InsuranceNewsNet Magazine - April 2015 by InsuranceNewsNet

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APRIL 2015 » VOLUME 8, NUMBER 4

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IN THIS ISSUE

View and share the articles from this month’s issue

46 46 B ailout Caps Relieve ‘Trust Me’ Anxiety By Eric Taylor A few carriers have taken an extra step to help mitigate the potential renewal cap risk in index annuities by adding a bailout provision.

50 INFRONT

12 M ore Seek Lifetime Income, but Few Understand Annuities By Linda Koco Even though 2014 annuity sales were up, the retirement industry still has work to do before more consumers understand annuities.

FEATURE

24 True Stories: How I Cracked the Big Case By Linda Koco The big case, individual life insurance market can be elusive. Top advisors provide the clues to follow in cracking this segment.

HEALTH

50 E mployee Wellness Programs: More Than a Gym Membership By Jim O’Connor Return on investment is the key to presenting the concept of wellness to group health clients.

FINANCIAL

54 Simplified Answers for Clients’ Key Questions About Stocks

LIFE

34 A Buy-Sell Plan That Gives Owners Life Insurance Control

INTERVIEW

14 Extreme GRIT: The Science of Top Performance An interview with Paul Stoltz Science has tried for hundreds of years to figure out the magic formula for success. Paul Stoltz has boiled it down to one word — GRIT. In this interview with InsuranceNewsNet Publisher Paul Feldman, Stoltz tells how Growth, Resilience, Instinct and Tenacity combine to make anyone a top performer in their field. 4

InsuranceNewsNet Magazine » April 2015

By Howard Jonas and William R. Buslee Without a written and funded buy-sell agreement, what ultimately happens to a business may not be what the original owner intended. Here’s how life insurance can fund a plan.

ANNUITY

42 D on’t Assume That Your Clients Understand the Basics of Annuities By Christopher Bartolotta Boost your clients’ chances of a successful retirement by leading them through a “boot camp” on annuities.

By Bryce Sanders A handy primer for advisors who dabble in mutual funds but are now looking at the broader equities market and need to brush up on basics.

BUSINESS

58 It’s Lonely at the Top: The Value of Sales Coaching By Harvey Pollack Engaging a sales coach will give you the edge you need to rise above the competition.

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ALSO IN THIS ISSUE APRIL 2015 » VOLUME 8, NUMBER 4

INSIGHTS

60 MDRT: Living Benefits — Only the Tip of Life Insurance Value By Arkady Milgram Permanent life offers much more than cash value accumulation for retirement.

· One with a 401(k) · One through a brokerage account · One through life insurance You can guess who was able to retire and live the lifestyle she’d dreamed of.

By Jennifer DeTroye The millennial generation needs our help in planning for their financial future. Just as important, the industry needs the millennials to replenish the ranks of retiring advisors.

64 LIMRA: Are Consumer Buying Preferences Changing the Advisor’s Role?

Discover how to increase your IUL production when you use this book to expose the perils of “traditional” retirement plans.

The Retirement Challenge follows the tale of 3 sisters who take 3 different routes for retirement savings:

62 T HE AMERICAN COLLEGE: Ignoring the Millennials Will Lead to the Industry’s Demise

61 N AIFA: Four Principles to Help Guide Your Relationship With Clients

By James W. Kerley Advisors must shift from a sales approach to a more educational approach if they want to remain relevant to today’s consumers.

By William Richardson III Reassure your clients that their investment plan will sustain their retirement.

EVERY ISSUE 10 Editor’s Letter 22 NewsWires

32 LifeWires 40 AnnuityWires

48 HealthWires 52 FinancialWires

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15 INN 04.15 April 2015 » InsuranceNewsNet Magazine 7

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April 2015 » InsuranceNewsNet Magazine

WELCOME LETTER FROM THE EDITOR

Don’t Pass the Ammo

“W

hy Annuity Middlemen Have Outlived Their Usefulness” – that was the headline on the latest Stan Haithcock article on MarketWatch. He calls himself Stan the Annuity Man, but many probably think of him as Stan the Annuity-Hating Man. Actually, he loves plain annuities such as single premium immediate annuities (SPIAs). He hates fixed index and variable annuities. In the article, Haithcock focused on independent marketing organizations (IMOs) and their variants as the expendable middle. He went on to throw agents into the boiling oil, too, saying they will be terminated by robo-advisors. In the comment section, he recalled that his former boss at Dean Witter said you couldn’t expect people to pick their own stocks, so there would always be stockbrokers (or something like that – the quote was not entirely intelligible). So, how well have people done by their cut-rate stock purchasing? With the roaring markets, shouldn’t just about every American be rich about now? After all, they don’t have large broker fees slowing them down. But the typical family nearing retirement has only $104,000 in savings, according to reports based on a study from the Federal Reserve’s Survey of Consumer Finances. That number seems high, frankly. Other studies show that the majority of Americans are deeper in desperation. Bankrate did a survey that showed 76 percent of Americans are living paycheck to paycheck. Another recent Bankrate poll showed that 62 percent of people could not handle an unexpected expense, such as a car repair. And a Gallup study showed 21 percent of Americans can’t pay their medical bills. (Even with the Affordable Care Act, that number will likely rise with copays, deductibles and unreimbursed long-term care.) In the meantime, the bull market has been bucking for six years now. Interest rates are the lowest anybody has ever seen, and likely will ever see again. So, mortgages are more affordable. Homeowners’ property values are also probably growing again. Nevertheless, you won’t see a Victory Over 10

InsuranceNewsNet Magazine » April 2015

Recession parade anytime soon. Of course, a key reason is chronic underemployment and stagnant wage growth. Even so, shouldn’t people have been able to make a lot more even with the smaller pile they have? It is the current fashion to focus on advisor fees and commissions as the culprit. I certainly don’t support unreasonably high fees. But even so, rich people are getting pretty darn richer with their advisors. It’s not because they were able to sit home on their laptops, picking stocks and funds on E*Trade. Surrounding the smoldering mess of American family finances is a ring of stockbrokers, investment advisors and insurance agents passing the ball of blame from one to the other. Let’s say the insurance sector is holding the ball at the moment. What should we make of this point in time? This is important, because the feds are looking to grab this thing and run with it. The qualified longevity annuity contract (QLAC) was designed to build firm guardrails on retirement income. This is an answer to the problem of outliving assets. QLACs are simple deferred annuities that start at age 85 or so. The Obama administration deliberately left FIAs out of the QLAC tent. It was probably because of the scent of snake oil hanging on the products. FIAs have been synonymous with hucksterism for decades because of some dubious marketing practices and unsuitable sales. The bad publicity certainly has been fanned by a resentful financial services contingent, but the insurance industry gave them the spark to start with.

Responsible insurance companies, marketers and agents have been diligent about cleaning up the business, but new schemes constantly pop up to sully the market. Even annuity-friendly Iowa issued a warning recently. The September bulletin started with this: The Iowa Insurance Division (the Division) has observed an increase in misleading advertising by producers and insurance marketing organizations (IMOs) under contract with insurance companies. The letter listed three problem areas: advertising high-interest lifetime withdrawal benefit riders as an annual rate of return; promising “uncapped rates of return;” and fictional “back-casting.” The last one is taking a new index and showing how it would have performed in a favorable environment in the past. Basically, regulators are saying that’s a fantasy. These all seem to be attempts to sound like a financial product. If people keep marketing this way, they will get their wish, and annuities will be regulated like a financial product. So, the industry still has a bit of work to do regarding sales practices and improving its image. It’s difficult to say the haters have it all wrong when we keep proving them right. The federal government will slowly turn its wheel toward annuities as an answer for the retirement crisis. Will that ship bypass the annuity distribution system? It could happen. In that case, Haithcock’s headline actually will be true. Steven A. Morelli Editor-In-Chief

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April 2015 » InsuranceNewsNet Magazine

INFRONT TIMELY ISSUES THAT MATTER TO YOU

More Seek Lifetime Income but Few Understand Annuities Although the vast majority of Americans think it’s important to have a guaranteed monthly paycheck in retirement, only a small percentage have purchased an annuity that will ensure it. By Linda Koco

he annuity puzzle continues. Although 84 percent of Americans consider it important to have a guaranteed monthly paycheck in retirement, only 14 percent have purchased an annuity that will ensure lifetime income. This is according to the TIAA-CREF 2015 Lifetime Income Survey. In addition, although 46 percent of Americans say they are worried about running out of money in retirement, 65 percent say they are not familiar with annuities. And although 49 percent said they would be willing to commit a portion of their savings to a product that would provide a monthly income, such as an annuity, only 28 percent indicated they have a favorable impression of annuities. Only 31 percent have sought advice on how to translate savings into lifetime income, and 44 percent were not sure if receiving monthly income in retirement was an option in their retirement plan. Fully 62 percent have not even done an analysis of how to translate their savings into a monthly income, the survey indicated.

Not as Chilling as It Sounds

If taken as an end-of-story outcome for the future of annuities, the findings could be considered chilling news for the annuity industry’s sales prospects. However, the dichotomy identified in the survey is not the end of the story. LIMRA Secure Retirement Institute (LIMRA SRI) announced that total U.S. annuity sales grew by 3 percent in 2014. Even more important, LIMRA SRI’s figures showed that sales of annuity products that are designed expressly for guaranteed income streams rose by double digits. The double-digit increases suggest that 12

InsuranceNewsNet Magazine » April 2015

What is your impression of annuities?

What It Means

39%

28%

21% 12%

Favorable

Unfavorable

Neutral

Don’t know

Have you purchased an annuity or do you plan to in the future? 61%

14%

Yes, I have No, but I No, but No, I do Don’t already plan to at I plan to not plan to know purchased some point when I purchase an an annuity retire annuity Source: TIAA-CREF Lifetime Income Survey Executive Summary

the annuities designed for lifetime income have been resonating with at least some consumers, the “puzzle” notwithstanding. In fact, immediate income annuity sales jumped by 17 percent in 2014, to $9.7 billion from $8.3 billion in 2013 and $7.7 billion the year before that. And deferred income annuities (DIAs), which start their income stream several years after purchase, saw sales jump by an even higher percentage — by 22 percent to be exact — to $2.7 billion, LIMRA SRI said. The DIA sales total might seem paltry compared with the industry total for all individual annuities of nearly $236 billion in 2014. However, DIAs have been actively sold for only a few years, and yet their sales have soared from $1 billion in 2012 and $2.2 billion in 2013 to the new level of $2.7 billion. It’s the upward bound momentum that makes the numbers significant from a lifetime income perspective. That’s not all. Sales of fixed index annuities (FIAs) leapt forward by 23 percent last year to a total of $48.2 billion, LIMRA SRI reported. That’s up from $39.3 billion in 2013 and $33.9 billion in 2012. The FIA sales growth is pertinent to the lifetime income discussion because the majority of FIAs are sold with a guaranteed lifetime withdrawal benefit (GLWB) rider attached, when available. The riders ensure a lifetime income stream continues even if the account value is exhausted from withdrawals made according to terms of the rider.

TIAA-CREF is taking its survey findings as an indication that the retirement industry needs to do some work to help increase consumer understanding of annuities. “For many Americans, annuities are often unknown or misunderstood,” Ed Van Dolsen, president-retirement and individual financial services at TIAA-CREF, said in a statement. That’s “unfortunate,” since annuities are “the only way to generate retirement income that cannot be outlived.” His suggestion is that consumers “should consider working one-on-one with a financial advisor to learn more about the investment solutions that can help them achieve their long-term financial goals.” In addition, he said that “individuals will feel more confident in their retirement plans if they know that their basic expenses will be covered by guaranteed income. Therefore, any retirement-planning conversation should include a discussion of strategies for generating lifetime income, and how annuities can help create financial security.” A couple of annuity positives came from the survey too: » Nearly half (48 percent) of older people, ages 55 to 64, said they are familiar with annuities. (By comparison, only 26 percent of younger adults, ages 18-34, said the same.) » Nearly half (48 percent) of the survey group said that having guaranteed income to cover living costs should be the primary goal for their retirement plan. That is up from 34 percent in 2014, so awareness is up.

Conducted in January by an independent researcher, the survey represents a random sample of 1,000 adults nationwide, TIAACREF said, noting the survey made no reference to TIAA-CREF products or services. InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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InsuranceNewsNet Magazine Âť April 2015

EXTREME GRIT: THE SCIENCE OF TOP PERFORMANCE INTERVIEW e all have heard the stories of entrepreneurs and business leaders who were able to rise above any obstacle in their path to reach massive levels of success. When asked to describe what sets them apart or what their secret is, these leaders find it’s often hard to put a finger on it. Science has tried for hundreds of years to figure out the magic formula for success. Paul Stoltz has seemed to crack the code through 35 years of research on millions of people around the world and more than 300,000 insurance agents. His formula can be summed up with one word — GRIT. According to Webster’s dictionary, the definition of grit is “great courage and fortitude,” but Paul has taken this word further with his own acronym that can measure one’s propensity for achieving and sustaining success (Growth, Resilience, Instinct and Tenacity). The great news from Paul’s latest research is that this technology can be used to find stellar employees and agents and can even be used to improve your own level of GRIT. Paul Stoltz is a researcher, trainer and author who says GRIT is what it takes for the good to become great. He has advised many of the leading companies, including insurance carriers, and their staffs around the world. He brings his insight from his work as the director of the Global Resilience Project, where he oversees research in 17 countries. His partners include faculty and researchers from Yale University, Stanford University and more than a dozen universities overseas. In his latest book, GRIT: The New Science of What it Takes to Persevere, Flourish, Succeed, Paul explains how the combination of these elements is the best offense in today’s tough sales environment. In this interview with InsuranceNewsNet Publisher Paul Feldman, he explains the ingredients of GRIT and how to mix them together to create a potent cocktail of success.

Would you explain that? It seems like an important baseline to start.

FELDMAN: In your latest book, GRIT, you covered quite a bit on what you described as the Adversity Quotient.

FELDMAN: What did you find that made a difference in agent retention and performance?

STOLTZ: You bet. The Adversity Quotient was really the result of about 35 years of work trying to uncover what it is inside human beings that keeps the lights on when most people dim the lights prematurely. The original work stemmed from research on a book on entrepreneurial DNA and trying to find out why some people prevail and succeed and most people don’t.

Long story short, what we found was this human interface with adversity — how people handle the tough stuff — was the single most predictive factor. So we set about trying to decode that and thought, “Wouldn’t it be great if there were a way to measure that thing called your Adversity Quotient, or AQ?” We’ve assessed the AQs of more than a million people around the world and found it to be an incredibly robust predictor of a lot of things in the insurance industry.

STOLTZ: We found three main things that were hugely important. We looked at 15,000 applicants against 1,000 spots that were open. The companies hired the applicants based on normal criteria, but we had assessed this thing called AQ and then later in the game this thing called GRIT. We found that the agents on the high end of the AQ scale sold about 90 percent more than lower AQ agents. The same thing turns out to be true of GRIT. The astonishing thing about it was the tougher the product was to sell, the bigger the

difference both AQ and GRIT make in how much you sold. We also found that those who scored in the bottom quartile were three times more likely to quit. That was hugely predictive of attrition and retention. Third of all, in one example, there was a group of 256 former rejects who were hired just because they scored so high on AQ, but they weren’t told that. So these are people who didn’t cut it, and they were hired anyway just to see what would happen. To our astonishment, they ended up being the top-performing group on average in the company. That’s how robust a predictor this could be. April 2015 » InsuranceNewsNet Magazine

INTERVIEW EXTREME GRIT: THE SCIENCE OF TOP PERFORMANCE If you’re an independent insurance agent, you eat adversity for breakfast, lunch and dinner. And obviously, those who can turn that adversity into highperformance nutrition are the ones who are going to prevail. FELDMAN: What is GRIT? STOLTZ: GRIT is your capacity to dig deep and do whatever it takes, especially to struggle and sacrifice, in the relentless pursuit of your goals. AQ is defense — how you respond to whatever comes your way. GRIT is offense. It’s how you go after it and make it happen no matter what. And you have to have both. You’ve got to have both a strong defense and a strong offense to win. FELDMAN: GRIT is an acronym. Would you mind explaining it? STOLTZ: The four key drivers of GRIT are Growth, Resilience, Instinct and Tenacity. FELDMAN: When you addressed growth in your book, you said it is a mindset, but that word is pretty nebulous. How do you define mindset? STOLTZ: Mindset is the lens through which you see and navigate life. But I’ve got a bugaboo about mindset because when I coach multinational CEOs, I hear everyone pound the lectern and talk about, “We’ve got to strengthen our mindset. You have to have the right mindset.” I started to wonder what they even mean. I think a lot of them mean attitude. Because we’re a research firm, we went around the world to decode what is a winning mindset. We started picking out all the elements of a winning mindset and had those validated by the Educational Testing Service. That growth mindset means two things. No. 1, to what extent do you attribute your success to your effort versus your talent? That’s a very important factor. And then the other is, how well do you incorporate fresh ideas and perspectives and input into whatever you’re doing? FELDMAN: The next letter is for resilience. Isn’t that as important as growth?

