InsuranceNewsNet Magazine - August 2016

DREW HORTER REVEALS HOW TO

DRASTICALLY GROW YOUR AUM AND FIA BUSINESS...

LIKE CLOCKWORK PAGE 20

DESTINATION: $50 MILLION! INSIDE COVER

Help increase your chances of drastically multiplying your AUM and FIA sales with the Horter Advisor Success Kit. This 6-piece resource kit includes:

» Why you won’t have to worry about your competitors » 3 key differentiators you can have as an Investment Advisor Rep (IAR) and how to get there

» A special invitation to our Las Vegas event — with 12 reasons why you should be there!

» Comparison charts for ideal portfolios for your clients

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September 19th & 20th This exciting 2-day advisor event includes: » Strategies to help attain ALL of the client’s assets » How to build a successful practice — step by step! Make your practice fun again!

» Successful marketing ideas to help you get in front of 20–25 new prospects per month — and close 8–14 of them!

» Strategies to dismantle and overcome the advice offered

» Why the DOL fiduciary regulation works in favor of the Horter Investment Advisor

» Special guest speaker: How to Increase your Sales 80% in 8 Weeks

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Drastically Grow Your AUM and FIA Business... Like Clockwork

Read the interview with Horter Investment Management’s founder, Drew Horter. Before he became a coach and mentor, he brought in $25 million in new assets a year, like clockwork, and he explains how you can easily follow his methods. Page 20

Drew K. Horter started in the financial services industry in 1982. In 1986, as a CFP, he joined forces with three other CFPs to start their own financial planning firm. After the 1987 stock market crash, he and his partners decided to become fee-based and avoid high commission mutual funds for their clients. They started as solicitors to third party money managers, then went on to start their own RIA firms in 1991. By 1992, Drew had over $22 million of Assets Under Management and a very successful practice. In 2002, after working strictly by referrals for 20 years, he started marketing in order to attain $25 million in new assets every year, generally $10 million in Fixed Index Annuities and $15 million in Assets Under Management.

The result was a fine-tuned system that enabled Drew to know precisely the marketing metrics for each event, including marketing expenses, client acquisition costs, how many new clients he’d acquire and how much assets he’d attain for each new client. Now, as Founder and Chief Investment Strategist of Horter Investment Management, Drew is showing other advisors how to achieve these same astounding results. In this Q&A, he discusses exactly how it happens.

Why did you choose the financial industry for your career?

Investing has always been a passion of mine. I owned 40 apartments by the time I was 24, and very few people understood how to invest in real estate.

By nature, I am risk-averse, so I chose the financial industry for my career because I really wanted to help clients understand investments and how to make the right decision for their long-term future. Many investors lack the knowledge on how to design specific portfolios that match their desired risk tolerance; they go blindly into stocks and bonds, where the risk is the diametric opposite of what they really want.

How did you end up mentoring other agents?

The stock market volatility and risk that started in July 2007 was so bad that we sought to find low risk, low volatility and low drawdown money managers who still could provide protection and very good rates of return over time for our clients. We had a very successful RIA firm, with $88 million in AUM in 2008. That’s when other

What obstacles hold securitieslicensed advisors back from advancing in their careers?

Most advisors do not have adequate marketing systems and procedures to manage the growth and efficiency of their practice. Broker/dealers do not teach you how to market, provide a detailed first and second meeting agenda, analyze the client’s current portfolio, define the client’s true risk tolerance, or evaluate the client’s actual maximum drawdown and risk. Insurance companies do not provide any of these detailed steps either. Advisors need a coach and mentor who has extensive knowledge and has been in the trenches a long time to guide them every step of the way. At Horter, we provide these.

How does Horter Investment Management help advisors overcome this void?

We teach and coach systems and procedures with what we call our Financial Manufacturing Firm, and it all starts with excellent external and internal marketing campaigns to see 10–20 new quality prospects per month.

Constant training is a must for our advisors. Our monthly trainings also

this with low and moderate risk asset management. Advisors need to plan for the next six months to a year for marketing, industry education and family time, and we help set that plan in place.

Plus, we have an abundance of online resources, and we provide additional coaches who complement the Horter Training System very well. We also have six vice presidents standing ready to tear apart brokerage statements, tax returns, etc., to help advisors win the business virtually every time.

What makes Horter Investment Management different when it comes to asset management and planning?

On the asset management side, we do not like drawdowns in client portfolios.

We do everything we can to minimize drawdowns or losses while still maintaining an excellent rate of return over time. We believe in combining excellent low risk, low drawdown tactical managers with FIAs to protect clients’ assets over the next 15, 20, 25-plus years.

We use all third-party managers. We believe with third-party managers you have total objectivity. When you have a proprietary manager, you assume

and advisors’ best interest, not yours.

Sure proprietary managers can have lower fees—since they do not have to pay any out side managers—but how can they say they are the best at everything when there are thousands of managers to choose from? It doesn’t make any sense.

If you have a bad year as a proprietary portfolio manager, do you fire yourself, or do you “spin” it for your clients or advisors? We actually fired ourselves in 2008 as a buy and hold equity portfolio manager.

We came to the conclusion that buy and hold (hope and a prayer investing) did not work for retirees, pre-retirees and conservative investors. It was the right thing to do for our clients and advisors. It’s not about me; it’s about doing what’s right. With proprietary asset management, you lack total objectivity, which is a bad idea for investors.

How do you help advisors comply with SEC regulations?

We have a full compliance team at Horter Investment Management, combined with former FINRA and SEC consultants to help our Chief Compliance Officer oversee our Investment Advisor Representatives. We also have as our outside counsel the former Director of Enforcement for Ohio.

How can Horter Investment Management help advisors with the Department of Labor’s new ruling?

As an RIA, we are one of the four institutions approved by the DOL. We can help advisors as fee-based fiduciaries by showing them how to be compliant with our portfolios and their annuities.

With an excellent compliance department, excellent strategic partners and consultants, our advisors will thrive. We will make the necessary changes and updates for them. And with our risk tolerance scoring and stress tests, we will excel with both the DOL regulation and the client’s best interest.

What kind of business growth can advisors expect when working with Horter Investment Management?

We can take advisors from $0 to $10 million, $20 million, $30 million, $40 million or $50 million per year of AUM and FIA sales. We have done this many times. If advisors specifically follow our systems and procedures, in just a few short years this can happen to focused, energetic advisors. Our system works so advisors do not have to deviate from what we teach them. With our extensive training, in six months they can know more than 95 percent of the advisors in the field. I’d like to add that attending our Las Vegas 2016 Training September 19th and 20th will be a great experience.

Head Toward $50 Million!

Help increase your chances of drastically multiplying your AUM and FIA sales with the Horter Advisor Success Kit. This 6-piece resource kit includes: • Why you won’t have to worry about your competitors

• A special invitation to our Las Vegas event – with 12 reasons why you should be there!

• 3 key differentiators you can have as an Investment Advisor Rep (IAR) and how to get there

• Comparison charts for ideal portfolios for your clients

Get your success kit today at www.HorterSuccess.com

Investments That Complement Fixed Index Annuities Drew Recommends: Low risk, low volatility and low drawdown tactical third party portfolios with excellent rates of return over time.

Why: It’s the “perfect segue” from the FIA sale of safety and security.

How Horter Does It: With low risk investment managers who have low maximum drawdowns (generally 2-5%) for retirees, pre-retirees and conservative investors; they’re placed together in a sleeve of 3-4 managers with different tactical models, asset classes and algorithms.

Moderate Risk Option: The moderate risk Sleeve has approximately 20% of the S&P 500 maximum drawdown of 50%.

How advisors take life’s events and use them to serve others

PLUS Stop Wasting Time on the Wrong Things PAGE 12 Top 5 Reasons to Walk Away from a Client PAGE 58

PAGE 24

ALSO: Expert Commentary on the Fiduciary Rule

PAGE 31

D LRULE

THOUGHT LEADERSHIP

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Call us at 800-520-7271 or go to www.GreatWestProducts.com to watch the video and find out more.

The principal underwriter is GWFS Equities, Inc., and securities, when offered, are offered through GWFS Equities, Inc. and/or other broker/dealers. GWFS Equities, Inc., Member FINRA/SIPC, is a wholly owned subsidiary of Great-West Life & Annuity Insurance Company.

Great-West Financial refers to products and services provided by Great-West Life & Annuity Insurance Company (GWL&A), Corporate Headquarters: Greenwood Village, CO; Great-West Life & Annuity Insurance Company of New York (GWL&A of NY), Home Office: NY, NY; and their subsidiaries and affiliates. The trademarks, logos, service marks and design elements used are owned by GWL&A. (06/16) PT269828 FOR BROKER/ADVISOR USE ONLY. Not for use with the public.

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IN THIS ISSUE

View and share the articles from this month’s issue

» read it

online

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AUGUST 2016 » VOLUME 9, NUMBER 8

FEATURES 24 Finding Inspiration in the Wake of Life’s Storms

By Susan Rupe

Advisors share their stories of how they dealt with the things life threw at them and how those experiences strengthened their abilities to serve their clients.

D LRULE

THOUGHT LEADERSHIP

31 DOL Rule SERIES Thought Leadership Series – Special Section Industry leaders from three different companies discuss their thoughts on the fiduciary rule.

INFRONT

48 R MD Expertise Can Save Your Clients From Painful Tax Bite

10 What About Life Insurance in the DOL’s Fiduciary Rule?

By John Hilton The Department of Labor said it wanted to regulate “complex” investment products with its fiduciary rule. But some analysts are wondering where life insurance fits in the equation.

LIFE

38 Freedom From Estate Taxes Without Loss of Control

By Russell E. Towers A family limited partnership can be a solution for wealthy individuals to combine estate tax law freedom with flexibility.

By David P. Vick and Abigail Vick Your becoming an expert on required minimum distributions can save your clients thousands of dollars in unnecessary tax payments. Don’t let improper minimum distribution management happen to your clients.

HEALTH/BENEFITS

52 H RAs Help Small Businesses Preserve Benefits, Save Money

By Kent B. Utsey For small-business clients, this approach is like putting money in the bank and being able to live off the earnings.

INTERVIEW

12 Putting the Right Things First

An interview with Laura Stack Do you ever feel as though there are not enough hours in the day to do everything you need to do? The answer isn’t finding more time – it’s finding ways to be more productive with the time you have. Laura Stack, “The Productivity Pro,” explores ways you can achieve maximum results with minimum time.

