of property (other than property held in an active trade or business). Net investment income does not include: » Active trade or business income.



» Gain on sale of an active interest in a partnership or an S corporation. » Distributions from IRAs or qualified retirement plans. » Income from tax-exempt municipal bonds. » Tax deferred nonqualified annuities. » Income taken into account for self-employment tax purposes. » Capital gain excluded on the disposition of a personal residence. Take note that even with the present “Obamacare” discussions, debates and delays, this surtax still stands. Trusts, estates and tax attorney Patti S. Spencer is a nationally recognized author and educator. She is founder and owner of The Spencer Law Firm, Lancaster, Pa. Patti may be contacted at patti.

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March 2014 » InsuranceNewsNet Magazine



Ready Responses That Turn Chats into Leads Here is a collection of short conversations to help you prospect for business in various social situations. By Bryce Sanders


he big problem with sales scripts is, what if the prospect doesn’t say the right lines back to you? Most agents and advisors can address this issue, but the question highlights problems with complicated approaches. What you need are some simple “one liners” or short conversations for various social situations. If the prospects pick up on the hint and ask questions, great! If not, move on to a social topic.

Seven Simple Strategies Existing Relationship – [1] The You meet someone at a party.

They ask, “What do you do?” After you answer, they respond, “I already have a financial advisor.” Rationale: Who doesn’t? It’s likely that everyone who has some money also has an individual or firm providing some financial guidance. Accept that fact. Response: “I’m sure you are very happy with your financial advisor. Here’s my card. If anything ever changes, give me a call.” Result: It’s likely they keep the card. Down the road, if they have a falling out with their advisor or the advisor leaves the business, they can retrieve your card and connect a face with the name (assuming you’ve seen them again from time to time). Rather than find another advisor (which is a daunting task for them); they bring their assets to you, who will handle the details (an easier task for them). Common Issue – You and [2] The an acquaintance both have

young children in school (or share a similar issue). One day, you mention, “We’ve decided to take care of college for our 56

daughters. We set up college saving plans last week. What are you doing about your son’s education?” Rationale: You both want the same things for your children, such as the best education and opportunities in life. You are each facing these shared issues in your own lives. Response: Wait for their answer. If they ask, “What’s a college savings plan?” give a short answer. They might say, “My parents have told us they are paying for their grandson’s education.” Tactfully ask, “Have you thought of setting up an account so other relatives can contribute at holidays?” Result: The issue isn’t going away. They need to do something. They need a solution. You put one in place. They might ask for more details later. Playing Golf – An insur[3] After ance agent new to an area is

advised to buy a new Cadillac and join the most exclusive country club. Several times a week, he plays golf with his accountant and their clients or he goes to the club with chamber of commerce members. These guests are the owners of small to medium-sized businesses. After treating them to golf, the advisor buys them lunch. Rationale: These business owners belong to a club, but they don’t belong to the most prestigious one in the community. They play the best course in town only when someone else takes them. As a result, they are indebted to their host. Response: Over lunch, he asks, “May I call next week and set up an appointment? I have a few ideas I would like to share. I think I may be able to save you money.” Result: Lunch and golf created an obligation. His guests often agree to the appointment. The agent gets in front of the business owners. Sometimes getting the appointment is the toughest part of the sale.

InsuranceNewsNet Magazine » March 2014

Referrals – An advisor [4] Spousal and his wife attend parties. They

often mingle separately. A guest asks the wife, “What do you do?” She replies, “I stay at home and raise the children. My husband is a financial advisor.” Rationale: The guest realizes that the wife, as the spouse of an advisor, would know investing terminology. The guest and the wife talk about their investments. Response: The wife waits until something “explodes” in the conversation and then says, “You really should talk to my husband, Michael. He may be able to help you with that problem.” Result: The wife updates her husband at the first opportunity. He might sit at the guest’s table if there’s open seating and introduce himself to the other guests he doesn’t know. This guest has a problem, and the potential solution just sat down at the table. The advisor also might ask to talk privately with the guest. – Another couple shares [5] Passions a common interest such as gour-

met cooking with you and your spouse. You are shopping at the mall together. Stores or product manufacturers often are owned by publicly traded companies. Rationale: The wealthy may not talk about money, but they are passionate about a hobby or special interest. Response: “(This store) is owned by a publicly traded company, (name). You would be amazed at what they are doing and the other brands they own. A research report about them just came across my desk. Why don’t I email (or fax) it to you?” Result: They might not want you to go to any trouble. You insist that it would be easy.