InsuranceNewsNet Magazine » April 2015

It’s not just about weak to strong GRIT; it’s also about dumb or smart GRIT. STOLTZ: You bet. Resilience is traditionally thought of as how well you bounce back. The average number of adversities that a human being faces in a given day is 32. But if you are merely bouncing back from them, nothing changes. You never improve. Our definition of resilience, especially in the insurance industry, is your capacity to harness adversity. People with greater GRIT tend to respond more effectively and be more likely to harness their adversity. People with lower GRIT don’t do that so well. Given that we’re pummeled by adversity all day, that’s a key factor in persevering. FELDMAN: I have never heard that we face 32 adversities a day. Where does that come from? STOLTZ: From our global research over the past 24 years. We go around the world and poll people about the number of headaches, hassles, problems, difficulties, setbacks, obstacles and adversities they face in a given day, and they have to list them to substantiate their number. And I’ll tell you, it’s astonishing. Twenty-three years ago, would you believe the average number was three and then it went up to seven and then it doubled again and doubled again? I think the number’s gone up to 32 a day since the last big data crunch. In that data, for the first time ever, we showed women facing more adversities than men — and of course they’ll tell you that’s because they have to deal with men — but nonetheless their numbers are a little

higher. The main point is to think about whom you’re selling to as an insurance agent. I mean, what a gig! You’ve got to stalk people who desperately don’t want to talk to you and then say, “Hey, let me sell you a product you never get to enjoy. And by the way, you’d better spend today’s pleasure money to buy it. What do you say?” So, how an agent handles adversity is a pivotal factor in whether they stick around and how well they do. There’s every reason in the world that the industry has 86 percent attrition in the first few years. But the part that blows my mind about your industry is that when we ask CEOs of big companies what’s the full, calculated cost of recruiting, screening, hiring, training and equipping one agent, they tell us it’s about half a million dollars. FELDMAN: What about your next one, instinct? STOLTZ: Instinct is an interesting one. It is your gut-level capacity to pursue the right goals in the most effective ways. People who score higher on instinct tend to do better. People who score lower tend to waste more time and effort pursuing less-than-optimal goals in less-than-optimal ways. You may know people who are insanely persistent in ineffective ways. FELDMAN: And then you wrap it all up in tenacity. STOLTZ: Tenacity is that raw element of GRIT — the relentless perseverance to keep at it until you come out the other side. Few industries demand greater tenacity than the insurance industry. What we want to do is upgrade the conversation and improve the quality of people’s tenacity, not just the quantity, so they’re coming at it in ways that are more likely to produce results. FELDMAN: Is the quality of tenacity what makes the difference? STOLTZ: This is where we blow up GRIT from GRIT 1.0 to GRIT 2.0. It’s not just about weak to strong GRIT; it’s also about dumb or smart GRIT. Dumb GRIT is when you’re pounding your head to a bloody stump. You

I PITY THE APRIL FOOL WHO DOESN’T

SOUND LIKE A STAR TO SELL LIKE ONE INTERVIEW

just keep pounding away at that thing in pretty much the same way — that same thing in the same way hoping it will create a breakthrough. Smart GRIT is having the wherewithal to step back and reassess and reroute as needed. Is this still the best goal? Is this still the best way to get to that goal? What adjustments can I make in how I’m going at this to increase and accelerate my chance of success? Then there’s bad versus good GRIT. Bad GRIT — we’ve all seen this. Maybe it’s that boss from hell or client from hell, but it’s the person who goes relentlessly after their goals in ways that are ultimately harmful or detrimental to others. People made that comment about Steve Jobs. Was he effective? Did he have GRIT off the charts? You bet. But he went at it in ways that ate his people alive, and everybody said it was brutally difficult and brutally stressful to work directly for Steve Jobs. Good GRIT is when you go after those same goals in ways that are beneficial to other people. So when you think of putting it all together, as an insurance agent — especially since it’s such a relationshipbased business — what you’re ultimately striving to do is demonstrate your smartest and strongest GRIT across all four of those dimensions with anyone in pretty much any situation. And if you do that, it creates the magic that your industry thrives on called trust.

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FELDMAN: How do you set GRIT-y goals? STOLTZ: GRIT-y goals are about amping it up. They are about setting the kind of goals that really get your juices going. They should be daunting. They should be tough. They should require — inherently require — suffering and struggle and sacrifice in order to get there. So when we talk about GRIT-y goals, we have companies lay out the most important thing that they’re aspiring to right now and then we asked them some questions: Is it tough enough? Does it require real sacrifice, struggle and maybe frustration to get there? Is it something few others might attempt? And if you get it, is it worth the effort that it might take for you to succeed? Is the prize on the other side big enough for you to give it your greatest?

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17 03/15

INTERVIEW EXTREME GRIT: THE SCIENCE OF TOP PERFORMANCE You can see people’s spines straightening in their chairs as they start talking about this. FELDMAN: Do you think that people set their goals too low? STOLTZ: You get beaten down by adversity. In the insurance profession you may decide that baseline quota is your goal. Well, does that really get you to spring out of bed on a cold, gray, dark, stormy January morning? When the alarm goes off, do you turn to your sweetheart or your furry friend and say, “I’m gonna keep quota today!” Or is there something bigger that you’re going after? Is there a lifestyle you’re trying to create? Are you trying to provide for other people? Are you trying to achieve something in your life that means much more than just achieving that number? FELDMAN: According to your book, you can improve your GRIT. Was that a surprise in your research? STOLTZ: That’s the big breakthrough. We now know unequivocally that you can measurably and permanently upgrade your GRIT. The biggest factor is your “why.” What are you trying to accomplish? How strong of a sense of purpose do you honestly feel about that goal? Now, being brutally honest, how strong is your why on a scale of 1 to 10? And No. 2, how strong is your “try” on a scale of 1 to 10, 10 meaning it would be impossible to give it anymore? Then we typically find a misalignment. Many corporations that I help have a goal that is a 9 on the boss’ why, but to the team it feels more like a 2. Their try might be a 9. That means they’re killing themselves pursuing something that feels like a 2, and that just eats you up. Whereas, the other way around, sometimes I’ll go into nonprofits and their why may be a 9. But they spend all of their time sitting around talking about their purpose, and their try in making it real may be more like a 2. Well, nothing is going to succeed with that misalignment. So the question we ask everyone is, how can you maximize and align your why with your try? And that’s a very 18

InsuranceNewsNet Magazine » April 2015

simple way to get your head screwed on straight every single day with every call, with every appointment, to keep at it. It helps to recalibrate because those can get out of alignment when people mistreat you and people aren’t fair — when they don’t show up for appointments, when they hang up on you or when they don’t fulfill their promises — all those things that are demoralizing to insurance reps. That’s what can keep your head in the game. FELDMAN: Tell me about the “GRIT Gang.” Why is that important to a business owner? STOLTZ: If you’re a business owner, you’re often alone. It’s lonely at the top. People look up to you for inspiration, motivation, example and a lot else besides that. As a business owner, the question is who do you surround yourself with? Who enhances and infuses and inspires your GRIT? Who meets you at least as far as where you are and then even elevates you? Most business owners draw people who need them and very few of those peo-

ple tend to be ones from whom they get something. And when it comes to GRIT, who amps up your GRIT as opposed to who depletes is really the big question. Every business owner I’ve ever worked with can benefit from a bit of spring cleaning. Maybe you shed some of the people who tend to be GRIT depleters — barnacles on the hull — and spend some time with people who are GRIT enhancers, so that you can feed them and they can feed you. GRIT enhancers are the people who inspire you. You can find them anywhere. They can be in your community, your church or synagogue, or your fitness club. But the way I always look for them is that I look for anybody who’s achieving anything that impresses me and inspires me. That’s noteworthy, because anybody who’s doing that is showing some serious GRIT. FELDMAN: You have said that robustness is important to GRIT. How do you improve your robustness? STOLTZ: Induce intentional discomfort, which means to intentionally stretch yourself.

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INTERVIEW EXTREME GRIT: THE SCIENCE OF TOP PERFORMANCE In the case of physical GRIT, there are a lot of people who go to the gym, for example, but they do the exact same workout every single day. To induce intentional discomfort means to stretch your body in ways it’s not accustomed to. Same thing with your mind. How often do you read something or ingest something in your mind that’s new and fresh and not the standard magazines or books or other things that you might read or newscasts that you might listen to or websites that you might peruse? So, part of mental GRIT is ingesting things that stretch your mind, pondering things that you normally don’t ponder and maybe having conversations with people who aren’t like you. Emotional GRIT and emotional robustness are about taking on the tough stuff, having the courageous conversations with people whom you might be avoiding. If you knew you were going to die in a week and you wanted to clear the decks by speaking to the people with whom you have the greatest disagreements, whom would you talk to and what would you say? Spiritual GRIT is really about keeping the faith. It’s about maintaining that sense of higher purpose in what you do and not losing that faith despite all the ways that your customers and clients may try to beat it down. FELDMAN: You talk about fitness quite a bit. What is the relationship between fitness and GRIT? STOLTZ: There’s a huge relationship. The one thing about your physical strength is that it directly correlates with your energy and how much GRIT you’re going to have if you don’t have any energy. Your physical fitness is, in many ways, the fuel cell of your GRIT, which becomes the fuel cell of your success. FELDMAN: If a person is lacking in certain areas of GRIT but they apply themselves in one area, does that transfer elsewhere? Like with fitness, if someone achieves goals at the gym, does that lead to success in other parts of that person’s life? STOLTZ: Yes. You create these victories, these pacts inside yourself. GRIT is a sim20

InsuranceNewsNet Magazine » April 2015

ple formula — not easy, but simple. The simple formula is that you set a meaningful, audacious, difficult goal that’s going to require some real sacrifice. Then you go after it and you do whatever it takes, hopefully in smart and good ways, to achieve it. And you do that in one area and that creates this inner hardwiring inside yourself that we can’t even fully understand. A lot of it is biochemical, a lot of it is neurochemical, and it may even be microbial. It creates this cocktail of success inside you, this cocktail of GRIT that can be applied to anything. There’s this inner thing that says, if I did it there, I can do it elsewhere. At the same time you have to dig deep to do whatever it takes to achieve

something worthwhile. The more we do it, the more we can do it. It becomes this exciting, powerful and energizing flywheel for our lives. Ultimately, that is what we’re trying to do. Everyone really wants a good life. A good life is not about being happy. A good life is about setting out to do something noteworthy, something meaningful, something worthwhile with yourself while you’re here and digging deep, sacrificing, suffering, struggling, doing whatever it takes to make it happen. And when you come out the other side, there’s a deep sense of GRIT-ification that you can get from nothing else, and I think that defines a good life.

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April 2015 » InsuranceNewsNet Magazine

NEWSWIRES

ACA Court Fight Hinges on Four Words Four little words could end up being the downfall of the Affordable Care Act (ACA). Or not. Oral arguments were heard on March 4 in the latest ACA challenge to come before the high court. The case known as King v. Burwell hinges on four words in the language of the ACA: “established by the state.” The plaintiffs contend that the subsidies were intended to be distributed only to those who bought insurance on a state-run exchange, and not on HealthCare.gov. ACA supporters say the law was always intended to provide the subsidies to people who bought coverage on the federal exchanges as well. Supreme Court observers say the issue of whether it’s legal for ACA subsidies to be offered to those who purchase health insurance on the federal exchanges will come down to how two court justices feel about the issue. With four liberal justices indicating they believe the ACA was intended to provide subsidies in the form of tax credits in all 50 states and three conservative justices indicating the opposite, Chief Justice John Roberts and Justice Anthony Kennedy are considered to be the swing votes on the issue. The court will hand down a ruling in June.

N.Y. REGULATOR WARNS OF CYBER 9/11 EVENT

If you thought the hacks against such big names as Anthem and Sony were serious, you ain’t seen nothin’ yet, according to a state fiBenjamin nancial regulator. Lawsky An “Armageddon-type cyber event” that some have termed “a cyber 9/11” could happen within the next decade, warned Benjamin Lawsky, superintendent of the New York Department of Financial Services (DFS). Lawsky said he is “deeply worried” that there soon will be a major cyberattack aimed at the financial system “that is going to make all of us ... shudder.” He added that “Cyberhacking could represent a systemic risk to our financial markets by creating a run or panic that spills over into the broader economy.” Indeed, Lawsky added, “We are concerned that within the next decade (or perhaps sooner) we will experience an Armageddon-type cyber event that causes a significant disruption in the financial DID YOU

KNOW

system for a period of time — what some have termed a ‘cyber 9/11.’” Lawsky said that the issue of cyber security at financial institutions is “right at the top of the list” of things that keep financial regulators up at night.

FIDUCIARY RULE COULD HURT MID-MARKET SAVERS

Insurance and financial industry trade groups said they would work with the Obama administration on retooling existing rules regarding sale of investment products into retirement accounts. But they voiced deep concern that a final rule could reduce the ability of middleand lower-income Americans to obtain professional advice. The comments were made in reaction to President Obama’s announcement that he has given the Department of Labor (DOL) the green light for the redraft of a rule to amend the definition of fiduciary under the Employee Retirement Income Security Act (ERISA). Obama said he has given the go-ahead for the DOL to

Retirement savings for a typical working family headed by somebody 55 to 64 years old Source: Federal Reserve’s Survey of Consumer Finances

InsuranceNewsNet Magazine » April 2015

$104,000

QUOTABLE We will always be prepared for the thousand-year flood: in fact, if it occurs we will be selling life jackets to the unprepared. — Warren Buffett, Berkshire Hathaway CEO, in his annual letter to shareholders

forward its fiduciary proposal to the Office of Management and Budget (OMB) for review. Under current rules, OMB has 60 days to review the proposal. The industry’s concern was summed up in a statement by Financial Services Roundtable President Tim Pawlenty, who said, “An overly broad proposal could price professional financial advice beyond the reach of many modest income families. “A sledgehammer is not needed where a regular hammer would fix the problem without causing unintended damage,” he continued.

FED CHAIR WONDERS ABOUT MILLENNIALS

What are the millennials going to do? That is the question mystifying many top economists, including Federal Reserve Chair Janet Yellen. Yellen told the Senate Banking Committee that economic experts are watching the millennials’ financial behavior closely. “I think we’re just beginning to understand how the millennials are behaving,” Yellen said before the Senate Banking Committee. “They’re certainly waiting longer to buy houses; to get married. They have a lot of student debt. They seem quite worried about housing as an investment. They’ve had a tough time in the job market.” As the economy continues to gain strength, Yellen said she expects more millennials to buy homes and start families. “But,” she added, “we’ve yet to

[NEWSWIRES] really see how this is going to affect that generation.” The millennials aren’t all that’s on Yellen’s mind these days. While she hasn’t commented specifically on when the Fed is likely to raise interest rates, she suggested that a change in guidance would be coming soon.