4

ANNUITY

46 H ow Creative Destruction Shapes the Annuity Market

InsuranceNewsNet Magazine » August 2016

By Charlie Gipple A look at the ups and downs in the annuity world and the economic theory that ties back to them.

56 Farmers, Ranchers Need a Special Breed of Retirement Planning

By Louis Shuntich Farmers and ranchers have unique needs in planning for their retirement as well as deciding what will happen with their land.

Get the facts on the

FINAL DOL rule REad our report

The Better, The Bad and the Ugly how does the Final fiduciary rule affect you?

Visit aapnow.org to learn more.

ALSO IN THIS ISSUE

AUGUST 2016 » VOLUME 9, NUMBER 8

BUSINESS

58 Top 5 Reasons to Walk Away from a Client

By Joseph E. Roseman Jr. We must do what’s in our clients’ best interest. Sometimes, to maintain integrity and our sanity, that means walking away.

61 N AIFA: Four Ways to Ace Your Next Annuity Sale

By Curtis Cloke Guide your annuity prospects by engaging their emotions, asking the right questions and outlining goals.

62 T HE AMERICAN COLLEGE: The DOL Rule: Lessons From the Ant and the Grasshopper

By Craig Lemoine The fable that illustrates the need to be prepared has many parallels with getting your practice ready to implement the requirements of the fiduciary rule.

INSIGHTS

60 MDRT: What to Do When Your Client Reaches ‘The Great Awakening’

By Tom Fowler When a business owner waits too long to begin their retirement planning, they can find themselves with a limited number of planning options.

64 L IMRA: Advisors Must Know How to Pivot to Serve Today’s Consumer

By Ashley Durham Online shopping for life insurance is increasing in popularity, but consumers still indicate a strong preference for meeting with an advisor.

EVERY ISSUE 8 Editor’s Letter 22 NewsWires

36 LifeWires 44 AnnuityWires

50 Health/Benefits Wires 54 AdvisorNews Wires

INSURANCENEWSNET.COM, INC.

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WELCOME LETTER FROM THE EDITOR

Just Who Do You Think You Are?

Y

ou are not “just” anything.

A doctor said those words during a recent conference presentation. He recalled that early in his career, he had called himself “just an intern” as he spoke with his mentor.

His mentor stopped him right there and told him he was not “just” anything and never to say that again.

That new perspective allowed the doctor to make a difference not only in his own life and practice but also in the causes he values. He realized the power of one person.

The people in Susan Rupe’s main feature this month understand that power as well. They are inspirational not only because of the obstacles they overcame but also for reshaping those experiences into something meaningful. They were inspired by these events, but they also are inspiring simply by their presence.

You don’t have to go far to find individuals making an impact on a larger stage. Just pay attention to the news for a nanosecond and the name Donald Trump is likely to appear.

Love him or hate him, you have to admit that Trump is making an impact. Some people say the impact will lead to a greater America — others say he will be more like the meteor that led to the extinction of dinosaurs.

But why him? After all, he does not have political or public leadership experience.

He says his business experience qualifies him, but that is not why he won so many Republican primaries. He won them because he believed he could. Trump knows the power of one person’s determination.

People can argue that Trump started with a fortune, so of course he had a platform to shout from. But we know that the individual who makes the most of life’s circumstances is the one who is ultimately successful.

Think of the poorest people who wander deserts and wilderness in search of 8

answers. One of those people was the inspiration for the religion you might follow.

One was, like Trump, born into great wealth. Siddhartha Gautama was of noble birth in India. He renounced his money and left his palace to spend years searching for enlightenment before becoming the Buddha.

His example influenced a young Indian lawyer in South Africa who stood up for Indian rights against the might of the British Empire. Instead of a comfortable career under British rule in his native India, Mohandas Gandhi decided to shed the starched white and black of post-Victorian England.

Gandhi became revered as Mahatma, the great soul, and helped lead his country to independence simply with his nonviolent presence.

Gandhi influenced a young African-American pastor in Alabama when a bus boycott propelled the civil rights movement out of Montgomery to the national stage. Martin Luther King Jr. was 25 with young children and his career mapped out before him when he decided to pursue a greater cause.

During that time, even as he faced personal danger, he stuck by Gandhi’s nonviolent example.

“Darkness cannot drive out darkness; only light can do that,” King wrote. “Hate

InsuranceNewsNet Magazine » August 2016

cannot drive out hate; only love can do that.”

That chain of inspiration changed the world. But it was “just” three men.

Each one of them stepped outside of his comfortable, secure life for something greater. None of them earned riches in those new lives, but each contributed to the golden vein of inspiration.

We can only hope a new heir will draw from this current to help shine light in these dark days.

Most of us have inspiration that drives us. We all live in the comfort someone else earned through sacrifice.

Each of us in the United States has an ancestor who pushed away from a known land to come here.

Even Native Americans came from Asia around 20,000 years ago, according to the prevailing theory. Pioneers faced terrifying conditions to hand us the life we know.

Are we spending that inheritance wisely?

One or two generations can lose a fortune that took so long to build. That is true for our family, country and profession.

We are facing challenges on all those fronts. It is easy and understandable to be frustrated and even angry.

But here’s the thing about anger — it incinerates the words in a frightening roar. In our most difficult times, we remember the quiet ones who bore hardship with resolve and kindness.

We all probably remember starting out in life, school or work when we were frightened and needed someone with calm wisdom.

When that person found us, we felt right away that things were going to be all right.

Someone fitting that description is in our life, near or in the periphery. Perhaps we owe it to our forebearers to find that person. Then that person can help the next.

We cannot change the world all at once.

It starts with an individual and radiates to a revolution.

It takes just one person.

Steven A. Morelli Editor-In-Chief

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INFRONT TIMELY ISSUES THAT MATTER TO YOU

What About Life Insurance in the DOL’s Fiduciary Rule? ould life insurance sales be C subject to new Department of Labor fiduciary rules if the sale involves retirement money?

Answer: It’s complicated.

By John Hilton

R

oy Cranman still has not heard a clear answer to his fundamental question despite the nearly nonstop discussion about the Department of Labor’s fiduciary rule: What about life insurance?

“Everything I’ve read is focused on annuities,” said Cranman, an estate planner based in Atlanta.

Cranman uses life insurance as part of the sophisticated estate planning practice that he developed during his 38-year career.

After the DOL released its 1,023-page fiduciary rule in April, Cranman and many other agents and advisors searched for the impact on life insurance. But all he heard about was annuities.

“This is a matter of real urgency for those of us supporting life insurance sales through financial advisors,” Cranman said.

who might use required minimum distributions (RMDs) to buy life insurance.

Or who might buy life insurance out of their retirement funds for estate planning purposes.

“I don’t even know what I’ve got to do to comply,” said Cranman, an advisor with Wealth Risk Management. “That’s my problem.”

“I don’t even know what I’ve got to do to comply.” – Roy Cranman In particular, he wondered whether specialized life insurance sales would be in the crosshairs. And how the rule might affect the creative ways his clients convert their retirement assets into various vehicles.

“A very large percentage of our sales result from using qualified money,” Cranman said. “So this has a huge impact on us.”

The DOL has said its fiduciary rule will bring transparency to what it calls “complex” products such as variable annuities. But its sweeping requirements have advisors nervous about selling virtually anything.

Take life insurance, for example. Cranman works with high-net-worth clients 10

In a narrative accompanying the rule release, the DOL addressed questions regarding life insurance: “It was not the intent of the proposal to treat as fiduciary investment advice, advice as to the purchase of health, disability, and term life insurance policies to provide benefits to plan participants or IRA owners if the policies do not have an investment component.”

The DOL did not mention permanent life insurance, a popular seller for many agents. A department spokesman did not return a phone call seeking clarification of life insurance sales under the rule.

InsuranceNewsNet Magazine » August 2016

But analysts maintain that when a life insurance sale falls within the rule’s broad parameters, then the rule will likely apply.

Exemption Might Be Required

The DOL rule targets advisors working in the retirement plan space. With the decline of pensions, many Americans are making their own nest eggs in defined contribution plans, with trillions of dollars at stake.

The DOL claims loose regulatory oversight costs investors $17 billion a year, a figure that opponents claim is baseless.

However, unless plaintiffs find success in the courts — three lawsuits have been filed — the fiduciary rule will be the law of the financial land starting April 10, 2017.

Five lawsuits were initially filed, but the three suits filed in a Texas court were consolidated by a judge.

Everyone from the manufacturer to the middlemen (FMOs, IMOs) down to the agents and advisors are affected in some way. In what way depends largely on the product and licensing.

Situations where agents recommend that someone take a distribution from an IRA and purchase a life insurance policy with the proceeds will be covered under

WHAT ABOUT LIFE INSURANCE IN THE DOL’S FIDUCIARY RULE? INFRONT the rule, said Fred Reish, a partner at Drinker Biddle & Reath in Los Angeles.

“A recommendation to take a withdrawal from an IRA is a fiduciary recommendation, and the commission from the life insurance policy would be compensation to the agent,” he explained.

The DOL will issue guidance to clarify real-world situations such as this one, promised Phyllis Borzi, assistant secretary of labor for DOL’s Employee Benefits Security Administration, during a recent forum debate.

‘It Doesn’t Matter’

Count the American Council of Life Insurers among those who believe that any rollover or distribution from an ERISA plan or IRA is treated the same for annuities, life insurance and other products.

“It doesn’t matter what the product involved in the recommendation is — it could be an insurance policy,” said ACLI spokesman Jack Dolan in a statement. “It would be covered as ‘fiduciary advice’ under the new rule. As such, an exemption must apply in order for the advisor/agent to be paid.”

When one of Cranman’s clients uses RMDs to purchase a life insurance policy, even the experts are divided on whether it triggers fiduciary status. RMDs are mandated by federal rules, usually at age 70 ½, prompting the conflicting opinions.

Some say this scenario represents a fiduciary transaction. Others say it doesn’t.

Jamie Hopkins, co-director of the New York Life Center for Retirement Income

“Selling life insurance to a 401(k) plan is certainly covered by the rule.” – Caleb Callahan at The American College, sees both sides.

“If you said, ‘Well, the RMDs were already coming out,’ that was not advice to distribute it but really just giving advice on what to do with money once it is outside of the IRA, I could see an argument that it’s not covered,” he said.