READY RESPONSES THAT CAN TURN CHATS INTO LEADS They read the report addressing a subject of passionate interest. This opens the door to additional communications about earnings, news, competitors, the industry and eventually the sector. Gradually, you have positioned yourself as a financial resource. for Something – An [6] Asking advisor is solicited for charita-

ble contributions from time to time. She scans the board or committee list, looking for familiar names. If she sees one, she writes a contribution check and mails it to the home of the person whose name she recognizes. Rationale: A friend or acquaintance has added the advisor’s name to a solicitation list for charitable donations. Mailing the check directly to the friend highlights the fact that the advisor is responding to the donation request. Response: The advisor calls the friend a few days later. The friend confirms that the check arrived. The advisor says, “In my business, I often speak to groups like yours about timely subjects such as

identity theft. If you or your group would like me to speak, I would be glad to do it.” Result: In a tactful way, the advisor has established: (1) You asked for money. (2) I sent it. (3) You confirmed receipt. (4) I’ve asked for something. (5) How about it? She might be brought in as a guest speaker at a group meeting. – The problems with ask[7] Asking ing friends for business are our

friendship and familiarity. We talk differently with friends than we would when prospecting a senior executive. Show your friends the same respect by using the same tone and questions you use professionally. They’ve told you they work with an advisor at a competing firm. They use a money management platform. Rationale: They have needs. They are professionals in their field. They are comfortable with this respectful approach. Response: “You’ve explained you use professional money management at (firm). We offer it at my firm. We are competitively priced. We have good performance


figures. When do you review the performance of the managers you are using at (firm?) I’m interested in winning some of your business. Are you open to presentations about additional money managers at that time?” Result: You want to see her a day or so before she visits her advisor. You are fresh in her mind when her portfolio is reviewed by the competitor. If she’s dissatisfied with the results, it’s easy for her to move some of that money in your direction. Strategies don’t need to be complex. People aren’t off limits because they work with another advisor or have an account at another firm. Sometimes, prospecting means having the right conversation with the right friend at the right moment. Bryce Sanders is president of Perceptive Business Solutions in New Hope, Pa. He is the author of “Captivating the Wealthy Investor.” Bryce may be contacted at bryce.

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March 2014 » InsuranceNewsNet Magazine


For more than 80 years, the Society of Financial Service Professionals has been helping individuals, families and businesses achieve financial security.


Debate Over Suitability Standards Rages On L  ife insurance agents are caught in the crossfire of conflicting standards of care. By Richard M. Weber

“Snu?” The response to this old joke: “Not much. ‘Snu’ with you?” Well, for one thing, this column is “nu.” Having the privilege to be this column’s first writer, I’d like to tell you a little about the Society of Financial Service Professionals (FSP). Over the next few months, I’ll write about some of the big issues we believe all financial practitioners are or will be facing. Members of the “86 year young” Society of FSP carry on a reputation for world-class know-how in the practical, sophisticated application and uses of life, health, disability and long-term care insurance, as well as annuities. Tracking with The Society of FSP’s diversified membership is how the various planning fields have overlapped. It’s no longer about the “INsurance” agent versus the “stock jock.” Along with the other peer professions under the financial services umbrella, client-facing professionals must be aware of and become knowledgeable about the broad scope of virtually all aspects of the things that affect and concern clients. It’s not enough for a financial planner to ask their client, “Do you have an insurance broker?” and, with the client’s head nod, move on to the next topic. For example, the Society of FSP’s Code of Professional Conduct requires a member to put the “client’s interest above his/her own.” In turn, this implies that the member’s commitment is not just to inquire about a homeowner’s policy – or a life insurance policy or any of the other insurance coverage appropriate to the situation. Instead, the member’s commitment is either to be the insurance expert, or to network with such an expert to make certain that all aspects of the client’s financial life – including risk management – are coordinated and reviewed for adequacy and 58