FINRA FIRES UP FINES

Fines imposed by the Financial Industry Regulatory Authority (FINRA) on firms and individuals for alleged wrongdoing “increased significantly” in 2014. The agency had its sights focused more sharply on cases involving seniors and retirees, according to a study. At the same time, the review found that for the second year in a row, the number of firms expelled by FINRA declined, although the number of individuals suspended or barred rose. The study was conducted by reviewing FINRA’s monthly disciplinary notices and press releases, as well as cases reported in major news sources. The review found that in 2014, FINRA’s fines increased significantly. At the same time, despite this increase in fines, the number of cases filed by FINRA dropped in 2014. The study found that protecting seniors and retirees has been a key focus for FINRA, but these cases typically did not result in significant fines. However, this changed dramatically in 2014, with cases involving allegations about seniors and retirees resulting in $8 million in fines in 2014, an increase of 3,656 percent from the $213,000 in fines imposed in similar cases.

3,656%

ROTH IRAS MAY SEE CHANGES COMING

If your clients have retirement money in a traditional individual retirement account (IRA) or an employer-sponsored retirement plan like a 401(k), the government requires that they start taking distributions once they turn 70½ years old. But that’s not the case with the Roth IRA. That’s been a big advantage for clients who want to use the funds in their Roth IRA later in life or pass the money on to heirs. But some changes could be coming to the Roth IRA under a provision in the

Former AIG Chief Dies of Cancer at 70 Robert Benmosche, the former head of AIG who once described himself as “an in-your-face CEO,” died after a five-year battle with lung cancer. He was 70. Benmosche stepped down as AIG’s CEO in August Robert Benmosche 2014. At the time, he told Bloomberg News he had been informed a few months earlier that he had nine months to a year to live. His retirement originally had been scheduled for this year. Benmosche took over AIG in August 2009, while it was in the midst of government control after an emergency takeover by the federal government on Sept. 16, 2008. The company’s insurance subsidiaries were in good shape, but it was under intense pressure from margin calls associated with the $2.77 trillion in credit default swaps issued by its Financial Products subsidiary to insure mortgage-backed securities. It was later learned that AIG had collateralized purchase of collateralized debt obligations also backed by mortgages of various grades with the reserves of its 13 life insurance subsidiaries. According to a 2011 report by the Government Accountability Office, the situation was so bad that at one point in 2009, the government contemplated acquiring the life insurance subsidiaries in order to protect AIG’s customers. AIG went through three CEOs in 2008 and early 2009 before the Treasury Department and the Federal Reserve appointed Benmosche in August 2009. Obama administration’s proposed 2016 budget. The provision would impose required minimum distributions (RMDs) for Roth IRAs in the same way they’re imposed on other retirement accounts. That means that your clients would need to take distributions from their Roth IRAs once they turn 70½ — the same as they would for traditional IRAs and other retirement accounts. However, many financial experts say it is unlikely this provision actually will become law. Jeffrey Levine, an IRA technical consultant with Ed Slott & Co., called this “a bait and switch” and “one of the most egregious proposals” in the budget. If it does come to pass, he suspects it will include a grandfather clause so that savers above a certain age will be exempt.

INSURERS HANG OUT ‘HELP WANTED’ SIGN

Insurers say they need help — lots of it. More specifically, twothirds of insurers surveyed DID YOU

KNOW

In 2014, the average 529 account grew to Source: College Savings Plan Network

said they plan to add staff in 2015, according to the “Semi-Annual U.S. Insurance Labor Outlook Study” conducted by recruiting firm The Jacobson Group and industry benchmarking firm Ward Group. That is an increase of eight points since the July 2014 survey and the highest rate since 2009, when the survey began. Demand for technology, claims and actuarial positions is skyrocketing — but those positions are the hardest to fill, the survey participants said. If insurers’ hiring plans become reality, the industry will see a 1.48 percent increase in employment in 2015. Two life insurance carriers said they plan to add to the ranks of their sales force in a big way in 2015. New York Life announced it plans to hire an additional 3,600 financial professionals, with more than half expected to be women or individuals who represent cultural communities. Northwestern Mutual said it is recruiting 2,000 full-time representatives and more than 3,000 college interns nationwide.

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April 2015 » InsuranceNewsNet Magazine

InsuranceNewsNet Magazine Âť April 2015

he big-case, individual life insurance market is in the throes of change, at least for advisors serving the smaller-sized cases in this market. Simply put, life insurance cases for face amounts in the $5 million to $10 million range are “not dropping in everyone’s laps the way they used to before enactment of the American Taxpayer Relief Act (ATRA) of 2012,” said Philadelphia advisor Alyse Blumberg. She is among advisors contacted for insights into selling in this always heady marketplace. Cases in the $5 million to $10 million range have long been considered the starting point for big-case hunting. It’s where aspiring big-case hunters cut their teeth on solving insurance problems for the well-to-do. Some agents go on to land larger cases – even, in rare instances, the jumbos with face amounts ranging from $50 million to $100 million or more. But now, because of ATRA, the market seems to be reconfiguring. ATRA is the law that set the estate tax exemption at $5 million per person and $10 million per couple – or $5.43 million/$10.86 million today, due to the indexing. It rendered estate-tax-based life insurance sales below those limits less desirable to tax-motivated clients because they no longer perceive an estate tax exposure. From the agent’s perspective, said Blumberg, “that part of the big-case market is shrinking.”

“Sometimes high-networth people prefer to work with experts not in their own locale.”

TRUE STORIES: HOW I CRACKED THE BIG CASE FEATURE But estate-tax liability is not the only reason that wealthy people need and want super-sized life policies. They buy for business, financial, legal and legacy reasons, too, and that includes policies in the single-digit millions. At the higher face amounts, ranging from $25 million to $100+ million, estate tax continues to be a driver as well. In general, the big-case market seems to be taking on more of a multiple-needs focus than in previous years. Bottom line: Big-case hunting and big-case lore continue to generate buzz, along with the time-honored question: How to land these cases? Following are examples of various sizes of cases, along with lessons learned.

First, Understand the Client

Dana M. Mikstay tells of a case that started 10 years ago as a simple request from a Chicago attorney to review and provide reflections on an existing plan of a manufacturing executive in Minnesota. Mikstay is the senior managing director-insurance services for Mesirow Financial in Chicago. Such requests are not uncommon, she noted. “Sometimes high-net-worth people prefer to work with experts not in their own locale.” In this case, two Minnesota advisors had already proposed that the widow immediately replace all of her life insurance. Upon hearing that, the widow’s attorney

“knew enough to get an objective overview from me,” Mikstay recalled. What she found when she arrived in Minnesota was a 52-year-old woman who was running a manufacturing company following the death of her husband one year earlier. The woman had a knack for business and the company was starting to do well. As for the insurance, the widow had a $12 million portfolio in a life insurance trust – $8 million in blended whole life with premiums due yearly, $2 million in an underfunded universal life policy, and $2 million in an all whole life policy. “My approach was, ‘let’s understand what you have first,’” she said. What she and the Mesirow team found was a “boatload” of problems. For instance, “We discovered that the large whole life policy had an assignment on it from an old split-dollar plan that was never exited. It was assigned to a corporation that the widow’s husband had sold years prior.” In addition, “The universal life policy was very underfunded,” she said. As for the whole life policy, she liked that one. “We found the premium could be offset with the dividends,” she explained. Mikstay also learned that the widow has income-producing farmland that she wants to preserve for future generations. After digesting all this, Mikstay laid out the current insurance and the issues in a one-page document. “I did not recommend any product or service at that time. I just explained the problems and educated the client.” In general, she said, “the simpler you make it, the better it is for the client, and the more successful you will be.” Once the widow understood the problems, Mikstay said, “the widow asked me, ‘What would you recommend?’” That’s when Mikstay presented her recommendations. These included: 1) Exit the split-dollar plan that was never attended to. “The widow had to make a sizable gift to the trust to do this,” she recalled. 2) Roll the cash value from the blended whole life and universal life policies, which were originally second-to-die policies but were now insuring only the widow, into a guaranteed UL contract.

April 2015 » InsuranceNewsNet Magazine

FEATURE TRUE STORIES: HOW I CRACKED THE BIG CASE 3) Keep the $2 million whole life policy, and redirect the dividends to offset its premiums. The combined effect was to increase the value of the insurance in the trust from $12 million to over $20 million without increasing the premium/gift amount to the trust. The case took 1.5 years to complete, but that wasn’t the end of the story. Later on, her firm started handling a large chunk of the widow’s investable assets, too. And just last year, the widow purchased an additional $25 million of life insurance, since her estate had grown substantially due to the success of the company, Mikstay said. “We did this with traditional universal life products overfunded to help cushion future interest rate reductions.” In addition, the widow’s estate planning attorney now refers more business to her, and Mikstay is also writing insurance on the children and grandchildren. Lessons learned: » First understand what the client has

and why. “I don’t care if that means it will take a year for a case to close,” Mikstay said. Replacements, commissions and doing a big case in a short period “don’t drive my actions.” The solutions should come after the person understands the problem and its impact on the portfolio. » Think long term. Helping the widow

understand formed the basis of a longterm relationship that produced more business later. » Provide ongoing service. Do that

every year, Mikstay suggested. She said this has helped her to become “the family’s trusted advisor team member.” When they have needs or questions, they call her. » Clients can and do learn. Initially, the

widow and attorney did not understand the problems in the then-existing insurance plan, Mikstay said. “But, with education, they learned. Today, the client loves insurance as an asset class, and the diversification among carriers. She also appreciates how the planning tools we use will work for her and her estate.”

InsuranceNewsNet Magazine » April 2015

“They called me. They said, ‘We need insurance.’ Usually it’s the other way around: We have to do the calling, and most people don’t think they need insurance, or they don’t think they need as much as they do.”

Build Relationships With the Client’s Advisors

W. J. Rossi’s big case took only six months to complete but it was at least two years in the making before that. The time lag had to do with relationship-building with a crucial person – the client’s attorney. The attorney is the one who made the referral to the client, said Rossi, who as a partner and financial advisor at Koss Olinger, in Gainesville, Fla., is accustomed to working with CPAs and attorneys. Rossi has six years of Top of the Table qualifications at the Million Dollar Round Table (MDRT). “I met the attorney through a mutual client,” he recalled. There was no business on the table at the time, and the attorney did not live in Rossi’s community. But Rossi decided to keep in contact with the attorney anyway. When he traveled to Rossi’s territory, for instance, he would get together with the attorney for lunch. In between visits, he would send the attorney case studies “so he had a clear idea of what we do at Koss Olinger.” There were phone calls, too. These were to catch up and also to ask, “How can I help your clients?” One day, Rossi decided to send the attorney a note about a case his agency recently placed for a client who had a health history that made him “hard to write.” He viewed it as part of marketing, to let the attorney know the agency can handle those cases as well as other types. One month later, the surprise phone call came. It was the attorney. He said he

had a client with a significant health issue from four years earlier. The client was a business owner who required $10 million in life insurance on a long-term basis. Could Rossi help? “We wrote the case, rated standard,” he said. The attorney was helpful in reaching out to the client’s CPA, so it became a team approach, Rossi said. “We had several meetings and conference calls. Some were face-to-face and others were on the phone. There were meetings with the client, too.” The coverage was written with $10 million in face amount, all in convertible term insurance. “The client plans to convert to permanent, but he bought the convertible term first because he needed the $10 million right away. … In all, it took six months to complete, with 2.5 of those months spent in placing the case. The underwriting was for health and financial.” Looking back, Rossi thinks it’s ironic how the case turned out. “They called me,” he explained. “They said, ‘We need insurance.’ Usually it’s the other way around: We have to do the calling, and most people don’t think they need insurance, or they don’t think they need as much as they do.” Lessons learned: » Stay in touch with people you meet.

When you do that, things will happen, Rossi said. “You don’t always see the immediate results, but they come in time.” » Reach out proactively to other pro-

fessionals. “That includes reaching out to my client’s CPAs and attorneys, even when I don’t already know them. Ask them, ‘Is there anything I can do where we can work collectively help our client?’” » Keep an open mind on the type of

insurance product that might work best. In this case, term insurance was the best temporary solution, he said. Use the product that fits the need, and “remember that the products all have pros and cons.” » Keep the client’s priorities upper-

most. “In this case, it was a collective buyin with the whole team, and the client was part of the decision.” That produces decisions the clients feel good about, he said.

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FEATURE TRUE STORIES: HOW I CRACKED THE BIG CASE

“We knew them both, and although they did not know each other or that they were in competition for the same case through us, we felt confident about bringing them in for this.”

Work as a Team

Sometimes, insurance agents need to work together on a case, said Alyse Blumberg, who is president of Blumberg Financial Services in Philadelphia. Her firm places cases direct and also provides general brokerage services to independent agents. A lot of the cases are for several million dollars of face amount but they are not the jumbos, she pointed out. One case of this type gave her pause at first. First, one agent submitted a case on a wealthy client, saying the referral came from an attorney. Shortly after, another agent submitted a case on the same client, saying the referral came from the client’s CPA. Blumberg quickly realized that the client was the same person, for the same insurance need. Then she learned that a third agent was also seeking to place coverage on the very same client. The three agents were quoting with different illustrations, she added. Her firm decided to talk to the two agents who had contacted her. She broached the idea of them doing a joint sale and splitting the comp. “We knew them both, and although they did not know each other or that they were in competition for the same case through us, we felt confident about bringing them in for this.” It was either that, or one of them would end up with nothing, she said. The agents talked and agreed. The third agent was eliminated early on so was no longer a competitive factor. The case went through for $5 million of universal life insurance, with no blends, illustrated to endow at age 100. The premium was six digits. “We had to guarantee the privacy of the financials, that they would be seem only by the lead underwriter,” she re28

InsuranceNewsNet Magazine » April 2015

called. But there were no underwriting issues, and no retention issues, and the case was done in less than three months. It took a lot of teamwork, a lot of checking and cross-checking, “because you are working with experts on all sides,” she said. In the end, there were several winners in this unusual arrangement, she added. These were the client, the client’s attorney and accountant, the Blumberg agency, the two agents and the carrier.

Lessons learned: » Competing agents can work togeth-

er. “These cases don’t happen all the time,” Blumberg said, so some agents may be willing to split a case rather than risk losing all. » Work with the client’s trusted advi-

sors. Referrals are coming from a variety of trusted advisors that wealthy clients use today. Blumberg has seen them come in from private client groups, large property and casualty agencies, big benefit firms, CPAs and attorneys. Life insurance practitioners need to be aware of surprises that can arise from that, and also be willing to adapt, for instance to splitting a case.

someone else for protection, and had arranged for transferring his estate to his children. He had no pension, but he had recently started receiving money from the sale of some farm property to a golf course developer. Schleicher said he had heard about the sale, and he knew that the client was well off, but he did not know the particulars. Then, during one of Schleicher’s routine visits with the client, the client happened to mention the money coming in every year, and how he would like to see some of it go to his five grandchildren. He had heard about Roth IRAs, so the man said he was thinking about buying Roths for his grandkids. “He didn’t know the rules, and he thought everyone could have a Roth,” Schleicher recalled. When the grandfather learned that he might be ineligible for a Roth because he was making too much money, he called his accountant to verify so. The accountant promptly called Schleicher, the two men talked, and when Schleicher suggested life insurance as the solution, “the accountant thought it was a good idea.”

» Keep the big picture in mind. Remem-

ber that the client’s attorney and CPA will likely both be working on billable hours. That can impact many aspects to moving the case along. This is in addition to the legal and accounting issues themselves.

Grandkids Can Be a Reason

Sometimes life insurance is a tool that wealthy people will consider for passing money on to the grandkids, said Donald L. Schleicher, owner of Lifetime Retirement Planning, Appleton, Wis. Schleicher has just such a client. The deal they struck is not huge by big city standards, but Schleicher and his client are from a farming community. Big cases there are proportionate to the economy of the area. The grandfather was a health insurance client of Schleicher’s for 10 years before this particular case evolved. The client had already purchased life insurance from

“He didn’t know about using life insurance for other than protection needs. What interested him is that this would be after-tax money; the client didn’t need the insurance for protection; and the client didn’t need the money that would be paid in premium to cover current expenses.”