Much of the risk and liability can be avoided by subtle changes in approach,

“It was not the

intent of the

proposal to

treat as fiduciary investment advice … the purchase of health, disability, and term life insurance policies...” – The Department of Labor Advisors have two exemptions available to them: the Best Interest Contract Exemption and Prohibited Transaction Exemption 84-24. The former is more stringent and will be required in order to accept commissions on sales of variable and fixed indexed annuities.

PTE 84-24 applies to the purchase of non-annuity insurance contracts and fixed rate annuities, Dolan said.

Those seeking to use the exemption would be required to meet the new “impartial conduct standard,” a best-interest standard included in PTE 84-24.

life are similar to FIAs and VAs. The key is to remember that the fiduciary rule governs the sale of investments into qualified retirement accounts. So that means all life insurance that is sold into 401(k)s and purchased with plan distributions will be covered by the new rule.

In the big picture, that amounts to a small amount of life insurance sales, but agents and advisors need to be prepared.

Hopkins said. Advisors will want to avoid pushing one product over another but instead present a range of options.

Framing the discussion as such means it “is not a call to action and unlikely to be advice,” Hopkins said via email. “It’s more of [a] what you could do, not what you should do situation.”

Similar Products

Finally, some life insurance closely mimics market-tied annuities, which can be confusing in the context of the DOL rule. For example, indexed and variable universal

“While not a broadly used strategy, selling life insurance to a 401(k) plan is certainly covered by the rule,” said Caleb Callahan, chief operations officer and executive vice president of ValMark Financial Group. “That one is a direct bull’s-eye in terms of what the rule covers.”

Cranman specializes in protecting clients from dying too soon or living too long. His team utilizes long-term care insurance, annuities, life insurance and other products to maximize wealth left to loved ones and minimize financial losses due to taxes and poor planning.

Servicing clients with high net worth means more complex strategies, Cranman explained, that could involve several of these products. Hence, his interest in knowing the rules inside and out.

“Until I understand what other compliance obligations are necessary for using non-RMD distributions, I’ll be very cautious with those recommendations after the regulations are (in effect),” he said.

As with many new rules, the practical application will be determined by the market, and likely the courts.

“I think this, like so many regulations,” Cranman added, “will stifle creative solutions offered by the majority of honest insurance professionals in order to prevent the misdeeds of a few.”

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@ innfeedback.com.

August 2016 » InsuranceNewsNet Magazine

11

LAURA STACK shows executives and business owners how to stop squandering time and resources on the wrong things, and how to set the right things right.

12

InsuranceNewsNet Magazine Âť August 2016

T

he tool that reduces expenses and multiplies profit is the same tool that lifts whole economies and nations: productivity.

Laura Stack’s lifework is helping people get the most out of everything they’re given — money, manpower, time. She was inspired by Peter Drucker’s iconic book The Effective Executive, published in 1967. This book helped reshape the way leaders saw their real roles within their organizations.

Laura’s seventh book, Doing The Right Things Right, brings Drucker’s work into the electronic age, where distraction is only increasing. She drew from 25 years of running her business — The Productivity Pro — and helping the world’s largest corporations improve their operations.

If you find yourself doing more and more but getting less and less out of your efforts, it’s time to reassess what you are doing. But even more important than that, you must ask why you are doing it.

In this discussion with Publisher Paul Feldman, Laura explores how business owners can tell whether they are doing the wrong things, and she offers simple ways of doing the right things right.

FELDMAN: I have too much to do. You have too much to do. Our readers have too much to do. How do we navigate that?

STACK: My work with clients evolved over 25 years, and I have a new model and a new way of doing things. But it all comes down to a key principle for business owners.

Productivity is so basic to any business conversation, whether you’re talking as a business owner or for your team or company.

If you have 10 people and you can improve productivity by 10 percent, now you have the equivalent of 11 people and you didn’t increase your salary expense. At a very basic math level, any business owner can get their arms around the return on investment of working on improving productivity for themselves and for their team.

I have a master’s in business administration, and I can kind of describe my MBA in a box here: If you want to be successful in business, you have to make money and save money. That’s the magic profitability solution for a business.

PUTTING THE RIGHT THINGS FIRST INTERVIEW To break it down a little more — to make money, you must get more customers, keep the customers that you have and invest wisely.

To save money, you could cut expenses, staff, salaries and benefits. You could even cut the quality of your products and your services. Those are all very painful. So, from my 25 years in business, the best way that I know to save money is to increase productivity.

Productivity is the only win-win solution that will improve that ratio, help boost the value of your staff and improve the bottom line. We must teach people how to do more with less. That is productivity defined — maximum results in minimum time.

For example, I don’t teach salespeople how to sell, but I do teach salespeople how to be more productive. They’re not spending enough time on selling, which drives results and the numbers, because they’re inefficient and disorganized. If you can shore up those weaknesses, then you have more time to spend on that top line.

FELDMAN: How do you shore up weaknesses?

STACK: Every organization is different.

Every organization has a sickness of some kind. [Laughter] Every person does.

For some people, it’s administrative inefficiencies. Some people don’t know how

to process email. Some people don’t have an efficient process in place for certain activities in their office. Some don’t outsource enough. Some don’t have an organized time management system. Some meet too much. Some can’t concentrate. I mean, it’s all over the board.

FELDMAN: Let’s focus on email. We all get tons of email. What do you think is the best way of managing it?

STACK: It’s not the amount of email. I get 300 emails a day. The challenge for many people is a bigger problem than that. They don’t know what to do with things that have an action inside the email.

Typically, people just leave things there.

They usually say something to themselves like, “OK, I can’t delete this email, and I can’t forward it. I don’t want to file it, because then I’d forget about it. I need to do something with it, but I can’t right now because I’m getting on a phone call for an interview in 15 minutes.”

And not knowing what else to do with it, people do the worst thing possible, which is they keep it as new, or they put a flag on it, and email piles up.

If you have never been taught how to use Outlook correctly, you end up processing, reprocessing, reading, rereading, touching, retouching email and putting a flag on it. People don’t understand the basic fundamentals of most of their email systems.

Outlook, for example, has a command called Move. Ninety-nine percent of my audience has never clicked on it. They don’t even know what it does.

It can turn an email into a task, where you put in a start date and a due date and boom, it puts it over to your task list, which sorts by start date. So you have a today, a tomorrow, a next week, a next month. It’s very easy.

If you don’t get it done, it rolls over. It’s like a customer relationship management system or any other database that salespeople are used to.

FELDMAN: Why is it preferable to assign something as a task rather than put it on the calendar?

STACK: Putting things you need to do on your calendar is the worst idea ever. Here’s what happens. Let’s say you have a to-do

August 2016 » InsuranceNewsNet Magazine

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INTERVIEW PUTTING THE RIGHT THINGS FIRST list of 47 things, all clicked as all-day meet- is nothing but a convenient organizing the five things I’ve delegated to you, and ings, so they go to the top, and then peo- system for other people’s agendas.” this one’s overdue.” ple are either snoozing them 47 times or What do you think about that? they’re having to reschedule them. That’s FELDMAN: How do you integrate that a manual processing of action items.

STACK: I disagree. It is the most powerful with your phone?

The calendar was not made for things time-management system out there, if you to do; it’s for things that are timed, like understand how to use it.

STACK: You have to get apps and become meetings. Tasks are for things that need to I use a process I call “the six Ds” every familiar with them. The iPhone, for exambe done today, but not at 10 a.m. or 2 p.m. time I touch an email — discard it, delete ple, doesn’t have the feature that allows But here’s the huge differyou to turn an email into a ence: The calendar moves task. So you actually have to How the Effective Executive Spends Time backward in time. If you put get apps to do that.

Today’s leaders and managers can obtain profitable, producsomething on your calendar I use one called Touchtive results by managing the intersection of two critical values: today and you don’t get to it, Down from NitroDesk, effectiveness and efficiency. Effectiveness, Stack says, is identomorrow it will be appearwhich Symantec recently tifying and achieving the best objectives for your organization ing on yesterday. But if it’s on bought. It’s like having Out— doing the right things. Efficiency is accomplishing them with your tasks and you don’t get it look right on your phone. the least amount of time, effort and cost — doing things right. If done today, tomorrow it will You’ve got your notes, tasks, you’re not clear on both, you’re wasting your time. still be on today, so the tasks calendar, contacts and email go forward. all in one app rather than all little separate buttons on your FELDMAN: Another probphone. lem with email is the alerts.

With that app, I can move I have disarmed my alerts, emails right to the task list but I notice a lot of peofrom my phone. I travel ple have them set. Is that a 120,000 miles a year speakcommon problem? ing at meetings. I live on my phone.

STACK: Most people don’t I’m running through the know that you can turn off airport with a Bluetooth. what are called the global All I have to do is click on a alerts. Really? We need four plus mark, talk into it, click a alerts for one email? Turn checkmark, and boom, when those off.

I get back to my laptop, it’ll be You can go in your File, there. It’s on my iPad. It’s on your Options and then your my phone. It’s on my desktop. mail. Find the section for It all syncs seamlessly.

New Incoming Items and If I get a text, I long press uncheck those four boxes. it, copy, click, boom, put Otherwise they grab your peit on my task list. So I can ripheral view and cause multake notes from meetings, titasking, which is completely from client conversations, or unproductive. ideas from texts, LinkedIn or Stack identifies 12 practices grouped into three areas where You can also right-click on email and roll them into one leaders spend their time, called 3T Leadership — Strategic email from someone whom task list.

Thinking (Business), Teamwork (Employees) and Tactics (Self). you consider important — a Then I can just drag everyclient, co-worker, boss, whothing up and down and reorever. Click Rules and you’ll get a dialogue it, do it, date it, put it in a drawer or defer it. der by priority. That way, you’re not makbox asking when you get an email from I can process 100 emails in 20 minutes. ing choices by default. “Oh, well, this is in this person, you can play this sound.

Doesn’t mean I did them, but they don’t front of me, so I guess I may as well do it.”

Then you can minimize your second have to be sitting in your inbox in order You can be more purposeful in how you monitor and not cheat by leaving your for you to handle them and reply to them. choose what to do next. inbox up while you’re monitoring it all People just don’t know where else to put day. That would be unproductive because them.

FELDMAN: Is not knowing how to conemail doesn’t come in by order of priority.

You can delegate tasks. You can track solidate a common problem? projects. You can pull things up by client.