appropriateness on an ongoing basis. The great debate about appropriate standards of care within the securities, advisory and insurance segments of the financial services industry began in 2010 with the passage of the DoddFrank Wall Street Reform and Consumer Protection Act. Included was the requirement that the Securities & Exchange Commission (SEC) evaluate harmonizing the different standards of care between a (generally fee-based) Registered Investment Advisor (RIA) and a (most often commission-based) Registered Representative. Caught between these two communities are life insurance agents, who may be acting neither as advisors nor as securities brokers but simply as insurance agents. Should an agent be held to a “client’s interest above my own” standard – as is the obligation of the RIA – or to the lesser “suitability” standard of securities brokers? Four years after Dodd-Frank was passed, not only is the debate about standards of care still raging, but also more regulatory agencies are getting involved. The Department of Labor (DOL) is expected to rule later this year on a possibly elevated standard of care for those working with consumers and their retirement plans, while the Financial Industry Regulatory Authority (FINRA) is focused on strengthening and heightening its own compliance directives to broker/dealers. Dodd-Frank also created a mandate for state departments of insurance to establish FINRA-like suitability requirements for insurance agents selling annuities and life products. Many insurance producers are certain to be “caught in the crossfire” of conflicting standards if they are licensed to sell both general account and securities-based products. But will insurance agents who don’t sell securities or render financial advice continue to be drawn onto the battleground for still higher standards of care?

InsuranceNewsNet Magazine » March 2014

While it’s unlikely to be resolved in the near term, the Society’s Standards of Care Committee anticipates that regulators will ultimately bring all financial services into a “client’s interest above my own” environment. An issue often overlooked by those opposed to standards of care is that many practitioners may already be held to a high standard simply by the professional or industry organizations to which they belong. The Society of FSP, the Certified Financial Planner Board of Standards, the American Institute of Certified Public Accountants, the American Bar Association and the Investment Management Consultants Association (IMCA) – among others – all impose the higher “client’s interest” standard as a condition of membership. The Million Dollar Round Table, the National Association of Insurance and Financial Advisors and other insurance industry organizations have similar statements of ethical conduct on behalf of clients. A high standard may also be applied in a trial or arbitration complaint about an alleged misrepresentation made by the agent to the client. If you use the phrase “financial advisor” on your business card or website, or otherwise give the impression of providing comprehensive financial planning when you’re only helping to fulfill insurance needs, you may be making the plaintiff’s attorney’s job so much easier. Richard M. Weber, MBA, CLU, AEP, is the immediate past president of the Society of Financial Service Professionals. He may be contacted at

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


Achieve More Leads With These Simple Steps Follow this advice to increase your pool of contacts and see more prospects. By Guy E. Baker


will let you in on a secret: No one likes to be told “no,” especially when prospecting. Don’t let reluctance and your fear of rejection prevent you from taking action. If we don’t have confidence, we face a downward spiral that will ultimately doom us as defeated agents who never lived up to their potential. You need to take risks in order to rise to the pinnacle of success. Being active in a financial association, such as the Million Dollar Round Table (MDRT), is a great way to learn from fellow financial professionals who have experienced a variety of challenges. Through my membership, I learned some effective prospecting strategies that you can implement to jump-start your production.

Get Involved

To begin prospecting, you must start with an idea. You must have an idea about your target market, how you will reach prospects and how you will retain clients. One way to find the answers to these questions and many more is by attending industry events such as the MDRT Annual Meeting. Here you can discover the latest trends and new ideas to apply in your practice. You can even use these meetings to springboard your ideas off other financial professionals. Ask them for their opinion and help on evaluating your ideas. Then ask them for the names of individuals with whom you could discuss your ideas. I have done this for years, and it has always increased my activity. The only way you can fail is by not putting yourself out there.