TRUE STORIES: HOW I CRACKED THE BIG CASE FEATURE

An Insider’s Take on Big-Case WORK by Linda Koco

To be a big-case pro, life insurance practitioners need to know the ropes, Mike Mingolelli Jr. told InsuranceNewsNet. He is CEO of Pinnacle Financial Group, a Southborough, Mass., firm that specializes in the upper end of the big-case market and is a member of the M Financial Group network in the same market. Here are a few of his insider’s tips: SIZE OF CASE: In major urban areas, the really big cases can range from $500,000 in annual premium to $50+ million in face amount. In smaller towns, the cases will often be smaller. COMPENSATION: This is mainly a market where commissioned brokers place the case, though a few professionals do serve as fee-based consultants who provide recommendations but do not sell.

ed estate plans, trusts, taxes, gifting, partnerships, and so on. Advisors need technical acumen to get opportunities, he said. TECHNICAL PROFICIENCY. The insurance specialist needs both insurance and estate planning proficiency. Examples include knowledge about generation-skipping transfer tax, split dollar, applicable federal rate loans, charitable planning and estate tax, and the inter-relationships between them. CREDENTIALS: “You don’t have to have a CLU or ChFC, but you do need to know what the people who have those designations know,” Mingolelli said. “You also don’t have to have a background of wealth, but you do have to have intellectual capacity for this kind of work. It helps to have a former background of working with information and communicating clearly.”

REINSURANCE: Think about internal retention limits (the face amount each carrier will take without reinsurance) and “stacking” capacity (via multiple contracts). Learn how to stack, and how to plan. Doing this is both art and science, he said. TIME NEEDED TO COMPLETE: For the jumbo cases, “fast” means eight or nine months, and it could take up to two years, occasionally even longer. The average is over 12 months. Client contact: “On average, we meet with the client in one out of every three cases. Often, we never meet the client, ever,” Mingolelli said.

“You don’t have to have a CLU or ChFC, but you do need to know what the people who have those designations know.”

SERVICE: The client’s advisors typically want periodic updates, sometimes every two weeks, and they want different iterations. So service orientation is essential, as is the ability to work with other people. “You need to know how to play nicely with the advisors,” he said. “It’s like a chess game. Be collegial and collaborative.”

FINDING PROSPECTS: “We get most of our business through referrals from the client’s advisors, such as attorneys, wealth managers, family offices and accountants,” said Mingolelli. “Sometimes we also get referrals from insurance professionals.”

A business with a future “Assuming the estate tax stays in place as it is today, this market is not at risk of disintermediation by technology,” Mingolelli said. “You can’t do big cases online.” In view of the approaching retirement of many insurance professionals, he added, “the number of people who can do big cases will only get smaller. That means there will be even greater demand for professionals who can provide big-case services.”

HOW TO ATTRACT REFERRALS: It helps to “speak the language” of the wealthy and particularly of the advisors who serve them. That includes the technical aspects of complicat-

YEARS OF EXPERIENCE: If a broker is in a competitive situation and has only five or 10 years of experience, the broker probably won’t want to risk losing the case and so will turn it over to a big-case specialist. The broker would then share in the revenue but lose most of the control of the case.

UNDERWRITING: This is a critical piece to writing big cases. It entails 1) negotiating the risk class, and 2) managing capacity and reinsurance. When negotiating, “use your information wisely, and never be deceitful or misleading or you will lose credibility,” Mingolelli suggested.

April 2015 » InsuranceNewsNet Magazine

FEATURE TRUE STORIES: HOW I CRACKED THE BIG CASE

Tax Law May Have Affected by Big Cases Linda Koco Older buyers have traditionally been a prime market for big estate tax-related sales, with face amounts of several million dollars and up. But insurance agents are reporting that some older buyers have cooled their jets on such purchases ever since the American Taxpayer Relief Act (ATRA) of 2012 was enacted, and even slightly before. ATRA is the law that made the estate tax exemption permanent at $5 million for individuals and $10 million for couples, indexed for inflation. Some of the jet-cooling may be reflected in the life policy application activity reported by MIB Group. As shown in the table below, in 2013, the year following ATRA’s enactment, the MIB Life Index, which tracks life policy application activity, declined to -1.2 percent in the age 60+ category. The index does not show reasons for the changes it reports. However, a plausible explanation is that at

The accountant did know that life insurance proceeds are generally received income-tax-free, Schleicher said. “But he didn’t know about using life insurance for other than protection needs. What interested him is that this would be after-tax money; the client didn’t need the insurance for protection; and the client didn’t need the money that would be paid in premium to cover current expenses.” End result: The grandfather, then in his early 60s, bought a variable life contract, rated standard, with a face amount of $450,000. It is a 10-pay contract that has no guaranteed living benefit riders. “It is 10-pay because the client didn’t want to pay on it forever,” said Schleicher. It’s funded through age 110, and investment selections are conservative. “It’s designed strictly for the death benefit to go to the grandchildren.” That was just the beginning. Recently, the same client purchased a second policy, with a $250,000 face amount, for about the same premium as he was paying on the 10-pay variable universal life policy. This is to pay death benefits to his four great-grandchildren. 30

InsuranceNewsNet Magazine » April 2015

least some of that decline was due to older high-networth customers no longer seeking $5 million to $10 million policies to cover estate taxes, since ATRA has removed federal estate tax liability up to the $5 million/$10 million exemption amounts. But the MIB table shows something else as well. In 2014, the MIB Life Index bounced back into positive territory, to +2.8 percent. That may reflect general recovery in the economy, but it could also be a sign that older people are submitting applications to meet other types of needs, not for estate tax reasons. Or, perhaps more 60+ individuals now have estate values beyond the ATRA exemption amounts and so are submitting apps for higher-valued policies. It is an interesting development that will bear watching.

MIB Life Index – Ages 60+ Year-over-Year by Quarter Quarterly

2014

2013

1.7%

-0.2%

9.8%

2.9%

0.8%

4.8%

4.0%

0.2%

1.5%

6.2%

6.1%

-5.5%

2.9%

8.9%

7.1%

16.9%

3.6%

YEARLY

2.8%

-1.2%

4.7%

6.9%

9.9%

13.0%

5.2%

2012

2011

2010

2009

2008

7.1%

14.2%

10.3%

6.3%

5.4%

10.2%

11.9%

4.2%

8.2%

13.0%

6.7%

Source: MIB Life Index, © MIB Group, Inc. 2015

“Do you think his grandchildren and great-grandchildren will remember him?” Schleicher asked pointedly.

good way to find out what you don’t already know.”

Lessons learned:

Life insurance practitioners in the bigcase market have long been considered the crème de la crème of the life insurance business. These are patient professionals who know how to make, keep and derive value from contacts. They uncover opportunities at community events as well as on golf courses or wherever else people connect. They value and employ all forms of expertise – insurance, financial, legal, tax, relationships, teamwork, etc. – and they are willing to go the distance to close a case. Should tax laws change to be less favorable in certain areas, they adjust their focus and keep on going. Their view is that the wealthy will always need the services of a highly skilled life insurance professional.

» Don’t limit yourself. “From this case, I

learned not to limit myself in what I think a client can afford,” Schleicher said. When conversation about sale of the farmland first came up, he said his initial reaction was uncertainty. He didn’t know how much the client had and didn’t want to suggest a solution for transferring money to the grandkids that was beyond the client’s means. » Relate to the client. “I’m a farm boy

myself,” he said. “That helped me relate to the things he was talking about, like the impact of rain, the risks of farming.” The more an advisor can relate to the client and the client to an advisor, the better the situation for both. “The client needs to like and trust you first.” » Keep asking questions. Make annual

visits, sometimes more often. “That’s a

The Big Case Market

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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LIFEWIRES

LIMRA Warns: Watch Your Language Here’s another answer to the question: Why don’t people buy life insurance? For many prospective buyers, it’s because the words get in the way of the sale. Life insurance companies often use words and images that do not strike a chord with consumers and often confuse them, according to a joint study by LIMRA and Maddock Douglas. “We’re all familiar with the philosophical problem about a tree falling in the forest and whether it makes a sound,” said Scott Kallenbach, research director, LIMRA Strategic Research, and co-author of the study. “We essentially applied the same question to what financial services companies are saying. And we’ve found that even if consumers are hearing what’s being said, they frequently don’t understand.” The study, “Get Real Already — Authenticating Industry Language,” explored consumers’ experiences, emotions, and feelings related to insurance industry language and imagery and how financial services companies could improve their communications efforts. The study revealed that there are 18.7 million Americans today who truly see the value in life insurance and think it is something they should have, but who have become stuck somewhere in the shopping process.

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Here are some of the newest life products to hit the market. Royal Neighbors of America has a new product aimed at women. Promise Plus is a whole life insurance product offering a cancer waiver of premium rider to benefit women in the event of a diagnosis of cervical, ovarian or breast cancer. The rider is designed to protect women under age 60 if they are diagnosed with cervical, ovarian, or breast cancer at Stage 2 or higher. When added to a Royal Neighbors whole life insurance policy, this rider waives the premiums for the two years following the diagnosis. The coverage is the first of its kind in the nation. John Hancock announced it has re-engineered its term life insurance. The term coverage offers lower premiums in core market segments and face amounts beginning at $250,000. John Hancock Term continues to offer guaranteed protection for 10-, 15- or 20-year durations and includes a

flexible conversion option allowing clients to convert to one of the company’s permanent life policies.

LINK LIFE INSURANCE TO LTC EXPENSES

Advisors and their clients get a little too caught up in the cost of linked-benefit life insurance and the features that make linked-benefit life insurance attractive. The answer to selling linked-benefit life is the other way around: Once your client has enough funds set aside to cover emergencies, then it’s time to talk about linked-benefit life insurance, said Gene Pastula of San Diego, Calif., who helped developed the products many years ago. Pastula told InsuranceNewsNet that many people don’t understand that if the linked-benefit life policy is kept in force until the policyholder dies, or until the policyholder draws upon it for long-term care or medical needs, then the cost isn’t as relevant. Linked-benefit life offers contract holders a death benefit with a rider to pay for expenses associated with long-term care, critical

39,000

InsuranceNewsNet Magazine » April 2015

FEWER life insurance/financial advisors today than there were in 2008. Source: Cerulli

or chronic illnesses, or terminal illness. These living-benefit riders are triggered while the policyholder is still alive. For those with the means, it makes more sense to transfer money out of a money market, a certificate of deposit or a bond fund where interest rates are so low, and to invest it in a linked-benefit life insurance contract, Pastula said. When interest rates go up again, bond fund investors will get “hammered.” Not only will linked-benefit instruments yield a more precise return, but they will protect buyers from the cost of long-term care, since there’s a good chance policyholders will have to face long-term care expenses at some point in their lives.

USE ‘FUTURE FOCUS’ TO ATTRACT YOUNGER CUSTOMERS

The younger generations of insurance buyers will be more likely to buy if advisors “sell the emotional paycheck.” This is according to Cam Marston, president of Generational Insights, a generational research firm in Mobile, Ala. Marston spoke on this topic at LIMRA’s 2015 Distribution Conference for Financial Services. Marston said the industry needs to approach younger adults — Generation X and Generation Y — by talking about how a company’s particular product or service will change their personal future. Many insurance companies and their agents spend much time and effort telling consumers about their company’s size and its length of time in the business. But the under-50 crowd doesn’t care about that, he said. “They are far more biased toward the future, and in particular their own future.” “They want to know how their future will change if they buy and use a certain product,” Marston said. Ideally, they want the future to start changing right away, not off into the distant future. The carriers and agents need to point out the “now” to the customer, he said. For example, point out the emotional benefit the customer will derive — right away — from making a commitment today to taking care of the family from a financial perspective. There is an immediate sense of personal reward that many customers feel when they do this, he said. But the sellers need to help younger customers see that.

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For financial professional use only. Not for use with the public. This material may not be reproduced in any form where would» beInsuranceNewsNet accessible to the general public. April it2015 Magazine

LIFE

A Buy-Sell Plan That Gives Owners Life Insurance Control ermanent life insurance can fund P a cross-purchase arrangement between business owners in which each owner agrees to purchase the deceased owner’s interest in the business. By Howard Jonas and William R. Buslee

ll companies have buy-sell agreements, whether their owners realize it or not. However, only a fraction of these agreements exist as legal documents and fewer are funded, according to the LIMRA report “U.S. Small Business in 2000.” For owners whose plans have yet to be committed to paper or even discussed, their buy-sell agreements, or “business wills,” will be created upon their deaths. What ultimately happens to the business may not be what the original owner intended. Without a written and funded buy-sell agreement, there could be valuation issues. 34

InsuranceNewsNet Magazine » April 2015

There also could be problems for the owner’s family, other business owners and even the employees. A buy-sell agreement also can spell out what triggers the buy-sell. For example, the buy-sell often may be triggered by events other than death. Life insurance policies are an excellent funding source for buy-sell agreements. For those agreements that already use life insurance, there is a strong probability that the insureds may not own the policies on themselves. If the agreement was set up as an entity purchase arrangement, the company is the owner and beneficiary of the life insurance policies. If it was established as a cross-purchase arrangement, then the other business owner owns the policy — Owner A owns a policy on Owner B and vice versa. Having a policy owned by someone other than the insured could present some problems, not just now, but also in the future. Many people start their own businesses because they don’t want to have a

boss — they want to be in control. Naturally, it would make sense for business owners to own or control the life insurance policies covering their own lives. A cross-endorsement buy-sell agreement can allow the business owners to fund their portion of the buy-sell and obtain the coverage they need with only one policy per owner. Later, if the business is sold, there’s no need to worry about transferring or selling any policies. Because the policy is personally owned, the owner could use the policy for income later in life if it was no longer needed for buy-sell purposes. In a cross-endorsement buy-sell, the owners of a business enter into a cross-purchase arrangement. Under this arrangement, each owner agrees to purchase the deceased owner’s interest in the business from the deceased owner’s spouse, heirs or estate. To facilitate the purchase of the deceased owner’s interest, each business

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800-258-4525, ext. 8120 April 2015 » InsuranceNewsNet Magazine

LIFE A BUY-SELL PLAN THAT GIVES OWNERS LIFE INSURANCE CONTROL owner endorses or “rents out” either a portion or all of the policy death benefit to the other business owner or owners, from their individually owned policy. Because each policy is individually owned, the owner — or each business owner — will pay for the premium out of their own pocket, using after-tax dollars. By doing so, each will have a basis in the policy, which could affect their ability to receive tax-advantaged income years later, if the policy is no longer needed for buy-sell purposes. Because this arrangement closely resembles an endorsement split-dollar arrangement, the annual rental charge is equal to the economic benefit of the endorsed death benefit. This amount can be calculated using either the Table 2001 rate or a carrier’s alternative term rate for the insured’s corresponding age. Generally, as long as the economic benefit is paid, the death benefit will be income tax-free when received. However, the economic benefit received by the policy owner most likely will be taxable income.

Case Study

Frank and Rudy own equal interest in Pan Africa Commodities, a high-end import/export business that specializes in raw materials and finished goods. After a slow start, the company is experiencing growth and profitability. Recently valued by an outside firm at $2 million, Frank and Rudy agree that the time has come for Pan Africa to establish and fund a buy-sell agreement. Both also recognize their need to purchase additional personal insurance. After first establishing the value of Pan Africa, and then establishing and ratifying the buy-sell agreement, both business owners purchase $2 million life insurance policies on their own lives. Because the owners are funding the agreement with personal policies, a thirdparty valuation may not be necessary. As long as the value is reasonable and customary, the value can be an amount upon which the owners agree. Although both Frank and Rudy are healthy, there is a sizable difference in their respective ages — Frank is 36 and Rudy is 57. Because of the premium differences tied to their age disparity, they decided not to pursue a cross-purchase buysell agreement. Following a discussion 36

InsuranceNewsNet Magazine » April 2015

Cross-Endorsement Buy-Sell Business Interest

Pan Africa Commodities

Business Interest

Insurance Company

Policy 1 Premium

Policy 2 Premium

Pay Rental Charges to Each Other e 36

g Frank — A

Endorse Death Benefit to Each Other

with their agent, Bob, they decided that a cross-endorsement buy-sell agreement would be the correct course of action. Because both owners are in the 40 percent tax bracket, they each agree to pay themselves an additional $3,334 per month. This will create an after-tax cash stream of an additional $2,000. Frank will use his $2,000 to purchase, own and pay premiums on a $2 million permanent policy on himself; Rudy will do the same with his additional income. If needed, they will be responsible for any additional premiums.