FELDMAN: Speaking of priority, Bren- You can say to your team, “OK, we’re hav- STACK: Yes. We have so many to-do lists, don Burchard has said that “the inbox ing our one-on-one, Michelle. Here are salespeople especially. They have their 14

InsuranceNewsNet Magazine » August 2016

PAIN VS. GAIN INTERVIEW email, voicemail, voice recorder, little black book, legal pad, Skype, Salesforce, CRM. Then there’s the distraction of instant messaging and social media.

It’s insane. Unless you know how to get your arms around all of these inputs, you’re spread out over 50 different collection trays.

That’s what sales executives mean when they tell me “My salespeople don’t know how to prioritize.” That’s not what they’re saying. They’re saying that they’re doing whatever’s right in front of them because they don’t have one way of getting it all into one list. They can’t view it all very quickly and make choices efficiently on the next thing to do.

FELDMAN: You say that business owners and executives should be focusing on the right things. How do you determine what the right things are?

STACK: Too many business owners are focused on tasks that are menial.

These are tasks that need to get done, but they’re trivial. The tasks are beneath them. I’m not saying attitudinally, like, “Oh, I’m so important. That’s not my job.”

I mean that I see business owners doing $10-, $15-, $20-an-hour activities, and I can give you example after example.

I worked with a big audiovisual firm that does all the big shows and meetings and has many offices. The chief financial officer was complaining about the process for expense reports, and the whole time it doesn’t even dawn on him that he’s doing expense reports.

And I’m saying, “OK, wait a minute.

Let’s back up. You’re the CFO. How much do you make?” We’re talking about people who make hundreds of thousands of dollars filling out forms, booking travel and managing their own calendars.

This is a complete waste of time. There are too many control freaks out there who need to give it up and put somebody in place to do this.

I always ask business owners, “Are you uniquely capable and qualified to do this task? If you could hire somebody to do it, then you’re not the right person to be doing it.”

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INTERVIEW PUTTING THE RIGHT THINGS FIRST FELDMAN: How have you applied this to your own business?

STACK: In my business, I need to be doing media interviews, writing books, speaking, talking to clients and doing research or preparation. That’s really it.

There are so many other things that it takes to run my company, in the way of web and graphics and marketing. I know enough to be dangerous in just about all of those areas.

I know how to put up a webpage in WordPress. That doesn’t mean I should do it. My staff doesn’t even let me use our multifunction machine that does postage and binding and scanning.

If I’m putting postage on something in my office, that is taking away from time that I should be spending on revenue-building activities. Those are the activities that are driving business to my firm and paying the salaries of the employees who are doing those things. It’s a disservice to my team if I put postage on something.

Too many business owners either like that kind of stuff, or they’re procrastinating by doing it, because it keeps them from having to do the stuff that they really need to do.

FELDMAN: How do you become more aware of your own procrastination and do something about it?

STACK: First, you have to define why you are here, especially as you get more successful and add more people.

I call those the three buckets, where I spend my time. You can have five buckets in your organization. But I have three. Everybody on my team has three.

Anything that doesn’t fall under those three, we outsource or we get rid of it.

We ask if anybody would notice if we got rid of it.

FELDMAN: What are your three buckets?

STACK: As president and CEO, the first one is brand-builder. As the brand-builder, it would make sense for me to spend my time in things that get the message of The Productivity Pro out into the marketplace, because I make the majority of my money by speaking at conferences.

So, how do I do that? Having this con16

Goals: Set Objectives and Align Strategy Planning: Understand your overall strategic planning process from beginning to end.

1. What is the most important goal I need to define for my team, and how can I best communicate its value to them?

2. Given the goal I’ve just defined, how can I best clear a path from where we are to where I want my team to be?

Alignment: Work toward active alignment of your team and individual goals with organizational goals.

3. What are the bedrock beliefs of my organization? Do we emphasize them enough?

4. What more can I do to empower and engage my teammates?

Establishing: Focus on establishing team goals and encouraging your team to take ownership of them.

5. In what ways can I provide better feedback on team productivity?

6. Do I invite enough ideas and open discussion? If not, what can I do to better achieve both? © 2015, Laura Stack

versation with you is a good use of my time, because it gets into the hands of people who might say, “Gee, that gal’s pretty smart. We should bring her in to speak at our next sales kickoff.”

There’s literally nobody else who could do this interview with you. Nobody can get in my head. I couldn’t outsource this if I tried.

Another use of my time as brand-builder is writing books. That’s great because every time someone has my book in their hands, there’s a potential that they may hire me to speak.

The second bucket is rainmaking. We don’t do cold calls, outbound, email marketing, buy lists and all that. It’s all repeat and referral and spinoff. Or someone sees me speak, and then I get three more speaking engagements.

As the rainmaker, I need to be good on the stage, because that’s where I’m making the money. So I spend a ton of time on literally what words come out of my mouth when I’m on the platform.

It’s preparation, designing curriculum for a certain half-day workshop or creating videos and PowerPoint presentations.

I don’t design any actual slides. I can have someone else do that, but I need to rehearse a slide presentation for hours before I can do a 45-minute talk. There is a

InsuranceNewsNet Magazine » August 2016

lot of time invested before I ever show up for a speech, because that’s where the real money is for me.

And then the third bucket for me is I’m the subject matter expert. My office workers are productive, but it’s really my productivity systems that they are operating.

I’m the one who has to do the research and understand all the latest-and-greatest apps that are out there.

This is the kind of roll-up-your-sleeves and putting models together, innovating, keeping up with reading, just staying on the cusp.

FELDMAN: You’ve worked with a lot of financial advisors. What do you see as a common problem that they have?

STACK: A lot of it is about how they’re working with their team and tracking who’s going to do what and making sure things don’t fall through the cracks.

A lot of financial advisors whom I work with are high performers with great skills and products. It’s the context of selling that makes or breaks them.

If their systems, workflow, foundation and processes are fundamentally flawed, then they’re inefficient, spending far too much time doing many things.

There are some things you have to let go.

PAIN VS. GAIN: PART 2 INTERVIEW

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INTERVIEW PUTTING THE RIGHT THINGS FIRST FELDMAN: What kinds of things should be let go?

Change: Embrace Innovation and Adaptability

STACK: We all get stuck in this as business owners. We want to serve our clients and provide value, so we do all these things that we think are helping. But they can turn out to be a big waste of time.

I used to do a monthly newsletter until two years ago. I did it since 1999 and thought, “Oh my gosh, this is the best newsletter.”

It was like a 2,500-word original essay. I put a lot of time into this. I did polls, links and research. We had 38,000 people on this subscription list.

Innovation: Encourage innovation among your teammates, helping them nurture and implement new ideas.

1. Do I do a good enough job of encouraging creativity, or do I shut my teammates down when they bring me their ideas?

2. Knowing I can focus only on my team’s best ideas, how many can we handle, and which are they at this time?

Adaptability: Facilitate your team’s adaptability to the agile business reality.

3. How have my team and I maximized our preparedness for the future — or have we?

4. Am I acting as a facilitator and visionary for my team, or is my management style more old-school authoritarian?

FELDMAN: That’s a big list for a newsletter.

Flexibility: Embrace chaos to overcome cultural inertia and work around bureaucracy.

STACK: Yes. So, I’m thinking, “My clients love it. Look at all the people who subscribe.”

A couple years ago, I got the flu. I told my staff, “I’m just so sick that we’re going to skip it this month. And we are going to hear a lot of wailing and gnashing of teeth and people asking about the newsletter.”

We got three emails from people. Out of 38,000, [laughter] I mean, three.

5. Do I respond instantly to change and encourage my team to be change hardy?

If not, how can we overcome our inertia?

6. In what ways do I work with other teams to crossfertilize our creativity and generate innovation?

FELDMAN: Wow.

© 2015, Laura Stack

STACK: Yes. This was a real wow. I started calling subscribers, and they told me that they put it in a file like I told them but they didn’t read it because it was too long. I asked what they wanted, and they said an email twice a week with a small paragraph.

“Seriously?” I was floored. “You want an email more often?”

So now I do a twice-weekly email containing a tip, and we have more than 50,000 subscribers. I think they are reading it, because I can see the open and the click-through rates.

Business owners need to let go of doing some things as a business and doing a lot of things themselves. We have very picky standards about how things have to get done.

FELDMAN: What are some ways of identifying those things that you should not be doing as a business owner?

STACK: Anytime you think “Oh, I can’t give it to so-and-so, because they’re going 18

to screw it up,” or “I can’t hire anybody to do this, because they’re not going to do it the right way,” or “I’m going to do this myself, because it’ll just take a second.”

We have so many things on our list only because we insist on doing everything our way.

I have seen leaders who actually insist on reviewing the emails of their staff person before they go out, which means they have twice as many emails. It’s not that what the staff person did was technically wrong or incorrect. It was style.

If you feel like you’re constantly having to correct someone’s work, then that person may not be competent. You may need to get another person in there. But doing it yourself is not the solution.

You have to ask, is this a picky, picky standard and an unrealistic expectation, or is it a competence or a motivation issue? We really have to get down to the crux of that.

So many times, when I give someone a

InsuranceNewsNet Magazine » August 2016

project and say, “We’re at A. We need to get to B. As long as you get to B, I’ll be happy,” I have been amazed at how creative some of my team members can be when I get out of the way.

My dad used to say, “If you’re the only one who can do it or fix it or solve it, you deserve it.”

FELDMAN: Do you find that leaders are often getting in their own way with these control issues?

STACK: Yes. Then their calendars are just a giant blue blur of unavailability, because they’re not willing to let anybody else do anything for them. And guess what? People will let you do it your way, so you’ll do far more in your life and at work if you have those perfectionistic standards.

I suggest being a recovering perfectionist. Those things just aren’t worth it. Let it go, man. Let it go.

PAIN VS. GAIN: PART 2 INTERVIEW

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INTERVIEW PAIN VS. GAIN: PART 2

Drew K. Horter started in the financial services industry in 1982. In 1986, as a CFP, he joined forces with three other CFPs to start their own financial planning firm. After the 1987 stock market crash, he and his partners decided to become fee-based and avoid high commission mutual funds for their clients. They started as solicitors to third party money managers, then went on to start their own RIA firms in 1991. By 1992, Drew had over $22 million of Assets Under Management and a very successful practice. In 2002, after working strictly by referrals for 20 years, he started marketing in order to attain $25 million in new assets every year, generally $10 million in Fixed Index Annuities and $15 million in Assets Under Management.