Aim for Two a Day

After you have your idea and plan, try a process called “two a day,” which means you find two people every day who will 60

talk to you about your idea. Now, this may sound simple, but there is one more step to this process. These two people have to agree to actually see you. They either need to confirm an appointment with you or agree that you can call them back on a specific day to schedule a meeting. If you get two appointments a day for 30 days, you will have 60 people who have heard about your idea and had an open discussion with you. If the prospects put you off or won’t set a time to see you in the future, then they don’t count. Set your sights on two people a day, every day. Try it for three months, and I guarantee you will have more leads than you thought was possible.

Collaborate With Centers of Influence

Another way to increase your pool of contacts is to network with centers of influence outside the financial profession. This is an important aspect of any advisor’s career. You must remember that other professionals have additional areas of expertise that are suited to different aspects of a client’s life. For example, if your client works with a trusted lawyer, accountant or any other professional, it is vital to establish strong relationships with these individuals in order to provide outstanding service on your

InsuranceNewsNet Magazine » March 2014

client’s behalf. Presenting yourself as a resource to both your clients and other professionals is a sure way to expand your pool of prospects. It takes fortitude to be successful, and if you do these few things, you’ll be on your way to meeting your goals. Keep in mind that to achieve success you have to put yourself on the firing line and take a risk. After all, what is the worst thing that can happen? You are told “no.” Are you any worse off than you were before you asked? Of course not; in fact, one could argue that you are better off because you gained experience. As I read many years ago, “The difference between a successful person and an unsuccessful person is the successful person is willing to do the things the unsuccessful person is unwilling to do.” So which person are you? Guy E. Baker, MSFS, CLU, of Irvine, Calif., is the founder of BTA Advisory Group, a multidisciplinary organization serving the needs of wealthy families and owners of closely held businesses. He is a 43-year Million Dollar Round Table (MDRT) member with 35 Top of the Table qualifications and six Court of the Table qualifications. He served as 2010 MDRT president and 2000 MDRT Foundation president. Guy may be contacted at


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.

Growing Your Client Relationships S  tart by asking your clients about their goals and dreams, then show how you can help turn them into reality. By John J. Favaloro


ultivating your client relationships is very similar to growing a garden. Once a prospect becomes a client, the relationship needs to be nurtured and developed as his needs grow and change. One way to deepen that relationship, build loyalty and increase your value is by asking a few simple questions. Let’s say you have a client who bought whole life insurance to supplement the group insurance offered at work. The client is married and has two children. The spouse is re-entering the workforce after staying home with the children for a few years. You know the client’s income and mortgage payment, current age and the ages of the children. What can you do to turn this basic information into a long-term relationship?

Questions to Ask

First, let’s find out more about the spouse and the new job. Will the spouse have life insurance at the job? Will the group life insurance be enough to cover the cost of replacing the spouse’s contributions to the household if something were to happen? Since the spouse is re-entering the workforce after an absence, will the new salary add significantly to the household income, or will it be offset by increased child care and transportation costs? This is an opportunity to offer a free financial review to help the couple adjust their budget and look at some new savings opportunities. What if the spouse is planning to start an at-home business? You can become a valuable resource by recommending insurance for the small-business owner or even suggest a simplified employee pension or SIMPLE retirement plan. Now you have two clients – an individual and a small-business owner. Retirement

might seem like a long way off to your young clients, but starting early is the best way to build a nest egg. Start your conversations by asking your clients about their long-term goals and dreams. Questions like “What do you want to do when you retire?” or “What’s the one place you must visit before you die?” will help your clients envision their retirement in terms of lifestyle and activities. Another easy question is, “Where have you worked before?” The answer provides you with more information about your clients and might remind them about a 401(k) or a 403(b) plan that needs to be rolled over. By asking your clients about their dreams and goals, you can uncover ways to add value to your relationship as you help them attain their goals. Most parents love to talk about their children, so ask what their kids want to be when they grow up, and where they want to go to college. Then ask how they plan to pay for it. Are your clients participating in a state-sponsored 529 plan? Are they setting aside some money from each paycheck? You can help your clients choose the tax-deferred education plan that is right for them and for their children. Another important question concerns guardians. Who will take care of the children if something were to happen to both parents? Who will make the decisions about their children’s financial futures? Introduce your clients to custodial accounts and trusts and review your clients’ beneficiaries. Many people make the mistake of naming their minor children as the beneficiaries of their accounts; yet, the children would not be