Funding

To fund the cross-endorsement buysell, Frank will endorse $1 million of his policy’s death benefit to Rudy and Rudy will endorse $1 million of his policy’s death benefit to Frank. Rudy and Frank will pay each other the economic benefit cost for the $1 million benefit. We calculate the cost of the economic benefit using the Table 2001 rates. Although the IRS has not formally adopted Table 2001, it is commonly used for this measurement pending IRS publication of specific directions for the determination of an economic benefit factor. The rate for a 36-year-old is $1.01 per thousand. The rate for a 57-year-old is $5.20 per thousand. Rudy pays Frank $1,010 this year for the right to receive $1 million of Frank’s death benefit this year. Frank will show this amount as taxable income on his tax return. Likewise, Frank will pay Rudy $5,200 to receive the same amount of Rudy’s death benefit this year and Rudy

Rudy — A ge 57

will show this amount as taxable income on his tax return. The rates will increase each year based on their respective ages. The following year, Rudy’s monthly cost for Frank’s coverage will be $86.67 and Frank’s monthly cost for Rudy’s coverage will be $471.67. Later, if Rudy dies, $1 million of his policy’s death benefit is paid to Frank. The remainder goes directly to Rudy’s heirs. Subsequently, Frank will use the $1 million benefit to purchase Rudy’s interest in Pan Africa from Rudy’s heirs according to the buy-sell agreement. Rudy’s family will receive the $1 million (provided the buy-sell agreement is executed in a reasonable period of time) and Frank’s basis in the business will increase by $1 million. If Rudy or Frank leaves Pan Africa or retires, they can terminate the buysell agreement without the associated expense in distributing the policies — Frank and Rudy’s heirs will receive the full $2 million in death benefits. Remember, both Frank and Rudy own the policies on their respective lives so they can fund them and use them however they wish. If funded sufficiently, Frank could use the cash values in the contract to augment his retirement funds. Alternatively, when there is no longer a need to use the policies to fund the buy-sell agreement, both Rudy and Frank could gift or sell their respective policies to their own trusts.

Flexibility

There’s no limit as to how many individuals can participate in the agreement.

April 2015 Âť InsuranceNewsNet Magazine

LIFE A BUY-SELL PLAN THAT GIVES OWNERS LIFE INSURANCE CONTROL

TABLE 2 Further, depending on their percentage of ownership, different owners can rent different amounts of benefit to and from each other. What’s more, the permanent policies can meet other needs. They can accumulate cash for retirement. They can include a long-term care rider and provide what could be a much-needed benefit in Frank’s and Rudy’s old age. (Please note that policy riders are available at an additional cost and may not be available for all products. Terms and conditions apply.) This planning method may prove to be more expensive since it works more effectively with permanent life insurance policies. The method doesn’t preclude someone from using term insurance but the economic value of a term policy is its cost per thousand term rate. For example, the cost per thousand for Frank, who qualifies for preferred non-tobacco underwriting, for a 15-year term policy is $0.44 per thousand. The Table 2001 rate used for permanent policies is $1.01. Likewise, the cost per thousand for Rudy is $4.71 for a standard non-tobacco 15-year term policy. The Table 2001 rate used for Rudy’s permanent policy is $5.20. In both instances, the 15-year term rate is lower than the Table 2001 rate. However, alternative term rates can

AGE

36 37 38 … 50 57 58

AGE

15-YEAR TERM RATES

$1.01

$0.44

$0.29

$1.04

$0.44

$0.29

38 …

$1.06 …

$0.44 …

$0.29 …

$2.30

$0.44

$0.75

RUDY

$5.20

$4.71

$1.24

$5.66

$4.71

$1.38

59 …

$6.06 …

$4.71 …

$1.52 …

$22.72

$4.71

$4.20

Author’s Note: Not every insurance company offers alternate term rates and some companies state that they have them but do not support them. It is best to confirm availability before starting the formal underwriting process. 1 Rates published by National Life/Life of the Southwest (male alternate term rates).

be used in place of Table 2001 rates if these rates are published and regularly sold through the insurance company’s normal distribution channels. The difference between these two sets of rates can be dramatic. Like the Table 2001 rates, the alternate term rates will increase each year. The alternate term rates shown for Frank ultimately exceed the rate for the 15-year term product, but the cumulative difference TABLE 1 in total out-of-pocket cost TABLE 2001 RATES over the 15-year period is negligible. The alterFRANK nate term rates for Rudy $1.01 never exceed the 15-year term rate. $1.04 If the parties involved $1.06 fail to see the value of per… manent life insurance, then this plan is probably not for $2.30 them. But as a final note, RUDY here is a list of reasons why those clients should see the $5.20 error of their ways:

$5.66

59 …

$6.06 …

» A term policy offers no premium payment flexibility.

$22.72

» Term policies do not offer long-term care riders.

The cost to Frank for Rudy’s coverage: 1,000 x $5.20 = $5,200/year = $433.33/month

InsuranceNewsNet Magazine » April 2015

ALTERNATE TERM RATES1

FRANK

The cost to Rudy for Frank’s coverage: 1,000 x $1.01 = $1,010/year = $84.17/month

TABLE 2001 RATES

» Not all term policies offer conversion privileges.

» Converting a term policy to a permanent policy in the future will be more expensive than purchasing a permanent policy now. » The cash values in a permanent policy are available for use to the policy owner. Funded correctly, a policy owner may even surrender the policy (if it’s no longer needed) and recover all of the premiums. Only select term policies offer this feature. » A cross-endorsement buy-sell agreement is flexible and allows each owner to control his or her individual premium schedule and death benefit. It is possible to change the benefit that is “rented out” annually, based on either the value of the business, or on what the owners would like to have their families financially extract from the business. Howard Jonas, CLU, ChFC, CASL, is director of advanced sales, Crump Life Insurance Services. Howard may be contacted at howard.jonas@ innfeedback.com. William R. Buslee, MS, ABD, CFP, CLU, ChFC, currently heads the advanced sales efforts for Crump’s national accounts from his location in Bethesda, Md. He may be contacted at william.buslee@innfeedback.com.

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Total U.S. Annuity Sales Up 3% in 2014

$235.8B

Record sales of fixed index and income annuities helped drive 2014 annuity sales to $235.8 billion, according to LIMRA Secure Retirement Institute. Total annuity sales in the fourth quarter were $58.1 billion, falling 6 percent compared with results in the fourth quarter of 2013. Index annuity sales reached $48.2 billion in 2014 — $9 billion higher than than in the prior year — a 23 percent increase from 2013. For the first time, index annuities held more than 50 percent market share of all fixed annuity sales in 2014. Index annuity sales were $12.2 billion in the fourth quarter, an improvement of 3 percent compared with fourth quarter 2013 results. Immediate income annuity sales jumped 17 percent in 2014, totaling $9.7 billion. In the fourth quarter, immediate income annuity sales dropped 12 percent compared with prior year to reach $2.3 billion. LIMRA Secure Retirement Institute analysts attribute the fourth-quarter decline to falling interest rates. Deferred income annuities (DIAs) experienced record growth in 2014, reaching $2.7 billion. This was 22 percent higher than sales in 2013. DIA sales were $680 million in the fourth quarter of 2014, 4 percent lower than fourth-quarter 2013 results. Overall fixed annuity sales were $95.7 billion in 2014, improving 13 percent compared with 2013. In the fourth quarter, total fixed annuities fell 5 percent, to reach $23.9 billion.

ANNUITIES GAIN TRACTION IN DB RETIREMENT PLANS

More than one-fifth of companies that sponsor a defined benefit (DB) retirement plan say they are considering buying annuities to fund a portion of their obligations to the plan participants. That’s according to a survey by the global retirement and health benefits consulting company Aon Hewitt. The survey also found that 22 percent of companies are “very likely” to offer “terminated vested participants” a lump sum window this year. In addition, 19 percent of employers said they plan to increase their cash contributions to the retirement plan to reduce Pension Benefits Guaranty Corp. (PBGC) premiums in the year ahead. The survey of the 183 defined benefit plan sponsors found that 36 percent of companies were adjusting retirement DID YOU

KNOW

plan assets to better match retirement plan liabilities.

AMERICANS FACE $4.13T RETIREMENT SAVINGS GAP

Americans have been told they are likely to face a retirement savings gap. But just how wide is that so-called savings gap? And what is causing that gap? In the aggregate, all U.S. households where the head of household is between 25 and 64 years old face a retirement deficit estimated at $4.13 trillion, according to the Employee Benefit Research Institute (EBRI). This number would rise if the OldAge, Survivors and Disability Insurance Trust Fund were allowed to run dry. That deficit would rise further if Social Security were to be eliminated. EBRI’s model assumes that all workers retire at age 65 and that they immediately begin drawing benefits from Social Security and defined benefit plans (if they have any). The model also assumes workers begin

For the average worker, Social Security benefits generally replace only about Source: Social Security Administration

InsuranceNewsNet Magazine » April 2015

40%

of preretirement income

withdrawals from defined contribution accounts, cash balance plans and individual retirement accounts (IRAs) to pay for expenses and uninsured medical costs that exceed the after-tax income they receive from Social Security and defined benefit plans. EBRI conducted simulations of savings shortfalls in retirement and found that the amount of the gap varies by age, gender and marital status. Further, EBRI found that both the cost of long-term care and longevity risk have huge impacts on the amount of the gap. Among early baby boomers (those born between 1946 and 1955), the amount of retirement savings shortfall is greatest among single women. Single women who are early baby boomers are projected to run a deficit of $62,734. On average, single men in the early baby boomer age group are projected to run a retirement savings shortfall in 2014 dollars at age 65 of $33,778. Early baby boomers who are married are predicted to have a deficit of $19,304, the simulation found.

INSURER STUDIES WOMEN’S Only RETIREMENT OUTLOOK

14%

Only 14 percent of women are “very confident” in their ability to retire with a comfortable lifestyle. That’s the women are very top finding in the Transa- confident about retirement merica Center for Retirement Studies’ recent report “15 Facts About Women’s Retirement Outlook.” Other top findings include: » Among women who estimated their retirement savings needs, the majority (57 percent) say they “guessed.” » Women estimate that they will need to have saved $800,000 in order to feel financially secure in retirement. » 28 percent of women work part time, so are less likely to have workplace retirement benefits. » 77 percent of women who are offered an employee-funded plan participate in the plan. » 55 percent are saving for retirement outside of work in an individual retirement account, mutual fund or bank account.

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ANNUITY

Don’t Assume That Your Clients Understand the Basics of Annuities C onsider having a short but informative “boot camp” on annuities at your next client meeting. By Christopher Bartolotta

InsuranceNewsNet Magazine » April 2015

L is te n u p ! Wh o c a n te ll me w h at o ne of THESE is? ! Photo credit: WARNER BROTHERS / Album / Newscom

any Americans aren’t going to have a lot of money to work with in retirement. For example, a household survey by the Federal Reserve Board of Governors found that nearly one-third of working Americans have zero money saved for retirement. The times are ripe for annuities, but the public does not understand that they need them. With life expectancies increasing dramatically in recent years, what assets Americans do have likely will need to last for 25 years or possibly longer. Assuming that the goal is to avoid re-entering the workforce, there is a huge need for tools that can ensure financial security in the very long term. In addition, consumers need to be educated about those tools. Numerous consumer surveys in the past few years paint a fairly bleak picture when it comes to the public’s general knowledge of how to maintain their lifestyle after they stop working. The bulk of soon-to-be retirees are concerned about how to maintain their standard of living and actively fear being unable to do so. Yet at the same time, they remain woefully in the dark about the retirement tools available to them. This presents an opportunity to educate your clients and prospects on how annuities can boost their chances of financial success in retirement. Today’s beleaguered retirees could be helped most with a basic understanding of the function and purpose of annuities. Because annuities are an oft-misunderstood and much-maligned tool, advisors and consumers alike often recoil at their very mention. Realistically, however, annuities stand out in this situation because of the one thing they do better than anything else: guarantee payments that cannot be outlived.

Need more evidence of how great the need is for this type of advice? Here are some additional statistics to show how unprepared Americans are for retirement. The American College recently conducted a quiz to determine consumer knowledge of retirement issues. Eighty percent of the respondents — all at or near retirement age and with at least $100,000 in investable assets — failed outright. Less than 1 percent received a grade of A minus or better. Vanguard’s 2014 “How America Saves” report indicates that working Americans have a mean average balance in their 401(k) accounts of $101,650. That doesn’t sound like such a bad number at first. If this hypothetical American retires today,

however, they would have to live quite frugally: According to the commonly used 4 percent annual withdrawal rate during retirement, that would give them just over $4,000 per year. Even factoring in Social Security and assuming an equal amount from other sources of income, that doesn’t leave much to pay for anything beyond basic necessities. The picture gets bleaker when looking at the median average, rather than the mean, which is inflated by high-earning outliers. The median average balance is just over $31,000. Suddenly that modest 4 percent withdrawal has become downright meager. The situation isn’t improved much by focusing on retirees 65 and older, which brings the median up to about $73,000.

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When working in the financial sector, danger that funds will run out and there it’s easy to forget that common industry won’t be a guaranteed check in the mail — knowledge — even something as simple something that 84 percent of Amerias the aforementioned 4 percent with- cans are concerned about, according to a drawal rule — isn’t common knowledge study by TIAA-CREF. to everyone. In truth, the consumer reThe same study found that only 14 ceives so little information on how to percent had purchased an annuity. This manage their assets and prepare for their is puzzling, as annuities do exactly what golden years effectively that even a fun- those respondents said they wanted to damental understanding of basic money do: guarantee that money will always be concepts would bring most of them far coming in. above average. One reason for this is likely the way A great first step is to help your clients that annuities are marketed. Both fixed create a written synopsis of their finan- and variable products have long been cial objectives. A majority of the work- pushed on consumers on the strength force lacks any written objectives for of flashy features like bonuses and guartheir financial future and anteed rollup accounts. just wings it. A vast numWhile these features are ber of variables can bring not necessarily a bad thing about a dramatic change in and of themselves, they in an individual’s finanare easy to misrepresent cial situation. This often or misinterpret. This has leads to disappointment led to annuities in generor disaster when it comes al receiving a poor reputime to retire. Assisting tation, frequently being clients with this relatively dismissed as a “scam” or a simple step can go a long Today’s beleaguered product that is “sold, not way toward both ensuring retirees could be bought” among the advithat they are being served helped most with a sory community. in ways other than simply A basic immediate anbasic understanding nuity, on the other hand, managing their assets and building trust in the rela- of the function and does nothing more than purpose of annuities. exchange a lump sum tionship. Advising clients on of cash for a guaranteed something as basic as the proper way to stream of payments for life. Making clihandle an employer-sponsored 401(k) is ents aware that this simple guard against another step that may seem overly sim- spending away all of their assets is availplistic to the seasoned advisor qualified able is the first step in bringing an unto talk about 401(k)s. But it can substan- derused financial instrument more into tially raise a client’s understanding of the mainstream. In turn, this can help their financial picture and improve the secure a future for those concerned that odds of a comfortable retirement. One of they may not have one. the reasons for the low 401(k) balances At the next client meeting, considmentioned earlier is that many employer having a short but informative “boot ees either fail to contribute or do not take camp” on these and other elementary full advantage of their employer’s match. concepts. You can boost your clients’ Outlining the tremendous impact of this chances of meeting their goals while missed opportunity is another corner- strengthening your relationship and stone of a solid knowledge of long-term contributing to an overall greater public planning. knowledge of retirement. With a small amount of assets available, the possibility of needing to scale Christopher Bartolotta is back one’s lifestyle may be unavoidable, marketing content manager at M3 Financial, with offices depending on the individual’s circum- in New York and Glastonbury, stances. There is only so much that can Conn. He may be contacted be done about a failure to save over the at christopher.bartolotta@ course of a lifetime. One problem that innfeedback.com. can be mitigated today, however, is the

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April 2015 » InsuranceNewsNet Magazine

ANNUITY

Annuity Bailout Caps Can Level the Playing Field B ailout clauses can reduce uncertainty and increase confidence in consumers who buy fixed index annuities. By Eric Taylor

s volatility returns to the financial markets and the bull market turns 6 years old, it’s little wonder that fixed index annuities continue to grow in popularity. Consumers have found them to be an ideal planning tool to help avoid the retirement pitfalls posed by inflation, interest rate, market volatility and longevity risks. A few carriers have gone a step further to help mitigate a potential risk inherent in index annuities: renewal cap risk. They’ve done this by adding a bailout provision, which gives contract holders an “out” if the carrier sets the renewal cap below its specified “bailout” level. In that situation, the carrier gives the contract holder a window of time during which he or she can transfer or withdraw some or all of their accumulated contract value without surrender charges or market value adjustment. Some carriers limit their bailout to the money directly allocated to the index crediting strategy to which the bailout is tied, while others may allow a full or partial surrender of the entire contract value if the cap rate falls below the bailout rate. In effect, the bailout creates a renewal “promise” by the carrier to help ensure that renewal caps or rates are higher than the guaranteed minimum during the surrender charge period. For financial professionals and their clients, it provides a measure of confidence in the future upside potential of the product. Some may recall bailouts being available on traditional fixed annuities at various times going back to the 1980s. Innovation has brought this value proposition to fixed index annuities in recent years.