The result was a fine-tuned system that enabled Drew to know precisely the marketing metrics for each event, including marketing expenses, client acquisition costs, how many new clients he’d acquire and how much assets he’d attain for each new client. Now, as Founder and Chief Investment Strategist of Horter Investment Management, Drew is showing other advisors how to achieve these same astounding results. In this Q&A, he discusses exactly how it happens.

Why did you choose the financial industry for your career?

Investing has always been a passion of mine. I owned 40 apartments by the time I was 24, and very few people understood how to invest in real estate.

By nature, I am risk-averse, so I chose the financial industry for my career because I really wanted to help clients understand investments and how to make the right decision for their long-term future. Many investors lack the knowledge on how to design specific portfolios that match their desired risk tolerance; they go blindly into stocks and bonds, where the risk is the diametric opposite of what they really want.

How did you end up mentoring other agents?

The stock market volatility and risk that started in July 2007 was so bad that we sought to find low risk, low volatility and low drawdown money managers who still could provide protection and very good rates of return over time for our clients. We had a very successful RIA firm, with $88 million in AUM in 2008. That’s when other advisors began asking me to mentor and coach them on our proven systems and procedures for a successful practice.

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InsuranceNewsNet Magazine » August 2016

What obstacles hold securitieslicensed advisors back from advancing in their careers?

Most advisors do not have adequate marketing systems and procedures to manage the growth and efficiency of their practice. Broker/dealers do not teach you how to market, provide a detailed first and second meeting agenda, analyze the client’s current portfolio, define the client’s true risk tolerance, or evaluate the client’s actual maximum drawdown and risk. Insurance companies do not provide any of these detailed steps either. Advisors need a coach and mentor who has extensive knowledge and has been in the trenches a long time to guide them every step of the way. At Horter, we provide these.

How does Horter Investment Management help advisors overcome this void?

We teach and coach systems and procedures with what we call our Financial Manufacturing Firm, and it all starts with excellent external and internal marketing campaigns to see 10–20 new quality prospects per month.

Constant training is a must for our advisors. Our monthly trainings also include what to do every step of the way through first and second appointments, to determine how much risk clients want, where they cannot lose their principal or annual gain and integrate

this with low and moderate risk asset management. Advisors need to plan for the next six months to a year for marketing, industry education and family time, and we help set that plan in place.

Plus, we have an abundance of online resources, and we provide additional coaches who complement the Horter Training System very well. We also have six vice presidents standing ready to tear apart brokerage statements, tax returns, etc., to help advisors win the business virtually every time.

What makes Horter Investment Management different when it comes to asset management and planning?

On the asset management side, we do not like drawdowns in client portfolios.

We do everything we can to minimize drawdowns or losses while still maintaining an excellent rate of return over time. We believe in combining excellent low risk, low drawdown tactical managers with FIAs to protect clients’ assets over the next 15, 20, 25-plus years.

We use all third-party managers. We believe with third-party managers you have total objectivity. When you have a proprietary manager, you assume you are the very best. Not so! RIAs with their own proprietary portfolios (some with back testing) are not being fiduciaries to their clients or advisors.

You have to do what is in your clients’

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Sure proprietary managers can have lower fees—since they do not have to pay any out side managers—but how can they say they are the best at everything when there are thousands of managers to choose from? It doesn’t make any sense.

If you have a bad year as a proprietary portfolio manager, do you fire yourself, or do you “spin” it for your clients or advisors? We actually fired ourselves in 2008 as a buy and hold equity portfolio manager.

We came to the conclusion that buy and hold (hope and a prayer investing) did not work for retirees, pre-retirees and conservative investors. It was the right thing to do for our clients and advisors. It’s not about me; it’s about doing what’s right. With proprietary asset management, you lack total objectivity, which is a bad idea for investors.

How do you help advisors comply with SEC regulations?

We have a full compliance team at Horter Investment Management, combined with former FINRA and SEC consultants to help our Chief Compliance Officer oversee our Investment Advisor Representatives. We also have as our outside counsel the former Director of Enforcement for Ohio.

How can HOW Horter TO Investment GET MOREManDREAM CLIENTS IN 2016 INTERVIEW agement help advisors with the Department of Labor’s new ruling?

As an RIA, we are one of the four institutions approved by the DOL. We can help advisors as fee-based fiduciaries by showing them how to be compliant with our portfolios and their annuities.

With an excellent compliance department, excellent strategic partners and consultants, our advisors will thrive. We will make the necessary changes and updates for them. And with our risk tolerance scoring and stress tests, we will excel with both the DOL regulation and the client’s best interest.

What kind of business growth can advisors expect when working with Horter Investment Management?

We can take advisors from $0 to $10 million, $20 million, $30 million, $40 million or $50 million per year of AUM and FIA sales. We have done this many times. If advisors specifically follow our systems and procedures, in just a few short years this can happen to focused, energetic advisors. Our system works so advisors do not have to deviate from what we teach them. With our extensive training, in six months they can know more than 95 percent of the advisors in the field. I’d like to add that attending our Las Vegas 2016 Training September 19th and 20th will be a great experience.

Investments That Complement Fixed Index Annuities Drew Recommends:

Low risk, low volatility and low drawdown tactical third party portfolios with excellent rates of return over time.

Why: It’s the “perfect segue” from the FIA sale of safety and security.

How Horter Does It: With low risk investment managers who have low maximum drawdowns (generally 2-5%) for retirees, pre-retirees and conservative investors; they’re placed together in a sleeve of 3-4 managers with different tactical models, asset classes and algorithms.

Moderate Risk Option: The moderate risk Sleeve has approximately 20% of the S&P 500 maximum drawdown of 50%.

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Help increase your chances of drastically multiplying your AUM and FIA sales with the Horter Advisor Success Kit. This 6-piece resource kit includes: • Why you won’t have to worry about your competitors

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• 3 key differentiators you can have as an Investment Advisor Rep (IAR) and how to get there

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Get your success kit today at www.HorterSuccess.com

Investment advisory services offered through Horter Investment Management, LLC, a SEC-Registered Investment Advisor. Horter Investment Management does not provide legal or tax advice. Investment Advisor Representatives of Horter Investment Management may only conduct business with residents of the states and jurisdictions in which they are properly registered or exempt from registration requirements. Insurance and annuity products are sold separately through Horter Financial Strategies, LLC. Securities transactions for Horter Investment Management clients are placed through Trust Company of America, TD Ameritrade, Jefferson National Life Insurance Company, Security Benefit Life Insurance Company and ED&F Man Capital Markets.

August 2016 » InsuranceNewsNet Magazine

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NEWSWIRES

QUOTABLE

Regulators Fight For ‘Too Big to Fail’ A federal court threw out the “too big to fail” designation on MetLife earlier this year. Now federal regulators are fighting back for their right to label large nonbanks as systemically important financial institutions, or SIFI. The Financial Stability Oversight Council, a body of regulators led by the Treasury Department, said that it would contest the MetLife decision.

The Dodd-Frank Act gave the FSOC, which includes the heads of the banking agencies, the authority to designate large nonbanks as “systemically important” to prevent the kind of fallout seen from the near-collapse of AIG at the height of the 2008-2009 financial crisis. The institutions so designated will be subject to greater capital requirements and regulatory scrutiny.

MetLife, which filed its case against the government in January 2015, is the only company to combat the label in court.

HOUSE GOP PROPOSES ‘REPEAL AND REPLACE’

Republicans vowed to get rid of the Affordable Care Act almost as soon as it was enacted six years ago. Now they have their long-delayed replacement plan.

The plan relies on individual tax credits to allow people to buy coverage from private insurers, and includes other familiar GOP ideas such as medical liability reform and expanding access to health savings accounts. It proposes putting $25 billion behind high-risk pools for people with pre-existing conditions and transforming the federal-state Medicaid program for the poor by turning it into state block grants or individual per capita allotments to hold down spending.

But the 37-page white paper falls short of a full-scale replacement proposal for the ACA. It leaves key questions unanswered, including the cost of the tax credits, the overall price tag of the plan and how many people would be covered.

The plan is part of House Speaker Paul DID YOU

? 51%

KNOW

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Ryan’s “Better Way” agenda meant to show how the GOP would govern with a Republican in the White House.

TEXAS COURT CONSOLIDATES DOL SUITS

Five lawsuits have been filed challenging the Department of Labor fiduciary rule, with the U.S. District Court Northern District of Texas consolidating three of them.

The three lawsuits were filed by the U.S. Chamber of Commerce, the Indexed Annuity Leadership Council, the American Council of Life Insurers, and the National Association of Insurance and Financial Advisors.

Two additional lawsuits challenging the DOL rule have been filed in District of Columbia District Court (by the National Association for Fixed Annuities) and in U.S. District Court for the District of Kansas (by Market Synergy Group).

The first lawsuits were filed in June, but as of press time, only one hearing date has been scheduled – Aug. 25 before the DC court.

of Americans say their level of financial security is staying about the same. Source: COUNTRY Financial

InsuranceNewsNet Magazine » August 2016

As an advisor for over 20 years, I have seen the attitude toward savings change for the worse.

— Doug Mitchell, Ogletree Financial

PENSION INSOLVENCY LOOMS, REPORT WARNS

An estimated 10 million Americans are covered by multi-employer pension plans.

But those plans face an estimated $610 billion in unfunded liabilities, meaning that the multi-employer pension system is funded at only 41 percent. That massive underfunding could lead to the insolvency of the Pension Benefit Guaranty Corp. in less than a decade, according to a PBGC report.

If the PBGC goes bankrupt, it would force a drastic reduction in the benefits going to workers whose own pension funds have gone under.

The problem is simple: Too many of the plans have not been adequately funded.

“Most multi-employer plans are projected to remain solvent over the next 20 years.

However, a core group of plans appears unable to raise contributions sufficiently to avoid insolvency,” the report said.

Multi-employer plans involve several companies and unions jointly managing a pension fund for all their workers. The plans are favored by unions because they remain with workers even if they switch jobs. However, they are risky for businesses because if one employer goes bankrupt, the others are legally obligated to cover its contribution.

The PBGC is not federally funded.

It is an independent agency, and revenue comes mainly by insurance premiums paid by nearly 24,000 insured defined benefit pension plans.

[NEWSWIRES] | A Number ofN N U I T I E S Uninsured Americans Drops by 7.4M

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strategy that will have your clients seeing Fewer than 1 in 10 is now — Ted Benna, creator of

The number of Americans withthe 401(k) plan out health insurance fell by 7.4 million last year as the individual mandates for coverage and expanded assistance programs under the Affordable Care Act ELECTION ANGST HURTING encouraged more people to sign U.S. ECONOMY up for health insurance coverage.