eligible to take control of the accounts until they are 18. Finally, if your clients have a child with special needs, how are they planning to make sure that the child receives the care he or she needs for as long as he or she needs it? You can help your clients structure their finances to support the child without compromising future eligibility for Medicare, Medicaid and other services. Even though your clients are young, now is the time to introduce estate planning, but keep it simple and understandable. Estate planning may cost more than young families can or want to spend now, but it is important to lay the groundwork for future discussions. Start by asking your clients if they have basic wills. As you develop your relationship with your clients and build their trust, you can add more topics to your discussions. Talk to them about coverage to supplement their group term insurance, for instance, or how to structure their accounts to reduce or potentially eliminate estate taxes. Gradually increase the depth and breadth of your discussions as your clients’ financial portfolios increase. Remind them that most people need some sort of estate planning, even if they aren’t mega-millionaires. John J. Favaloro, CLU, is managing director of MetLife of the Carolinas in Charlotte, N.C. He has been a NAIFA member for 26 years. John may be contacted at john.favaloro@

March 2014 » InsuranceNewsNet Magazine


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.


The Lifetime Value of a Financial Professional T  he financial services industry must make a significant investment in recruiting and retaining the sales professionals of the future. By Patrick T. Leary


he financial services industry continues to struggle with the issue of sales capacity. Not enough new professionals are entering and staying in our industry to replace those who are retiring or leaving. Where will the sales talent – and their production – come from in the future? Although firms in both investment and insurance channels are re-engaged and making progress in stabilizing the sales force, more must be done to stem the tide. Given the challenges of sales capacity faced by both manufacturers and distributors, it is beneficial to take a holistic view of the lifetime value of a financial professional. By doing so, organizations can benefit regardless of whether they actively recruit and employ sales professionals or partner with them on an independent basis. Engaging a financial professional over a lifetime means developing a value proposition at each of four stages:

them on board and help them succeed. Experienced professionals must be particularly engaged, not only with an appealing compensation and incentive plan, but also a strategy to grow revenue and establish the practice quickly. Successful organizations need to provide a framework around training, mentoring and support to build the foundation of a long-term practice model.



Recruiting and Selection. What is your talent acquisition strategy? How are you differentiating your brand from other professional sales opportunities, both within the industry and outside the industry? Are you recognizing what today’s candidates value most in a sales position? Today’s successful organizations will be looking outside the box (and the industry) for creative ways to source and engage top talent.


Onboarding. Is there a connection between selecting financial professionals and onboarding them? Or is there a disconnect? If newly hired professionals are not engaged early on, it will be an uphill battle to keep 62

Practice Growth and Development. Once financial professionals are established, firms can offer appealing support models to help take them to the next level and build a true financial services practice. Leveraging your firm’s access to products, services and support can help establish a clear market position, build and protect practice value and increase sales capacity. Focusing on sales effectiveness training helps advisors and agents better penetrate existing client accounts and open new market opportunities. Leading-edge practice management and social media platforms that drive efficiency and expand capacity can make a real difference to a practice.

InsuranceNewsNet Magazine » March 2014


Succession and Business Transition. Organizations have a stake in practice transition to ensure an ongoing relationship with the ultimate successor. Business and transition planning is a long-term (10 years or more) endeavor, particularly for independent practices. Considerations such as revenue mix, client demographic profile and the growth trajectory of the business all contribute to valuing a practice. These factors cannot be addressed overnight. By engaging today’s advisors and agents across the four stages of their professional lifetime, organizations can develop enduring relationships with top professionals. Organizations that can effectively establish and strengthen the links among these four stages will position themselves to attract and retain the best performers today and well into the future. Patrick T. Leary, MBA, LLIF, is assistant vice president, distribution research for LIMRA. Patrick may be contacted at patrick.leary@