A Look at Renewal Cap Risk

Over time, the ultimate growth potential 46

InsuranceNewsNet Magazine » April 2015

of a fixed index annuity contract is dependent on many factors (interest rates, market volatility, options costs, etc.). Most annuity contracts are able to guarantee specific interest rates or caps only for the first year of the contract (or longer if a multiyear crediting strategy). These factors create the potential for an uncomfortable “trust me” dynamic between the advisor and the client that the contract’s growth potential will be consistent over time. The sustainability of caps and rates on a contract with very high first-year caps could be in question because of these uncertainties. With only 100 cents in every dollar, it is easier to set a high first-year cap than it is to sustain it throughout the surrender charge period. Indeed, as the low interest rate environment has persisted, carriers have found it necessary to respond by lowering the minimum renewal caps and rates for indexed and fixed crediting strategies. Some carriers commit to setting aside a consistent percentage of their future investment yield throughout the surrender charge period to fund an index annuity’s growth potential. This is known as an “options budget.” However, as volatility increases, so does the cost of purchasing those “upside potential” options. The future cost of purchasing an equivalent amount of upside potential is unknowable at contract issue, which can have long-term ramifications over the life of a contract. A bailout cap can help put in place a measure of certainty and can create options for contract holders, especially with new lower minimum caps and uncertainty about renewal caps going forward.

Renewal Cap Protection

Let’s use a hypothetical situation to illustrate how the bailout provision works. Company A is offering an index annuity with a first-year cap of 4.5 percent and

minimum renewal cap of 1 percent. Assuming an index rise during the first contract year greater than the cap, and initial premium of $100,000, they would receive an interest credit of $4,500 in Year 1. Company B is offering an annuity with a first-year cap of 4.25 percent, also with a bailout cap of 3.25 percent. Your client’s Year 1 interest collected on $100,000 is $4,250, meaning their opportunity cost for choosing Company B over Company A in Year 1 was $250. But now let’s assess a worst-case Year 2 scenario. Due to extraordinary market volatility or other circumstances, Company A’s renewal cap is 2 percent, down from the 4.5 percent your client had in Year 1. Their upside potential has decreased from $4,500 in Year 1 to $2,000 (ignoring compounding) in Year 2, a $2,500 negative swing. If the same market volatility also forces Company B to reduce caps below the bailout rate of 3.25 percent, then the client has the option of withdrawing some or all of their money without a surrender charge and searching for an alternate, higherpotential opportunity. While this situation may seem drastic, it does illustrate the potential that a volatile environment can have on future growth.

What It Means for Your Client

Quite simply, a bailout provision is a blanket improvement of a long-established retirement solution. As such, a bailout

provision can benefit many clients, both in real terms of growth potential, and more certainty as to the potential downside to their upside potential. Without this protection, some clients (and advisors) may experience anxiety surrounding the potential loss of growth potential, i.e., renewal cap decreases. This is natural when you have “trust me” scenarios in products. In behavioral finance, this is referred to as “regret aversion,” which is one of the most motivating components of personal finance: If I make this decision today, will I regret doing so later on? Bailout clauses effectively shift optionality from the insurance carrier to the client, which can lead to reduced uncertainty and greater confidence in an already outstanding retirement product.

The Bigger Picture

Your clients’ portfolios are exposed to many risks. Inflation, even if wellcontrolled, is running above what most certificates of deposit and money markets are paying, leading to a decline in purchasing power over time. If interest rates rise from current levels, your clients who have significant exposure to fixed income vehicles such as bond funds could see their values decline. Market volatility continues to be a significant concern as we are all prone to “buy high, sell low” behaviors. This especially is true as we extend deeper into this longer-than-usual bull market. And we’re seeing increased longevity due to advances in both medical technology and new drug therapies capable of significantly extending our lives. Fortunately, fixed index annuities can help mitigate each of these retirement risks. While the low interest rate environment continues to be a challenge, millions of clients and prospects are awaiting your recommendations to help them prepare for the future with confidence. With innovations such as bailout provisions, we can help more clients put solid retirement income plans in place, help them stick with those plans over time, and have more secure and predictable outcomes. That’s one way we’ll continue moving our industry forward. Eric Taylor is vice president and national sales manager for annuities with Genworth. Eric may be contacted at eric. taylor@innfeedback.com.

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April 2015 » InsuranceNewsNet Magazine

HEALTHWIRES

HSAs Increase 29% to 13.8M Accounts Health savings accounts (HSAs) are on a roll. The number of HSAs grew to 13.8 million at the end of 2014, an increase of 29 percent over 2013, according to a consulting firm that tracks the HSA industry. Assets held in HSA accounts grew to $24.2 billion at the end of last year, an increase of 25 percent, according to the 2014 Year-End Devenir Research HSA Research Report. Devenir projects that by the end of 2017, the HSA market will surpass $40 billion in HSA assets held among almost 30 million accounts. HSA accounts consist of a savings component and an investment component. The 11 percent growth in the Standard & Poor’s 500 index last year helped HSA investment assets reach $3.2 billion, a jump of 40 percent over 2013, the report said. The average investment account holder has an average total balance — deposit and investment — of $12,995. Investors achieved an average annualized return of 12.5 percent on HSA investments in the past three years. HSAs are offered in connection with high-deductible health plans. Plan participants draw on the account to pay for medical and dental costs not covered by insurance.

COVER OREGON DISSOLVING

The independent corporation that runs Oregon’s troubled state health insurance exchange, Cover Oregon, is one signature away from dissolving. A bill putting Cover Oregon out of business was sent to Gov. Kate Brown for her approval. Cover Oregon spent $300 million in federal funds and $26 million in state funds to build the health insurance exchange. But its Web portal failed to launch in 2013. Last spring, Oregon scrapped its Web portal and switched to the federally run exchange website, HealthCare.gov. Cover Oregon continued to perform functions such as interacting between insurance companies and insurance buyers. Now those tasks will be taken over by other agencies.

LTCi INDUSTRY PAID RECORD CLAIMS IN 2014

The nation’s long-term care insurance companies paid a record $7.85 billion in claim benefits to 250,000 individuals in DID YOU

KNOW

2014, according to a report. This represents a 5 percent increase in benefit payments over the prior year, and a jump from the $6.6 billion paid to about 264,000 individuals in 2012, according to Jesse Slome, director of the American Association for Long-Term Care Insurance (AALTCI). AALTCI’s 2015 Price Index study revealed that costs for traditional longterm care insurance policies rose about 8 percent over the prior year. The research also found that costs for virtually identical policy coverage varied by as much as 119 percent.

BOSTON TOPS LIST OF HEALTHIEST CITIES

What makes a healthy city? Physical fitness rates, highly rated doctors and the percentage of residents with health insurance, according to BetterDoctor.com. Based on those three criteria, Boston was crowned the healthiest city in the U.S. Boston was cited for its walkability and high number of residents who walk to work each day. In addition, the

Kansas was the only state where fewer people had health insurance in 2014 than in 2013. Source: Gallup

InsuranceNewsNet Magazine » April 2015

QUOTABLE On the final day, we had more consumers sign up than we’ve ever had, last year or this year. — U.S. Health and Human Services Secretary Sylvia Mathews Burwell, on the end of the second enrollment period for health coverage under the Affordable Care Act.

95 percent of its residents who have health insurance and the ratio of one doctor for every six residents moved Boston to the top of the list. Minneapolis came in second place, followed by Washington, D.C. Meanwhile, Memphis, Tenn., was named the unhealthiest city in the nation. Memphis residents have the least access to quality health care of any city in the nation, according to BetterDoctor.com. In addition, its residents have low physical fitness rates and a small population of quality doctors. Oklahoma City came in second place on the unhealthy city list, followed by Louisville, Ky.

DEPRESSION HURTING AMERICAN BUSINESSES

A new study has found that depression is the leading cause of disability for those ages 15-44, resulting in nearly 400 million disability days per year. This is according to the Journal of Clinical Psychiatry, which drew its data from insurance claims. The economic costs of major depressive disorder continue to rise, the study found. Annual costs related to major depressive disorder rose to $210.5 billion in 2010. That represents a 21 percent increase over the $173.3 billion in overall annual economic fallout linked to sufferers of the disorder as of 2005, the report noted. More people were suffering from depression in 2010 compared with 2005, the report said. During that five-year time span, the number of people suffering from depression grew from 13.8 million to 15.4 million, with the fastest rate of increase seen among people older than age 50. The study’s authors said those suffering from depression appeared to be hit particularly hard by the Great Recession of 2008.

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BROKER SERVICES

HEALTH

Employee Wellness Programs: More Than a Gym Membership H ow to build a real wellness program and count the return on investment.

In a results-based wellness program, ROI comes into play through actually changing people’s health.

By Jim O’Connor

he ever-escalating cost of providing health benefit programs is giving employers an incentive to seek ways of reining in this inflationary trend. In doing do, employers are seeking meaningful solutions other than simply reducing benefits and passing on more of the cost burden to their employees. Workplace wellness programs are gaining the attention of human resource managers and corporate financial officers as a means to help solve the health care cost dilemma, as these wellness programs can be a more organic way to get to the root of the problem. So how can health insurance agents and employee benefit providers present the concept of wellness to their group health clients? The key comes down to return on investment (ROI). A well-designed wellness program will have a direct effect on an employer’s health care spend when leveraged correctly and effectively. Because wellness programs traditionally have been seen as merely consisting of smokingcessation programs and gym membership reimbursements, it can be difficult for employers to grasp how wellness programs can derive real ROI. In order for health insurance agents and employee benefit providers to give an effective portrayal of the value of wellness programs and associated health care risk-management strategies, they need to understand how wellness programs work, the evolution of these programs, and where they are headed, in order to truly fathom their potential impact on an organization’s bottom line. First of all, wellness programs need to be positioned as a key component of a company’s overall risk management strategy. While health benefits typically constitute a company’s second or third biggest 50

InsuranceNewsNet Magazine » April 2015

spend, workplace wellness programs provide an organic option to reduce this cost. The program’s intention, beyond the financial returns, is to encourage and enable employees to live healthier lifestyles. Theoretically, this in turn should mean employees are not getting sick as often, thereby eliminating or decreasing risk related to poor health. By consuming less health care service and halting progressively worsening conditions, health care expenses are lower and put less upward pressure on costs. Therefore, ROI is directly consequent from the reduced health care spend. Second, employers should be reminded that since wellness programs should result in healthier employees, the ROI also is enhanced with improved employee productivity and reduced absences. Not only are healthier employees more productive employees, they will typically be happier employees, which will help the employer attract and retain top talent, and become an employer of choice. Third, clients should be presented with two key types of wellness programs: “participation-based” and “results-based.” In the former, employees are rewarded purely for participating in the wellness program. In fact, this type of program turns a blind eye to the employees’ physical health

results, as long as individuals are participating in the program. Participation-based programs include activities such as taking a personal health assessment, getting biometric screenings completed, attending smoking-cessation seminars or exercising regularly. The presumption is that through self-awareness, people will engage in healthier behavior on their own. While this holds true up to a point, it is likely that a participation-based wellness program eventually will stagnate. However, in a results-based wellness program, which is the most contemporary program design, ROI comes into play through actually changing people’s health. This is gauged through the measurement (as allowed under federal regulations) of five specific health markers: blood pressure, LDL cholesterol, blood glucose, body mass index and tobacco use. A results-based wellness program encourages and rewards employees not only to “know their numbers,” but to change their results if they are not at healthy levels, as determined by the medical community. The National Institutes of Health (NIH) has established national standards for each of the five categories that employers may use as the standard their employees must meet in order to receive the benefit

EMPLOYEE WELLNESS PROGRAMS: MORE THAN A GYM MEMBERSHIP HEALTH of the results-based program. (Employers may choose “easier” goals for these five markers than the NIH targets.) Federal regulations also require that results-based wellness programs must allow an employee to appeal the results of the biometric screening if the result of one or more of the tests on the day of the screening is not consistent with that individual’s normal results. In addition, the regulations require that an individual must be allowed to be measured against a “personal alternative goal” if he or she is not clinically able to meet the goal established by the program. The key to establishing successful wellness programs and achieving a measurable ROI is to encourage people to be part of the solution. If employees are healthier, then they’re spending less on health care and, financially, the business ROI is there. In order to help this result come about, organizational leaders need to be cognizant of their corporate culture, as their employees need to be part of the solution.

As employee benefit consultants and health insurance agents focus on presenting the concept of wellness to their group health clients, they also need to keep in mind the evolution of workplace wellness, which likely will comprise the bigger picture of employees’ lives. Wellness programs are becoming more holistic. These programs are attempting to go beyond the employee’s physical health by incorporating the employee’s mental, financial, emotional and overall well-being into the mix. As wellness programs pick up steam and employee benefit consultants and health insurance agents present this concept to their group health plan consumers more effectively, the totality of wellness for employees will be enhanced. This will lead to greater employee retention and recruitment of top talent, which will in turn aid the employer in becoming an employer of choice. Ultimately, employers can’t establish effective wellness programs that generate real ROI on their own. They need to partner with professionals who understand

the laws and regulations surrounding the Affordable Care Act and other provisions. As long as employers work with advisors and vendors who completely understand the rules and regulations surrounding employee benefits, wellness programs and beyond, they should be in good hands and stay within established and acceptable guidelines. Health insurance agents and employee benefits providers have an important seat at the table. In order for organizations to realize real returns on these programs, they need to have a better understanding of how wellness works and the evolution of these programs toward a more holistic approach. Jim O’Connor is the president of employee benefits services at CBIZ, one of the nation’s largest providers of employee benefits and insurance advisory services. Jim may be contacted at jim.o’connor@ innfeedback.com.

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April 2015 » InsuranceNewsNet Magazine

FINANCIALWIRES

Americans Getting Better At Retirement Saving

52%

Some encouraging news on the retirement savings front: Americans have been doing a better job lately stockpiling money for their golden years, according to an annual Of Americans Save at Least survey by the Consumer Federation of America (CFA). 5% of Their Income The overall improvements, compared with a year ago, were small but nonetheless important, said Stephen Brobeck, CFA executive director. He pointed to two indicators that he said were especially encouraging. Those who said they were spending less than their income and saving the difference rose to 71 percent, up from 68 percent last year. And those who said they were setting aside at least 5 percent of their earnings jumped to 52 percent, up from 47 percent last year. Twenty-eight percent reported saving at least 10 percent, up from 26 percent. Despite these encouraging signs, nearly half of Americans — 48 percent — were contributing less than 5 percent of their incomes toward retirement.

GENS X AND Y ARE WORRIED ABOUT FINANCES

One challenge to retirement saving could be that younger adults are stressing out over whether they will have enough money to meet their current needs. A Harris Poll conducted on behalf of the Million Dollar Round Table found that more than 80 percent of those in Generations X and Y have financial concerns. The top financial concern? Not having enough money in an emergency fund. In second place is the fear of not being able to pay off monthly bills. In addition, nearly half of Generation X fears not being able to retire when they want. According to the study, 50 percent of Generation Y and 35 percent of Generation X have not done anything to prepare for retirement. Ten percent of Generation Y said they have spoken to an advisor to prepare for retirement, compared to only 7 percent of Generation X.