Politics has been known to turn brother Double Purposing Example The U.S. Department of Health and Human Services said that among adults ages against brother and turn best friends into 18 to 64, 12.8 percent lacked any health insurance in 2015, down from 16.3 percent bitter enemies. But the upcoming presiin 2015 and 20.3 percent in 2014. Among all Americans, fewer than one in 10 is now dential election is giving the U.S. economy uninsured. heartburn. Some 60 percent of business Set aside tosay bethatleft to heirs economists uncertainty about the November vote ▼is damaging prospects for ADMINISTRATION PROPOSES bility Oversight Council — a distinction growth this year.

LIMITS ON SPECIAL ACA SIGN-UP currently shared only by AIG and PrudenThe Obama administration wants to limit tial. MetLife was designated in December Purchase of a special sign-up periods under the Afford- 2014 but challenged its designation in able Care Act after insurers complained of court, winning its case in February 2016 single-premium life policy abuses. (the FSOC has said it will appeal). ▼ Under a policy change,®people who try Fed staff described the prudential stanThe life insurance policy to get coverage after moving to a differ- dards as effectively “best practices” for risk 60% of economists say political uncerent community will have to show they and liquidity preparedness, and the pro5 creates an immediate death were insured at their previous address at posal estimated that the costs associated tainty is dragging down the U.S. economy.

4 least some of the time during the previ- with compliance “are not expected tobenefit be In value their latestof forecasts, members of the ous 60 days. material within the context of the institu- National Association for Business EcoIncome Tax-Free Like other private health insurance, tions’ existing budgets.” nomics have once again marked down ▼ for this year, pegging the subsidized coverage sold under the For smaller insurance firms — the sec- their expectations health law has an annual sign-up season. ond proposal said there are currently 12 the overall growth in gross domestic prodOutside that period, consumers get new that would be affected — a “building-block” uct at just 1.8 percent. That’s down from tm up for client single premium whole insurance coverage only for limited reasons, such aslife approach would be used, whereby each ofFreed 2.2 percent in the group’s use!

March survey the birth of a child or the loss of employ- the firms’ component entities would have and 2.6 percent in December of last year. er-provided benefits. to Medical be capitalized at the2level required by The slowdown comes as businesses ➤ Point-of-Sale Approval 1 ➤ No Exam Insurers complain that the health its individual regulator. This would effec- are growing increasingly uneasy about 3 law’s ➤ Commissions Daily ➤ Issue Ages: the 50–85 special enrollments Paid have been loosely entively preserve states’ pre-eminence in the outcome of the presidential election, GUARANTEED 1 Answers to telephone interview determine approval.

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3 Commissions forced, letting people get covered if they’re regulating insurance firms while preserv- and the wider uncertainty about the poliPoint-of-Saleoccupant of the paid upon policy issue. 4 AWT rates as of 07/01/2016. All scenarios are for a 60 year old female, non-tobacco. KY rates are sick, only to drop it later. ing bank regulators’ prerogative to require cies advanced by the next not shown above and are available upon request. 5. Death benefit increase effective 4-1-2016. Go to www.oxfordlife.com 1 DECISION capital standards.

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FED LOOKS AT INSURER That political uncertainty was cited Financial Strength Rating REQUIREMENTS by nearly 60 percent of the economists A The Federal Reserve wants to set prudensurveyed as a drag on the U.S. economy M Call foryear. more information tial and capital rules for insurance compathis A t nies designated as-systemically risky and Excellen smaller insurers with depository affiliates. *Effective as of 5-7-2014. For the latest rating, access www.ambest.com Americans aged 45-54 have the highest DID YOU The issued twoA++proposals.

The first A.M. BestFed assigns ratings from to F, A++ being superior ratings. credit card debt, with the average outlines prudential standards for insurance individual owing more than $9,000. firms designated asUSE systemically important — FOR PRODUCER ONLY — Not intended for soliciting or advertising to the public. The Advance Wealth Transfer single premium life insurance policy (see policy form ICC10-SPWL500 and statespecific variations whereby applicable for full details) isStaissued by Oxford Life Insurance Company, who assumes risk and guarantees payment subject to itsSource: claim-paying ability. Current Federal income tax ValuePenguin financial institutions the Financial laws define this contract as a Modified Endowment Contract (MEC). As a MEC, if there is any gain in the policy, the portion of the gain included in any distribution from the policy, including loans may be

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August 2016 » InsuranceNewsNet Magazine

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InsuranceNewsNet Magazine Âť August 2016

FINDING INSPIRATION FEATURE

W

allene Leek was the cheerleader who married the star football player.

She went on to realize her dreams of appearing on TV as a weather anchor, and her husband, Rex Dockery, climbed the ranks to become a successful college coach. They completed the picture of the American fairy tale life with two children and a golden future.

“We were living a charmed life,” she said. “He was on a pathway to greatness.”

But it was during her most grueling, darkest days that she saw what love really was. It wasn’t in achievements and the things — it was in the details.

How advisors take life’s events and use them to serve others

BY SUSAN RUPE

WALLENE LEEK was annoyed at her husband’s insistence that they buy life insurance. But after his death in a plane crash, Leek began helping other families protect their financial futures.

“When he was 35, he dragged me to an attorney to get our wills done and I thought, ‘What are we doing this for?’”

Leek recalled.

Then there was the issue of the life insurance she hated paying for. They were young. Everything was in front of them.

Why waste the money?

He was on his way to an awards ceremony on Dec. 12, 1983, when his private plane went down, taking him and three others. Instead of preparing for Christmas and a new year, Leek faced an onslaught of grief and uncertainty.

InsuranceNewsNet Magazine

25

FEATURE FINDING INSPIRATION IN THE WAKE OF LIFE’S STORMS

“In times of great stress or adversity, it’s always best to keep busy, to plow your anger and your energy into something positive.” – Lee Iacocca But one thing was crystal clear in those moments.

“At age 41, he was gone,” she said. “And I realized all the things he did were because he loved us.”

Life insurance ended up not only helping her through those times, but would also serve as her mission in life.

Inspiration rarely comes quietly, as we see in these stories. Sometimes, it comes in the form of hell and high water. A disastrous event can have a silver lining.

Experiencing misfortune can inspire someone to guide someone else through a similar life storm or help them avert a storm altogether.

And the reverse is true as well.

Those who have experienced good fortune in life may be inspired to give back, to share their talent and treasure with others.

Inspiration also can strike in the form of a lucky break in life — an opportunity that comes along and is taken advantage of to the fullest.

Whether it is through success, adversity or “just one of those things,” many advisors find inspiration in taking life’s events and using them to fuel their success while helping others.

We’ll read stories about more of those inspiring life events later on. But back to Wallene Leek.

‘I can’t sell!’

After her husband’s death, Leek was asked to speak to various groups about her experience. “New York Life tried to hire me but I said, ‘I can’t sell!’” she said.

Leek conceded that “God has a sense of humor” because she eventually took up the offer to sell life insurance and became a New York Life agent 15 years ago. Her experience with her husband’s death “is what keeps me in the business,” she said.

“I make a difference in people’s lives,” she said. “It might be 10 years before someone sees the benefit of life insurance,

but when they do, I see the light go on and that’s what makes this worthwhile to me.”

Her husband’s death is not the only adversity that Leek draws on to tell her clients of the importance of financial planning. Her mother suffered a stroke and needed to enter a long-term care facility.

With no knowledge of the long-term care funding process and no money available to pay for nursing care, Leek’s mother was forced to sell her home and her assets.

Leek said she frequently tells her life story to prospects as a way of illustrating the importance of life insurance. “I try not to weep all over them, but I do let them know what can and does happen in life,” she said.

“I discuss with them how to integrate life insurance in their total financial plan,” she said. “I also talk to them about making a will. So many of my clients don’t have a will. I always keep after them so they will talk to somebody about drawing up a will.

In this business, we often have to do what I call not nagging but ‘gentle reminding.’”

Linda Ray — Bouncing Back After Katrina

The theme of overcoming adversity is something that many advisors have in common. Linda Ray not only had to bounce back from a devastating hurricane, but she had to help her clients recover from the catastrophe as well.

Ray is the owner of Better Benefits, specializing in employee benefits and in-

everything,” she said. “My mother lost her home. My home had water in it. We jumped around for four months before I could move back. My office was destroyed.”

Ray said she found inspiration in the book The 7 Habits of Highly Effective People by Stephen R. Covey. She had studied the book when she participated in the Leadership in Life Institute, a leadership

LINDA RAY faced a double challenge after Hurricane Katrina: Helping her clients recover while trying to put her own life back together. training program conducted by the National Association of Insurance and Financial Advisors. Ray served as a NAIFA national trustee.

Ray said her inspiration began in the first of Covey’s seven habits, which was “be proactive.”

“And then from there, I went through the other habits, ‘begin with the end in mind,’ ‘put first things first,’ ‘think winwin.’ They really helped me organize my thoughts as I dealt with everything.”

“Whether you think you can or you think you can’t, you’re right.”

26

– Henry Ford

dividual insurance, in Metairie, La. Ray and her mother evacuated before Katrina hit. She said that when they returned to Metairie, “everything was falling apart.”

“My family on the Gulf Coast lost

InsuranceNewsNet Magazine » August 2016

“This started putting things in place for me,” she said. “I grasped on to the things that were positive, trying not to focus on the negative and the overwhelming because there were so many things that were spilling over onto me to take care of.”

Indexed UL Can’t Should Be Sold to Seniors

HOW TO SELL ANNUITIES TO A SKEPTICAL CLIENT FEATURE

IT’S ABOUT TIME SOMEONE SET THE RECORD STRAIGHT.

Nobody can deny that seniors dominate as the biggest and most sought-after market for agents and retirement planners. But advisors are getting some bad advice these days when it comes to selling Indexed UL to this lucrative group.

MORE THAN 90% OF THE AGENTS WE TALK TO BELIEVE THE SAME MYTHS: • “Seniors simply can’t get approved”

• “Underwriting on an IUL policy takes too long”

• “There’s not enough time for the policy to grow”

• “IULs are best sold to Gen Xers and Millennials”

• “Fees are too high to capture gains”

WHAT AGENTS NEED TO KNOW.

Agents are being done a huge disservice by excluding Indexed UL for their senior clients. If this is your mindset, make no mistake: you’re missing out on one of the best ways to fulfill your moral obligation to senior clients by offering them a way to control their taxes and their losses, receive tax-free income and have a tax-free benefit to pass on to their heirs.