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Be Proactive in Protecting Your Clients’ Personal Information The recent rash of data breaches tells us that there are numerous threats to your clients’ personal information. By Larry Barton


ews headlines continue to remind us about organizational vulnerability to data breaches. Although retailers and hotel chains have suffered the most in terms of lost customer confidence, virtually every enterprise has exposure to the backlash from anyone who may feel betrayed. In recent weeks, for a study I am writing, I interviewed 18 experts from a variety of companies and government agencies regarding threats by those who feel they may have had their personal information stolen. In doing so, we seek to build a better understanding of nonweapon-based threats in which your receptionist, an agent or anyone in your insurance practice who interacts with others could realize that data was lost or stolen. In very rare cases, an angry client can begin to threaten an agent, a general agent or even a chief executive officer. The time to think about how to react to such a situation is now. Again, purely through the lens of ensuring that client data is protected and that you are ready if there is an intentional breach by a third party, here is what we have learned: If your broker/dealer or underwriter has offered public assurances of cyber resiliency, you should be aware of past pledges and promises made. The Wall Street Journal recently criticized the CEO of Target for arguing against the “chip in a credit card” process that is increasingly being adopted by Visa, MasterCard, American Express and other card issuers. Now the CEO is encouraging retailers who have their own card, such as Target, to adopt the technology. It took a seismic embarrassment for him to reach that conclusion, and the Journal called him on it. 64

Any client, especially one contacting a property/casualty agent after an accident or tragedy, can be emotional and could express hostility, especially to a claims representative. Most people are venting after the loss of a home or boat and are waiting to get their life restored. Threats against life insurance agents are incredibly rare. However, when you (or your B/D) must notify hundreds or even thousands of clients of a potential data breach, life will change. Besides the “jerk” who is mouthing off, the hostile client may include a member of your church or synagogue, a soccer mom or dad, a National Guardsman, or an AARP member. This is new territory for many insurance agents who must ponder: “Do I say I’m sorry? Does that assume liability? How can I explain a data breach when I don’t even know if the data will ever be used to the detriment of a client?” Your team should be ready to discuss and should have a plan to: » Have standby statements if client data were lost or stolen. This includes a list of frequently asked questions and answers that can always be modified based on the incident. » Have a brief email ready for delivery to clients once you are informed and receive approval from your B/D about communicating. Research by the Ponemon Institute suggests that companies that have been targeted in a data breach knew about it for 10.9 days on average before that organization enacted a meaningful response. In a world of “now,” this is unacceptable. » Be ready with a “shadow website” that would be placed parallel to your agency’s website with updates on how to contact LifeLock or other security companies and how to report any questions or concerns to authorities in the event of a massive breach announced by any of the companies with whom you write business.

InsuranceNewsNet Magazine » March 2014

The time to seek approval on wording from compliance will not be when Fox News or CNN announces the breach. While your home office will push back and say, “We have that covered,” it will not be able to take your calls when a national story unfolds. Make the home office staff earn their salaries now. » Review your errors and omissions and directors and officers policies now to determine what exposure you may have if there is a data breach. Remember that employee data within your human resources database is as potentially exposed as client or underwriting information. Separate information technology coverage is available to most insurance professionals from your underwriter. The cost of that coverage, while high, will likely only surge in the next year. My recommendation is that you consider locking in a rate for a multiyear policy from a quality carrier. Negotiate hard, as prices vary widely depending upon the number of policies you have within your practice. Charisma is a quality but it is only one of several needed in order to be instrumental in guiding your practice through a storm. Think about an airline pilot who is aware of storms around him. He turns to the co-pilot and must consider not only Federal Aviation Administration and weather data but also what he sees and observes. The co-pilot, looking at the same radar screen, says that she is aware of what other pilots are saying and that a change in plans is prudent. That is precisely what is happening in the insurance industry. The radar screen is showing us situations in other industries. You’re the pilot. Now act like one and get us around, and through, this storm. Larry Barton is chancellor of The American College. Larry may be contacted at larry.

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InsuranceNewsNet Magazine - March 2014  

The Tax Surprise

InsuranceNewsNet Magazine - March 2014  

The Tax Surprise