FEWER SENIORS DELAYING RETIREMENT

One sign of an improving economy: The number of workers who are delaying DID YOU

KNOW

retirement reached a post-recession low. According to CareerBuilder’s annual retirement survey, the number of workers ages 60 or older currently delaying retirement reached a post-recession low of 53 percent. This number is down from 58 percent last year and 66 percent in 2010. Despite the encouraging finding, retirement is still far off or unlikely for many. Seventy-five percent of workers ages 60 or older who are currently delaying retirement said the recession is the reason. Twelve percent don’t think they will ever be able to retire — up slightly from 11 percent last year — and nearly half (49 percent) feel retirement is at least five years out. Fifty-four percent of senior workers say they’ll work after retiring from their current career — up from 45 percent last year. Of this group, 81 percent say they’ll most likely work part-time, while 19 percent plan to continue working full-time. For seniors out of work or planning to work post-retirement, the job search may be getting easier. Fifty-four percent of private sector employers hired mature workers (ages 50 and above) in 2014 — up six points from last year’s 48 percent — and 57 percent plan to do so in 2015.

$3,120

THE AVERAGE RETURN ON AN INITIAL OFFERING was 20 percent The average amount of PUBLIC a this year. The average increase in the first day (or “pop”) is 13 percent.

federal tax refund this year:

Source: Renaissance Capital Source: IRS

InsuranceNewsNet Magazine » April 2015

Source: Fidelity Investments

QUOTABLE Beneath women’s reticence to talk about money lies a lack of confidence in their knowledge of financial planning and investing. This confidence gap is really unwarranted. — Kathleen Murphy, president of personal investing, Fidelity Investments

‘PERSONAL FINANCE’ TOO ‘PERSONAL’ TO DISCUSS

Eight in 10 women confess that they have refrained at some point from talking about their finances with close friends and family members. Why? For most of these women, it’s because the subject of finances is “too personal.” That’s according to a study by Fidelity Investments, which found that this reluctance to talk about financial topics also occurs among married couples and partners — where financial assets are generally shared. Furthermore, while 77 percent of women are confident discussing medical issues with a doctor on their own, fewer than half (47 percent) say they are confident talking about money and investments with a financial professional. Overall, 60 percent of women worry about having enough savings to last throughout retirement, with financial anxiety most prevalent among women in Generation X and Generation Y. (born between 1965 and 1996). For many women, a lack of confidence is driven by a need for more in-depth understanding of and experience with the investment process. Women who are not confident in making financial decisions said it was either because they hadn’t researched their options, hadn’t done much with their finances so far or don’t know whom to talk to for advice.

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FINANCIAL

Simplified Answers for Clients’ Key Questions About Stocks E ven cautious investors might be thinking about getting into the market. Even if you are an equities expert, it’s helpful to know simple ways of answering basic questions clients might have. By Bryce Sanders

People have short memories when it comes to the stock market. The market enjoyed impressive performance over the past two years: In 2013, the Dow Jones Industrial Average was up 26.50 percent, and it was up more than 7 percent at the end of 2014. People see these numbers and say, “I want to get into the market.” But they’ve forgotten about the market declines in 2008 and early 2009. Do they really understand stocks? If you are an experienced stockbroker, sometimes it can be difficult to explain the ways of the market in terms that laypeople can understand. But simple answers are not necessarily dumbed-down; rather, they’re just simplified for smart clients to grasp. This article shows how to answer clients’ questions. It is also a handy primer for advisors who dabble in mutual funds but are now looking at the broader equities market and need to brush up on basics. What is a stock? When people invest in the stock market, they are buying shares of common stock representing proportional ownership of the underlying company. Stocks also are referred to as shares or equities. Key point: When you own a stock, you own a slice of the company. What do I get? The investor primarily receives the opportunity to earn (or lose) 54

InsuranceNewsNet Magazine » April 2015

money based on the share value at the time they choose to sell the stock. In most cases, the shares come with the ability to attend the company’s annual meeting and vote either in person or remotely (by proxy). This usually involves electing the board of directors and voting on shareholder proposals, often with guidance from management. But in most cases, investors buy shares with a view to make money down the road, not because they want to run the company. Key point: You have ownership participation, as well as the ability to make or lose money.

Key point: In most cases, shares are traded on exchanges, not privately. What are the indices like the S&P 500 or the Dow Jones Industrial Average? At year-end 2013, there were more than 5,000 listed companies in the U.S. Not all are actively traded. Companies come and go. Baskets of companies are assembled and tracked as a group called an index. The Dow Jones Industrial Average has 30 companies. The Standard & Poor’s 500 has — you guessed it — 500. Following a basket of shares is easier than following every listed company. Key point: Overall performance is tracked by measuring baskets of stocks. Are all stocks in an index considered equal? No. Indices are usually weighted based on market capitalization or the value of all the outstanding shares in that company combined. A company like Exxon Mobil with a market capitalization around $388 billion carries more weight than Intel, which weighs in at $179 billion. Key point: Size matters.

What is the stock market? Most companies in which a client might consider buying stock are listed on a major exchange such as the New York Stock Exchange (NYSE), Nasdaq or the American Stock Exchange (ASE). Most trading in shares is executed electronically. An intermediary executes purchases and sales on behalf of their client.

Do all shares represent the same proportional ownership of a company? No, unlike a pizza, the size of the slices isn’t standardized. Companies often have vastly different numbers of shares outstanding. For example, Berkshire Hathaway, the company started by Warren Buffett, has only 2 million shares outstanding. The market capitalization of all the shares combined is about $374 billion (as of the end of 2014). Each share is worth about $225,000. In contrast, Exxon Mobil has about 4.23 billion shares outstanding. With a market capitalization of $388 billion, each share is worth about $9 (as of the end of 2014). Key point: Not all slices are the same size.

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FINANCIAL BASIC ANSWERS FOR CLIENTS’ KEY QUESTIONS ABOUT STOCKS What makes a stock go up? Companies exist to make money. These profits are expressed as earnings on a per-share basis. The stock price divided by the earnings gives the price-to-earnings (P/E) ratio. Put another way, multiplying the earnings by a certain number gets the theoretical share price. That number is the P/E ratio. If it were constant, the company’s share price would rise as earning increased. The P/E ratio often moves within a range based on the popularity of that company, industry or sector. When the P/E ratio is high, the stock is considered overvalued. When it’s low, the stock is thought to be undervalued or out of favor. Key point: If a company makes more and more money, then theoretically the stock value goes up and up. What happens to these earnings? Most investors buy stocks for their growth potential. They want to “buy low and sell high.” The company needs money to grow, so the company usually reinvests the earnings. Some companies pay dividends to shareholders. This can become a good source of income because the investors are paid while they are waiting. This is referred to as a total return strategy. Stocks that pay generous dividends, yet are not expected to appreciate, are considered income stocks. Key point: You want the company to grow while you sit and watch. Why do stocks go down? The stock market often is considered a leading indicator of the economy’s future. If things look hopeful, the market often rises. If things look bad, the market declines. Unfortunately, the stock market tends to rise like an escalator and descend like an elevator, which can scare people out of the market at a bad time to sell. Investors should consider stock market investments as longterm holdings. Stocks also go down if bad news affects a particular company. Key point: The stock market is like a crystal ball on the future of the economy. Is preferred stock better than common stock? Not really. Preferred stock often pays a higher rate of dividends and is ahead in line for dividend payment if problems develop. If the company stops paying dividends, usually the preferred shareholders 56

InsuranceNewsNet Magazine » April 2015

Investors like the liquidity. For actively traded stocks, investors can sell and get a check in three days. must get caught up on dividends owed before the company can resume paying dividends to common shareholders. Those shares are often called cumulative preferred stocks. Key point: Preferred stock is really not better than common stock. What are sectors and industries? Companies competing with each other often are grouped by industry, such as oil or pharmaceuticals. Similar industries are grouped into sectors. Major market indices like the S&P 500 are divided into 10 sectors such as energy and health care. When the stock market rises or falls, it doesn’t happen uniformly. Some sectors often do better and others often do worse. Ideally, clients are invested in the sectors considered “in favor.” Key point: Similar companies are grouped together. Why is investing in stocks popular? There are many reasons. Stocks have a posted bid and offer, or spread. You know roughly what you would receive if you sold your stocks. Investors like the liquidity. For actively traded stocks, investors can sell and get a check three days after the order is executed. They can’t cash in real estate, paintings, classic cars or wine that quickly. Investors can borrow against their stock. Most brokerage firms allow borrowing on margin, usually requiring the investor to put up 30 percent (or allowing them to borrow 70 percent maximum), charging them interest along the way. Rates are usually below consumer credit rates (around 8-9 percent as of the end of 2014), and loans are set up quickly because they are secured. Investors typically use this borrowing to buy more stock with borrowed money (leverage). They must understand that the value of the loan never decreases. If the stock declines, the losses come from the investor’s slice of the pie. If it declines below the 30 percent threshold, the investor must put up more cash or risk being

sold out. This is referred to as a margin call. Key points: Stocks offer liquidity, spread between bid and offer, and the ability to borrow against them. What happens if a company gets into trouble? It’s usually bad news for the common stock shareholders. They own their proportional slice of the company after all bills are paid. If a company goes under, the government expects to collect the taxes it’s owed, employees want wages and salaries, banks and bondholders want their loans repaid, and so on. The common stock shareholder is last on the list. The stock market often anticipates this outcome, and the share price dives far in advance. Key point: Common stock shareholders have the greatest potential for loss as well as gain. How are stocks packaged? For years, investors would buy individual shares and build their own portfolios, either on their own or with the advice of a stockbroker. Many people want an easier alternative. Today, they can buy exchange-traded funds (ETFs) representing different sectors and index funds. Investors seeking built-in professional management can buy mutual funds or separately managed accounts. Clients can invest in the stock market within an annuity through the use of sub-account managers. Key point: You can buy stocks individually or in structured products. Many clients want to get into the stock market. But in order to be successful investors, they need to understand what they are doing. Bryce Sanders is president of Perceptive Business Solutions in New Hope, Pa. He provides high-net-worth client acquisition training for the financial services industry. He is the author of the book Captivating the Wealthy Investor. Bryce may be contacted at bryce.sanders@innfeedback.com.

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and no one is bigger in the field than the legendary Brian Tracy. I’ve even found a way to get you on the cover of the book with our optional custom cover edition. What makes this opportunity even more valuable to you is that we guarantee that your co-authored book with Brian, and other leading experts, gets listed on the Amazon.com or BarnesandNoble.com Best-Seller List, earning you the title Best-Selling Author® for the rest of your life. A title that you can use as a stamp of approval that raises you above and beyond any of your competitors. Additionally, you will have your book to hand out to your clients and prospects as a demonstration of your expertise. Autograph it for them and you will have given out the best business card they ever received. It’s also a perfect referral gift to drum up a stream of never-ending referrals who also see you as a recognized thought leader. Brian Tracy has made a name for himself as a professional speaker, entrepreneur and success expert, becoming a CelebrityExpert® himself and writing over 60 Top and Best-Selling Books on how to succeed in business and in life.

his career, nothing elevates you to an elite expert like a Best-Selling Book. Today, I want to invite you to learn more about our publishing process and the prospect of writing a book with a legend like Brian Tracy. I also want to give you a PDF copy of our Best-Selling Book, Celebrity Branding You® as a thank you just for saying “maybe.” To claim your “Best-Seller’s Package,” including an MP3 of Brian and I discussing the publishing process, a PDF copy of my Best-Selling book Celebrity Branding You® and more tools and resources to kick off your Best-Seller Status, simply visit www.BookWithBrian.com or call (888) 255-4993 today.

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April 2015 » InsuranceNewsNet Magazine

BUSINESS

It’s Lonely at the Top: The Value of Sales Coaching E ven those who have reached the highest levels in their professions need a coach. Here’s how to make the most of the sales coaching relationship. By Harvey Pollack

t’s lonely at the top. Veteran advisors will understand the challenges that this saying represents. I faced this challenge when I first took on the role of CEO at my company. At the time, the company was 14 years old and flourishing. Like many new CEOs, I had a particular vision of how the company should run and what sort of identity it should grow into for achieving a new level of success. Making my vision a reality, however, meant shifting a well-established momentum in what would be a radically different direction for many facets of the company culture. It was overwhelming, especially because as the CEO I didn’t have someone above me to look to for guidance. I was the top. I was it. Since part of my vision was to build a leadership dynamic where I was not the lone decision-maker for the company, I didn’t want to make choices based solely on my own intuition. So I connected with a coach. He helped me develop a strategy using proven tools and methodologies to think more deeply about challenges I was facing. With a coach, I could honestly and openly discuss the road ahead of me in a meaningful, productive fashion. My coach was an invaluable resource, and he helped me become a more effective leader. I leaned on my coach for my transition into the CEO’s role, but my coach’s insights continued to play pivotal roles in my business for many years after that. For example, in 2007, the entire country was on the verge of a recession. However, like many small-business owners at the time, neither I nor my team knew it. One afternoon, my coach called and said, 58

InsuranceNewsNet Magazine » April 2015

“Prepare for a 50 percent loss of business.” After meeting with many of his other clients, he had begun to see a trend that we as individual business owners could not yet see. Moving in and out of multiple businesses gave him a macro view of the brewing situation, and he used that unique perspective to advise us about a looming problem. He was right. The recession came, and it hit hard. It was not easy, but we had the luxury of forewarning. We had the time to talk rationally about the challenge and to plan accordingly. As a company, we decided to avoid layoffs through pay cuts. Everyone — and I mean everyone — tightened their belts, and we buckled down to weather the storm. Some seven years later, we are still standing, and I give much of that credit to my coach. If I had been too stubborn to listen, we may have had to close our doors. Anyone working in sales is, in many ways, running their own independent business. This is especially true of advisors. You may be connected to a larger organization, but you are an island. Like me, you are at the top of the ladder. It’s up to you to find prospects and close sales. As your practice grows and your clients become more elite, you have access to fewer and fewer people who understand the challenges you face. At this point, you have few peers, and your staff lacks the experience to contribute to the conversation.

So whom do you turn to? A sales coach. Top advisors are experienced professionals who have spent years forging their reputations and their businesses. Yet even with these credentials, they still should spend time with a sales coach. The reasoning is not that top advisors are bad at selling, because clearly that is not the case. If they were bad at selling, they likely would not have made it this far. The reality for top producers is this: If you are a top advisor, you have very few people to confide in. The chances are that your sales process has room for improvement, especially in the context of elevating yourself to a new level of success. Talking with a sales coach gives you an opportunity to step back and evaluate your process with the help of an objective, supportive expert. If you adopt a more aggressive approach to growing your business, like lead generation or appointment setting, you have to recognize that your sales process will need to evolve as well. Let me emphasize again that advisors who seek out sales coaches are not bad at sales. In fact, they tend to be quite good. As a practice grows, however, the stakes grow as well. The biggest accounts are the most competitive, and investing in a sales coach can give an advisor a razor-sharp sales process. Standing on the shoulders of someone who has dedicated a career to mastering sales could give top advisors the advantage they need to stand out.

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When you engage a sales coach, here is how you can make the most of the relationship: » Be open to feedback regarding any aspect of your process.

A sales coach can help you to identify and correct blind spots, which by their nature are invisible to you. » Understand that growth is often accompanied by growing

pains. Progress will not come instantly or easily.

» Combine your sales coaching relationship with a lead gen-

eration or appointment setting program to give yourself a steady stream of new prospects to work with. Let your sales coach know that you are doing this so that he or she can work with you.

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ing clients, having the staff members or partners work with a sales coach could help you to streamline and improve all parts of your sales cycle.