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August 2016 » InsuranceNewsNet Magazine

27

FEATURE FINDING INSPIRATION IN THE WAKE OF LIFE’S STORMS

When Linda Ray returned to her Metairie, La., office six days after Hurricane Katrina hit, she discovered a moldy mess.

‘You need to get busy’

Ray also was inspired by a quote from John Quincy Adams: “Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.”

“What this said to me was: you need to get busy. You need to have patience, but you have to persevere,” she said.

“I had to do a lot of manual labor besides trying to put the office together and stay in business in those early days after Katrina,” Ray continued. “I’m thankful that I had the strength to do what needed to be done. Family, faith and perseverance gave me the strength to do what I needed to do.”

Ray had bought a new laptop computer before evacuating and even while she was

holed up in a hotel room waiting for the all-clear to return home, she began emailing her clients.

“I stayed on the computer trying to track things down, getting in touch with clients,”

“Skillful pilots gain their reputation from storms and tempest.” – Epicurus she recalled. “As soon as I returned, I started to hear from clients saying ‘Are you OK? We’re OK.’ We had to build back our database. Yes, this person is here, this person’s business is closed, this person will be out of town for a while, this person will be out for a few months. We took it one client at

The 7 Habits of Highly Effective People

Stephen R. Covey’s best-selling book, The 7 Habits of Highly Effective People, has helped inspire many financial professionals. The book is part of the core curriculum of the National Association of Insurance and Financial Advisors’ Leadership in Life Institute (LILI). Since the LILI program began in 2000, more than 2,200 financial professionals have completed the course, going on to serve the association in leadership roles as well as to obtain the tools they need for personal and professional success. Here is a summary of Covey’s seven habits.

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a time. For the first couple of months, you had to block out everything but emergencies. We used email at first, then the phones were hooked up at my home and then we got the business line hooked up. We did a lot of service work, letting people know we were available. We eventually got a storage unit and worked out of there for a while before my office was ready for us again.”

Ray credited a number of people in the industry for lending her a helping hand after the hurricane. “Someone loaned me a vehicle, someone else let me stay in their house, and someone loaned my mother a house for four months,” she said. “Everybody recognized that everyone was going through something difficult. The people who were better off were reaching out to help someone else. The difficult part was making those contacts and letting people know that we were there for them.”

In the midst of all the uncertainty, Ray said she asked herself whether she should give up her business and do something else. “I realized this was what I loved, what

InsuranceNewsNet Magazine » August 2016

was familiar to me, and I had to hold on to that,” she said. “I wasn’t going to quit.”

Ray said that as a result of her experience with rebuilding after the hurricane, “I became stronger, and it helped me be a strength to others who are going through tragedies.”

Habit 1. Be proactive Habit 2. Begin with the end in mind Habit 3. Put first things first Habit 4. Think win-win Habit 5. S eek first to understand, then to be understood Habit 6. Synergize Habit 7. Sharpen the saw

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FEATURE FINDING INSPIRATION “It has made me a better person, a stronger person, a caring person, a patient person. I don’t give up.”

Ray’s experience with loss has fueled another passion — scrapbooking. “I feel scrapbooking and photography correlate with the insurance business,” she said.

“We protect the assets and memories for our clients. We want to preserve our clients’ history.”

Brian Walsh — Never Giving Up

Growing up in Levittown, Pa., Brian Walsh followed in the steps of many of the men in his community. He joined the local volunteer fire department and began fighting fires when he was a senior in high school. But his volunteer calling nearly turned deadly when he was inside a burning building and was caught in a flashover. He suffered severe lung injuries and third-degree burns on his face and spent a long time in the hospital. His recovery included numerous surgeries to repair the burn damage.

Walsh is co-founder and principal of Walsh & Nicholson Financial Group in Wayne, Pa. Walsh almost died from his injuries. “I was told that most people don’t survive that level of burn in the head area because they usually end up with too much lung damage or an infection,” he said. “Of the 12 of us who were in the burn center at the time I was a patient there, I was the only one who left the hospital. The others didn’t make it.”

The fire left psychological as well as physical damage. “With the injuries to my face, this was something I was going to see every day. No way was I going to be able to cover this up,” Walsh said. “You go through the psychological aspect of it — trying to understand what happened, why it can’t get better, why it won’t go back to normal.”

Walsh’s physical recovery took time as well, with two years of physical and occupational therapy.

But the accident didn’t destroy Walsh’s

BRIAN WALSH said his fight to survive after a fire gave him the attitude that led to his business success. passion for firefighting. He attended community college and studied arson investigation at the Pennsylvania State Fire Academy, then went to Memphis State to

“If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.” – Antoine de Saint-Exupery study fire administration. His goal was to become a fire marshal, but then the life insurance bug bit him.

“While waiting for a job as a fire inspector with the federal government, I got a job in the insurance business,” he recalled.

Choosing whether to pursue the fire inspector’s job or continue in the insurance industry was “a difficult decision because the insurance job was commission-based, but I liked the insurance business and really felt strongly about it,” he said.

What won him over to an insurance career, he said, was the ability to help people. “When I started in the business, I was with Mutual of Omaha and we dealt with disability insurance, individual health in-

“Life is 10 percent what happens to me and 90 percent of how I react to it.” – Charles Swindoll 30

surance, individual life insurance, Medicare supplements,” he said. “You were meeting with a 65-year-old in the daytime to discuss Medicare supplement options, and then seeing a young family and helping them get started with their financial planning. It wasn’t hard for me to fall in love with the occupation.”

Walsh said that his fight to survive after his accident gave him a “never-give-up attitude,” which has been vital to his success in the business.

“You end up with a mentality that sometimes you have to go back and do things,” he said. “Whether it was the fireman who went back into the burning building to get me out or the agent who went back to a company or to a family to convince them why what you’re doing is important for their well-being, you just have to do those things. And it’s not comfortable doing those things sometimes, but there are times when you just have to go out there

InsuranceNewsNet Magazine » August 2016

and do something. Just continue to fight.

If I’ve had to fight through two hours of physical therapy, that’s painful, but at the end of the day I’m better off for it. In our business, if you have to fight to get a couple more appointments or get a couple more people to do what they should be doing, it makes it that much better.”

Walsh said that his experience also gave him courage, which he believes is needed by those in the industry.

“I often tell younger agents that you need to have the courage of your convictions in this business. You need to have the courage to believe in the importance of the products you sell.”

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

Rupe@innfeedback.com.

HOW TO SELL ANNUITIES TO A SKEPTICAL CLIENT FEATURE

Special Sponsored Section

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n recent history, our industry made great headway in dispelling the stigma on annuities. But now, with the Department of Labor’s hugely publicized ruling, annuities have once again been sent to their room without supper.

No matter the outcome of the ruling, a new age is upon us: an age of legislation, an age of scrutiny … but also an age of awareness, innovation and creativity.

In this special DOL Rule Thought Leadership Series, we hear from the business side as well as the consumer advocacy side what the future holds and what big hopes lie ahead.

INSIDE Navigating the Flaws in the DOL Rule a Q&A with Kim O’Brien of Americans for Annuity Protection PAGE 32

DOL Preparedness: What to Ignore, Where to Commit a Q&A with Van Lumbard of Ann Arbor Annuity Exchange PAGE 34 August 2016 » InsuranceNewsNet Magazine

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Special Sponsored Section

Navigating the Flaws in the DOL Rule K im O’Brien knows annuities; she’s clocked 35 years in this industry, including 12 years with the National Association for Fixed Annuities (NAFA). As a founding member, Vice Chair and CEO of Americans for Annuity Protection (AAP)[see sidebar], she is now advocating for Americans’ retirement like never before. In this Q&A, Kim discusses some blatant flaws in the Department of Labor (DOL) Fiduciary Ruling and outlines AAP’s innovative defense.

Q: How are the DOL’s “best interest” guidelines flawed?

The DOL’s proposed fiduciary standard does not live up to its very own definition of “best interest” because it adds cost and confusion with multiple layers of rules, compliance and disclosure requirements — from multiple regulators — all forced on the same market participants. Regarding the provision of insurance advice to purchase an annuity, the proposed Rule is a jurisdictional jump ball with conflicting, extraneous and burdensome compliance hoops, leaving the consumer adrift in this sea of regulators. If it is adopted, the consumer’s best interest will be harmed and their efforts to save for retirement stymied.

Americans for Annuity Protection does not disparage the seriousness or intent of the Department in proposing this Rule.

However, motives and intent are not at issue — the outcome is.

And the outcome is that the regulations prescribed by the Rule will in fact make it more difficult, and in some cases not even possible, for middle- and lower-income consumers to save for retirement and protect their savings with annuities.

The regulators and public proponents of the Rule often state that conflicting advice costs Americans $17 billion a year. But this has been proven false by many academics and industry experts, including those at AAP. The Regulatory Impact Analysis is really a house of cards based on cherry-picked studies, misreading relevant economic literature, and ignoring value added benefits and services associated with higher fees.

Q: What is problematic in the DOL’s approach to variable compensation?

First we need to understand what the DOL means by “variable compensation,” which, under the Rule, involves variable-fee fiduciaries. Variable-fee fiduciaries are those who receive payment for the product sold, and that payment varies based on the product recommended. Level-fee fiduciaries receive the same compensation regardless of the particular

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InsuranceNewsNet Magazine Magazine »» August August 2016 2016 InsuranceNewsNet

investments the client makes, whether based on a fixed percentage of assets under management or a fixed dollar fee.

What is problematic is that the Rule has essentially pitted against each other two compensation models that have served American consumers for hundreds of years. Even worse, it favors the level-fee model, because if you are a variable-fee fiduciary, you are automatically under the Best Interest Contract (BIC), with mounds of new disclosures, compliance rules and legal exposure — including class action. Also, the financial institution over the variable-fee fiduciary must supervise the activity of the fiduciary and warrant they are following the rules and have put systems and processes in place to mitigate conflicts of interest.

AAP maintains that intentionally manipulating an entire industry into a level-fee system will (1) cause small savers to lose access to qualified and experienced financial advisors (because smaller accounts will be uneconomic to serve and expose advisory firms to new liability risks), (2) force middleincome savers into fee-based advisory relationships that cost them more than current commission-based arrangements, and (3) result in middle-income savers and firms not being encouraged to save more.