Sales coaching is invaluable regardless of how you fill your sales pipeline. However, we often talk about coaching in conjunction with lead generation or appointment setting services because many advisors mistakenly treat those opportunities like referrals, even though they require a different sales approach. Growing a business with referrals alone is easier. Even if obtaining referrals is inconsistent, working with a referral is much more straightforward. The prospect already trusts the advisor to a degree because of the recommendation, so the advisor simply has to live up to that expectation. The hard part, establishing that trust and credibility, is already taken care of. But in any sort of “cold” sales scenario, that trust is not there. The sale will take more work, but the reward can be great. As the clients get bigger and the focus becomes narrower, each sales conversation becomes even more critical. Not only is it lonely at the top, but each step higher is steeper and more difficult than the last. A sales coach will give you the insight that you need to move forward. There is nothing wrong with asking for help. In fact, in a culture where many of your competitors refuse to reach out to experts, engaging a sales coach will give you the edge you need to rise above the competition. The heightened sense that you need to succeed in cold appointments will in turn improve your referral success rate. Your conversations with your sales coach will help you be more aware of how you approach any kind of prospect, making it easier for you to refine your process and deliver the targeted, well-structured experience that prospects need before they agree to the sale.

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Harvey Pollack is co-founder, president and CEO of The PT Services Group. Previously, he was a partner for 24 years at Alpern, Rosenthal & Co., a large Pittsburgh-based accounting and consulting firm, and he was the founder and CEO of RedSiren, an international provider of IT security management solutions. Harvey may be contacted at harvey.pollack@innfeedback.com. *Source: The Fancy Color Research Foundation

April 2015 » InsuranceNewsNet Magazine

MDRT INSIGHTS

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

Living Benefits — Only the Tip of Life Insurance Value P ermanent life insurance can help your clients leverage their assets into cash flow. By Arkady Milgram

he topic of living benefits in permanent life policies has attracted a great deal of attention recently. Due to continued stock market volatility and a long period of extremely low rates for traditional savings methods, people are seeking alternative ways to boost their savings. The well-known tax benefits of life insurance contribute significantly to the increased interest in these products. But does permanent life offer anything besides cash value accumulation for retirement or other purposes? We’ve all heard the saying, “Life insurance is not for those who die; it’s for those who live!” Although I agree with this, I also believe it doesn’t give a completely accurate description of the situation. Permanent life offers some effective and significant, yet indirect, advantages besides just cash value. Although we can’t take anything with us, we can leverage anything we have — investment accounts, real estate, businesses or charitable intentions, for example — against the future death benefit proceeds. The next step is to turn that leverage into real cash flow.

Start With the Home

The soundest financial planning theories suggest that your clients should pay off their mortgages prior to retirement. The purpose is obvious: It’s not prudent for your clients to have debts while they plan to live off of their savings. But this creates another problem. They now have a large, illiquid asset that they can’t use to provide cash for their current lifestyles. Homes can be passed on to heirs, but it’s sad to think that something your clients may have spent the largest portion of their incomes on doesn’t give them anything besides the actual roof over their heads. After all, they can’t eat a 60

InsuranceNewsNet Magazine » April 2015

piece of their wall, nor can they exchange their granite countertops for cruise fare.

What About a Reverse Mortgage?

This may be quite an expensive option, and you never know how long the settlement will take. The biggest misconception about reverse mortgages is that the bank will take over your client’s property upon death, which eliminates an inheritance to their children or other loved ones. In reality, your clients’ heirs have the opportunity to “buy in” and keep the property title by paying off or refinancing the balances of the reverse mortgage.

The Correlation to Life Insurance

So, you may ask, what does this have to do with life insurance? Well, actually a lot! If your client owns a permanent policy (ideally paid up by age 65), the beneficiaries would receive two envelopes in the mail after the client and spouse die. One will contain a check from the life insurance company and the other a bill from the reverse mortgage lender for the balance of the account. By simply applying one against another, the heirs will keep the real estate title free and clear. The balance due would be much larger than the amount your client originally borrowed — since there wasn’t a single payment made toward the reverse mortgage. However, if you properly calculate the projections of the reverse mortgage balance growth and life insurance premium in advance, your client will be much better off in retirement. When they prepare for reverse mortgage funds as well as policy cash value, retirees can enjoy a much better lifestyle. The advantage to this method is that your clients’ income becomes tax free, and neither they nor their heirs must pay for it. The death benefits will cover both the cash value loan and the reverse real estate loan. During the course of my career, I’ve analyzed multiple scenarios, and this approach almost always offers huge benefits to the insured.

Under the surface, permanent life offers some effective and significant advantages besides just cash value. Second-to-die policies can also work with this arrangement. The only exception is when the life insurance policy is being purchased simultaneously with the application for a reverse mortgage. In this case, there wouldn’t be enough time for the leverage to apply. Besides, at the time your client is able to qualify for a reverse mortgage (at age 62), they likely won’t qualify for life insurance. The earlier they buy the policy, the better. This method of leveraging can be applied to scenarios other than just real estate. With this knowledge, we can re-frame the statement noted earlier in this article to read: “Life insurance is not only for those who live; it’s also for those who die!” Arkady Milgram, CLU, ChFC, ChSNC, CLF, is an eight-time MDRT Qualifying Member. He is a financial strategist and special care planner with MassMutual Greater Los Angeles, where he was named Associate of the Year for 2009 and 2011. Arkady may be contacted at arkady.milgram@innfeedback.com.

NAIFA INSIGHTS

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

Four Principles to Help Guide Your Relationship With Clients W ork as a team with your clients to reassure them that their plan will sustain them in retirement, no matter what storms hit the market. By William Richardson III

ere are a few things your clients should know as you work together to invest their financial assets.

1) Diversification of how assets are taxed at distribution can be as important as diversification of asset classes during accumulation. As our focus has shifted to helping our clients plan for the distribution phase as well as helping clients who are already in that phase, it is important to have different types of assets that are taxed in different ways. During the accumulation phase, our clients are focused on minimizing taxes in the current year, and they put as much money as possible into pretax retirement accounts such as 401(k) plans. Most clients are so focused on getting that tax deduction during their accumulation years that they don’t think about how taxes will affect them at distribution. Once clients start to think about the ways in which their retirement assets are taxable, they begin to think about what their tax bracket will be at retirement. In many cases, they realize it won’t be much lower than what they are paying now because they will liquidate significant amounts of taxable assets to fund their retirement lifestyle. Because of this, we help our clients think strategically and position some of their assets in Roth 401(k) accounts and even convert some of their pretax individual retirement account money to Roth accounts when suitable. This kind of conversation is done as part of the client’s overall retirement planning strategy. 2) At retirement, focus shifts from

1. REMEMBER TAX IMPACT: Diversify assets for distribution, not just for accumulation.

2. SHIFT TO INCOME STREAM: Understand that planning should have a whole new perspective.

accumulating assets to creating an income stream. Throughout their working years, our clients are typically focused on the income they earn from their work. They are conditioned to having regular infusions of cash throughout the year, regardless of how their investments are doing. Because the number of people who have pensions is decreasing every year, our clients must find ways to create income for themselves at retirement. Social Security provides part of their retirement income, but generally, it doesn’t produce enough to sustain our clients’ living expenses. The way we approach this dilemma is to help our clients find different ways to create income. First, they have an investment account that is equity-oriented so they can keep up with the rising costs of all that they need to buy during retirement. Dividend and interest income from that portfolio provides some of the income needed. Because this portfolio brings volatility along with it, we like to see clients have two years’ worth of living expenses in liquid accounts so that they can withdraw from those accounts when the stock market is down and replenish those funds when things recover. For example, a cash reserve helped our clients through the 2008-2009 economic downturn and was replenished by taking some chips off the table when things recovered. We also help our clients have guaranteed income to cover their basic expenses by putting some of their assets that

3. INVESTING IN THE LONG GAME: Align investing with goals, not the latest headlines.

4. BE WELLADVISED: Let the pros guide you to the best outcome.

otherwise would have been devoted to fixed-income investments into an annuity from a highly rated carrier, to provide lifetime income for both spouses. When our clients know they are reciving guaranteed income and have cash reserves to cover two years’ worth of expenses, they are comforted, knowing that their plan is well-prepared to weather cyclical market volatility. 3) Investing is a strategy only if it is part of a financial plan. We help our clients realize that their investment accounts cannot be anything more than a tool to help them accomplish their goals. When they are focused on that, they keep sight of what is important and avoid distractions such as what the media are constantly reporting. Focusing on the plan is a key determinant of achieving the desired results. 4) Having a good team of advisors helps our clients focus on what they do best. In today’s world, our clients are busier than ever and do not have the time to be financial planning experts. By working with a team of advisors, they have the peace of mind in knowing that they are in good hands and that their plan is being managed to the desired outcome. William Richardson III, CFP, is a NAIFA member and a representative of Northwestern Mutual Wealth Management Co. He may be contacted at william.richardson@ innfeedback.com.

April 2015 » InsuranceNewsNet Magazine

THE AMERICAN COLLEGE INSIGHTS

With over 87 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.

Ignoring the Millennials Will Lead to the Industry’s Demise M any stereotypes exist about the millennial generation. But they are prime candidates for financial products, as well as prime candidates to recruit into the industry. By Jennifer DeTroye

pathetic. Entitled. Lazy. Selfish. Broke. These are just a few words that have been used to describe millennials — the generation born between 1980 and 2000. They are the largest generation in the history of the U.S. By 2020, one in three adults will be a millennial. And although the oldest of this generation are prime candidates for financial products and services, they somehow seem to remain outside the purview of our industry. The baby boom generation is the age group that has commanded our attention. With 10,000 boomers turning 65 every day, we are focused on helping clients distribute and reallocate the savings they’ve accumulated, not to mention addressing long-term care needs and planning for estate taxes and wealth transfer. And besides — why would we spend time with millennials when we know from experience that they are impossible to recruit, much less retain? Plus, they have no money. And let’s be real — they think their smartphone is their financial advisor! But hold on a minute! Before we write off the generation that could revitalize, reinvent and even save our industry, we’d better be sure to choose our truth. Let’s start with money. Or lack thereof. True, millennials are in debt. The average member of the class of 2013 graduated with more than $35,000 in college-related loans, according to a Fidelity survey. And they still live at home because they can’t afford to live on their own. According to the U.S. Census Bureau, a record-high 31 percent of millennials still live with their parents. But how about a different truth? The 62

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sheer size of the millennial generation makes what they do with their money incredibly powerful. By 2017, their spending power will hit $200 billion. And the “great wealth transfer” from the boomers is already under way, with the expected shift to reach $30 trillion, according to consulting firm Accenture. Fewer than half of millennials expect to receive anything from Social Security, and the pensions their parents relied on are a thing of the past, according to Pew Research Center. This has made them a generation of self-reliant realists who buy into a long-term investment philosophy. OK — so maybe their money makes millennials worth another look. But they think they don’t need us! They have the Internet to help them! And if they want advice, they’ll just jump onto their favorite social media site and see what their friends have to say. This generation goes beyond tech-savvy to tech-dependent. In fact, not only do they check their smartphones an average of 43 times a day, according to SDL research, but 83 percent actually sleep with their phones, Pew Research reports. Here’s another truth: Millennials desperately need our help. This generation is the least financially literate across all generations. Our recent research, conducted in partnership with Texas Tech University, revealed that just 5 percent of millennials are financially literate. So although they have access to every piece of information they could want — literally at their fingertips — they lack the understanding, confidence and motivation to put that knowledge to use. They need a trusted advisor who “speaks their language.” Someone who uses technology to communicate and social media to educate. The biggest shortfall of the smartphone is that it can’t persuade, influence or inspire millennials to actually do something — to take action to secure their financial futures. Yet even with all of that, the “hype” tells us that millennials’ values don’t align with our purpose of helping clients achieve

financial security. But once again, when you dig a little deeper, you find a very different reality. Some of millennials’ beliefs harken back to those of the boomers or even the silent generation before them. However, millennials are far more tolerant and open-minded. According to Pew Research, millennials place being a good parent, having a successful marriage and helping others in need above having a high-paying career. They respect their elders and value a mentor relationship. They want to work in a collaborative team environment. All of this makes millennials not only ideal prospects, but also ideal recruits. We just need to make our message resonate, and do it in a way that ensures millennials are listening. As Joe Jordan shared in a March 2014 GAMA article: “When our industry rediscovers its true purpose, it will create an undeniable attraction for the (millennial) generation and create a new golden era for financial services.” Cerulli’s Advisor Metrics Report tells us that the average age of financial advisors is 51, and that 43 percent of advisors are over the age of 55. They also count less than 5 percent of financial advisors in the 30-and-under age group. The bottom line: All of this adds up to our eventual extinction. If we keep ignoring millennials, it will be to our own demise. Passionate. Confident. Educated. Diverse. Optimistic. Now is your moment of truth. Through which lens will you choose to view the millennials? Whether as a potential new client, or a potential new addition to your team — go out and meet a millennial and see them as someone with potential. Jennifer DeTroye is executive director of The American College Northwestern Mutual Granum Center for Financial Security. Jennifer may be contacted at jennifer. detroye@innfeedback.com.

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April 2015 » InsuranceNewsNet Magazine

LIMRA INSIGHTS

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

Are Consumer Buying Preferences Changing the Advisor’s Role? Today’s consumers want the help of a well-intended financial coach guiding their understanding of all the information.

M oving from a product-based sales approach to an educationbased sales approach is what will make the advisor relevant to today’s consumers. By James W. Kerley

here was a time when life insurance was sold instead of bought, and the agent was totally in charge of the information exchange with the prospect. Today, because of the rapid access to information, reliance on crowdsourcing to gain perspective and the shift in insurance buyer preferences, advisors will be well-served to shift from a sales approach to a more educational approach. LIMRA research shows that 86 percent of consumers say they would research life insurance online before purchasing. Thus, advisors are expected to do more than “sell” life insurance products. Today’s consumers want help in reaching their financial security decisions with the assistance of a well-intended financial coach guiding their understanding of all the information. Consumers are interested in more than making a product transaction; consumers want holistic financial planning advice. This shift in consumer attitudes means advisors must also adjust and adapt, by focusing on their prospects’ educational needs as a way to gain their trust and 64

InsuranceNewsNet Magazine » April 2015

commitment. More than ever, advisors need to apply the fundamental principles of marketing as a key part of their professional practice. In doing so, they will see their prospects become more motivated to take action.

Principle 1: Identify your customer’s needs and wants

LIMRA research consistently has shown that 58 million households are underinsured. In fact, although one in four consumers say they need life insurance, only 10 percent are likely to purchase a policy within the next year. The old ways of convincing people of the need for life insurance no longer work. It’s essential to understand today’s consumers and how they want to buy. Consumers have an array of in-person and online choices for nearly ever purchase they make. They want these same options for life insurance products. Today’s consumers also have different financial priorities. They are more concerned about living too long than they are about dying too young. Our research consistently has shown their top financial concern is having enough money for a comfortable retirement. At the advisor level, consumers want to meet in-person when making a purchase. But email, social media and video conferencing are rapidly gaining in preference

for all other communications with advisors, especially among younger clients.

Principle 2: Build a relationship with your customer

One of the most effective and efficient ways for an advisor to reach today’s consumers is through social media. According to LIMRA, nearly 70 percent of financial professionals are using at least one form of social media. Four in 10 are using video services to communicate with clients and prospects. Success with today’s consumer means engagement with their world, not just their accounts. Social media platforms such as LinkedIn and Facebook, as well as video services like Skype, allow advisors to stay informed of the important occasions in their clients’ lives, and can go a long way toward building relationships and increasing productivity.

Principle 3: Build your strategy over time

Advisors are learning that some of their best prospects are the children of their current clients. As the older members of Generation Y begin their careers, half of them want professional advice on life insurance and 60 percent say they’ll talk with a financial professional who is recommended by their parents. In addition to seeking life insurance information, eight in 10 Gen Y consumers want to learn about savings options and strategies. This is a huge opportunity for advisors to establish trust early and work with their Gen Y clients to develop a written financial plan. When working with an advisor, 71 percent of consumers said they feel confident they are saving enough for retirement, compared with 43 percent who do not work with an advisor. Moving to an education-based approach will give clients confidence. It’s what sets the advisor apart from the adage “Life Insurance is sold, not bought.” The new adage may well be “Insurance is bought through education and agreement.” There is a lifetime of opportunity before the contemporary advisor. Will you take the lead? James W. Kerley, LLIF, is chief membership officer for LIMRA, LOMA and LL Global. He may be contacted at james.kerley@ innfeedback.com.

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