Q: What are AAP’s other concerns with the DOL’s ruling?

One is the implementation costs, which will only be passed on to the consumer. According to Morningstar, implementation alone will cost the industry $19 billion in lost revenue and almost $4 billion in developing the systems and processes necessary to comply with the Rule. That doesn’t include ongoing costs or the costs of litigation and legal support that could easily double this number. Most experts in regulatory compliance agree that the implementation costs are nearly 20 times what the DOL estimated.

A report by Economists Incorporated titled “Good Intentions Gone Wrong” calculates that the actual economic impact of the Rule depriving clients of human advice during a future market correction could be as much as $80 billion, or twice what the DOL claimed as their 10-year benefits of the Rule.

Q: AAP has just formed an alliance with Texas Tech University. How did that come about?

We formed the alliance through AAP’s Board of Directors member Dick Weber. Dick is a 45-year veteran of the life insurance industry. He has been a successful agent and an insurance company executive, and he’s now a consultant to insurers and their agents on the topic of effective and ethical selling.

Dick was the 2012-2013 President of the Society of Financial Service Professionals and now serves as Chairman of the Society’s Foundation. The Society had already formed a relationship with Texas Tech University. Dick called me in the middle of the afternoon and asked if I had a minute to talk to Dr. John

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THOUGHT LEADERSHIP

SERIES

Gilliam, and I did. John is associate professor in the Department of Personal Financial Planning at the College of Human Sciences at TTU. We spent almost an hour on the phone, and John asked me a lot of questions about AAP, our mission, vision and objectives. We shared more information by email, and soon his Board of Directors asked AAP to join the initiative. AAP’s Board authorized our involvement last May. Q: What initiatives are AAP and Texas Tech currently collaborating on?

We’re working on the Best Interest Initiative. The Rule requires financial advisors to act in their clients’ best interest and that they be paid not more than “reasonable” compensation.

However, the Rule doesn’t provide guidance regarding what it means to serve a consumer’s best interest or explain best practices that help advisors assess best interest. The Initiative will allow researchers in Texas Tech University’s Department of Personal Financial Planning to study what best interest means from the customer’s and advisor’s perspectives.

Texas Tech’s Personal Financial Planning program is regarded as a key academic thought leader in the financial services industry and is a natural fit to undertake this important research.

Q: What is AAP’s position on reasonable compensation?

The Rule has brought to the forefront the importance of the necessary balance between the value that must be delivered to consumers saving for retirement and the compensation of the advisor or agent who addresses those needs.

The “reasonable compensation concept” comes out of the Employee Retirement Income Security Act of 1974 (ERISA) and applies to plan fiduciaries and others with a fiduciary duty under ERISA. For 40 years, it applied to employer defined contribution plans and the management of those plans. Now it will apply to IRAs and specifically to annuities. There is no history to suggest what is reasonable and what is unreasonable. The Rule doesn’t even attempt to define it.

When we asked the DOL that question in one of our conversations, Mr. Canary responded that if there are two annuities that are alike, an advisor must sell the lower compensation product to serve the consumer’s best interest. We responded that you would be very hard pressed to find two products that “are alike.” By the time you take into account product features and guarantees and the company’s strength and history of consumer satisfaction, you have a myriad of choices that may suggest a higher compensation.

In addition, AAP suggests that the criteria of time, expertise and services also help determine reasonable compensation.

That is why the AAP Board authorized our adding a Reasonable Compensation Study to the Best Interest Initiative, and the Initiative readily agreed that this component was an essential element in the research. This Reasonable Compensation Study will describe the environment in which this balance must be maintained and compensation structures that will fit within it.

best. Annuity professionals can also expect that we will work tirelessly to protect annuities for Americans so annuities can protect them. We will continue our education and research initiatives to make sure what Americans learn about annuities is accurate and reliable. •

Because annuities protect Americans, AAP protects annuities.

Americans for Annuity Protection (AAP) was founded in June 2015 by a group of industry experts representing over 100 years of life and annuity industry experience. They formed to ensure a diverse and competitive annuity marketplace serving Americans across the economic spectrum. The founders, including InsuranceNewsNet Publisher Paul Feldman, were very disturbed by the DOL Rule and the harmful disruption the proposed requirements would have on the ability of hard-working Americans to save for retirement and access qualified and experienced annuity professionals.

FEDERAL LEVEL INITIATIVES Continuing to challenge, advocate or monitor legislation and regulation that impacts annuity consumers, including fiduciary standards, tax policy, fraud/elder abuse and cyber security.

STATE LEVEL INITIATIVES Securing a consumer advocate position with the National Association of Insurance Commissioners, developing uniform disclosure guidelines that help consumers understand the Guaranty Fund before they allocate their dollars to any one specific company or product, and cyber security rules.

RESEARCH AND EDUCATION INITIATIVES • Best Interest Initiative • Reasonable Compensation Study • Consumer Attitude Survey of Annuity Advisors • Consumer Alerts and Education for State Regulators MEMBERSHIP Membership with AAP includes several benefits, such as: • askAAP – an online form to submit your own personal questions to our team of experts • Fiduciary FAQ – an online resource for answers to questions about the DOL Rule • Consumer-ready annuity content for your newsletters, blogs and social media • Annuity Buzz newsletter – exclusive news to help you run your annuity business • Regulatory updates on new rules and guidance that impact your annuity business • Compliance assistance – a discounted service to help you with compliance issues and questions

Join AAP today! Go to www.aapnow.org and select “Become a Member.”

Q: What can industry professionals expect from AAP? Annuity professionals can expect that AAP will fight hard and support all efforts to protect and preserve the consumer’s access to reliable annuity guidance and assistance from experienced and trained annuity professionals, as well as their access to competitive and suitable products that serve their interest

August 2016 2016 »» InsuranceNewsNet InsuranceNewsNet Magazine Magazine August

33 33

Special Sponsored Section

DOL Preparedness: What to Ignore, Where to Commit

V

an Lumbard has spent his entire career in the insurance industry, beginning as an agent and rising to executive positions in sales and marketing. In 1992, just two years after the company was founded, Van became President of Ann Arbor Annuity Exchange (AAAE), a national marketing organization and wholesale distributor of traditional fixed annuities, fixed index annuities, life insurance and long-term care insurance. During these past 24 years, Van has been a cornerstone of AAAE’s legacy of thought leadership and innovation. In this Q&A, he shares his insight on where financial professionals should focus their attention in the wake of the DOL ruling.

Q: What are the concerns about the DOL rule that you’re hearing from financial professionals?

Our producers, both registered and insurance-only licensed, are concerned about how the new rule will impact the way they do business, what products they can offer and how they get paid — including how much they get paid.

These are important questions, but unfortunately at this time no one seems to have authoritative answers to most of them. We need to understand not only the rule itself, but also how it applies to different products and producers, and most importantly, how each financial institution intends to comply.

Some annuity marketing organizations claim to have the answer for financial professionals, or so it seems. Many producers were getting bombarded by information and “solutions” within days of the final rule’s release. Here we are, more than three months later, and there are still more questions than answers. Without knowing the answers, how can some have viable solutions?

It worries me that producers are making decisions about their future in this business based on potentially wrong or incomplete information. I’m equally troubled that they may be reacting to advice that may not be appropriate for them.

Q: With respect to the DOL ruling, what do you feel are important considerations for financial professionals who sell fixed annuities?

34 34

InsuranceNewsNet Magazine Magazine »» August August 2016 2016 InsuranceNewsNet

We believe all producers should keep their eyes and ears open to see how the battles around this rule shake out.

They should also take stock of their current business: segment their prospects and clients to know their top market, assess their current licenses and registrations to map out any potential additional education that will help them meet their business goals for years to come, and align themselves with entities that are positioned to be a true and long-term resource to them. Our organization is advising preparation now and then action once we know more. Don’t make drastic changes until more is known. With all that is going on, it is best to wait and see how each financial institution decides to comply.

Q: How do you stay on top of regulations that impact your business and the financial professionals you serve?

AAAE is well-connected through our internal staff and partnering financial institutions. We work closely with top fixed and fixed index annuity carriers and have close relationships with numerous independent broker/dealers and registered investment advisors who work with us on regulatory changes. AAAE is a NAFA Premier Partner and NAIFA member. Internally, we have compliance, suitability and marketing staff who are members of industry associations and active on various committees and working groups in the industry. Our leadership team and employee base are made up of RRs, IARs and securities principals who are very familiar with the framework and rules of the securities and advisory industries.

Q: What resources will you have to offer financial professionals to help ensure their success in a post-DOL environment?

We are committed to all of our producer segments: insurance-only, RRs, IARs and those with combined registrations (RR/IARs). Through the more than 30 annuity and life insurance carriers, multiple independent BDs, and RIAs that we do business with, we plan to offer a variety of options for doing fixed and fixed index annuity business.

This puts us in a unique position to help guide our producers in selecting the right solution for their individual business model. In addition, we will continue to provide training, educational resources, business-building tools and access to vendors who can help align our producers with success. Until then, we will educate our producers on what the upcoming changes may mean to their business — and to them personally — and get them thinking about their future as well.

Designed for Financial Professionals

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TIP: 3 Ways to Sell Smarter 1. The Right People. Use a personal marketing consultant who is focused on your individual needs as a producer, helping translate ideas into actionable sales strategies and allowing you to sell with confidence. Make sure your support staff are experts in areas of licensing, suitability, compliance and new business.

2. News… Your Way. Make sure you not only have access to timely and relevant information on the industry and news that matter to your practice, but also that it is delivered to you through whichever communication channels you use most.

3. Advanced Industry Topics. Consistently seek valuable training and education on advanced industry topics and financial literacy. Be sure, however, that it suits your style of learning.

Make it Easy. See how Ann Arbor Annuity Exchange gives you all of the above at www.CommitToMySuccess.com.

Q: You have very close relationships with several broker/dealers and RIAs. What have you learned from them that you feel is an asset in how you deal with others?

We work hand in hand with our partnering broker/ dealers and RIAs. We have a highly efficient and produceroriented back office. We have taken additional steps to establish processes and procedures around marketing, new business review and compliance. We understand that a repeatable, documented process is important and oftentimes means the difference between a clean sale or trouble with a regulator.

Our commitment to suitability and compliance review makes our partnering firms feel comfortable that we are not just an organization that is concerned with sales. Because of our experience, we have learned that evaluating the knowledge level of the broker/dealer or RIA is very important when it comes to FIAs. Tailoring our model to suit their compliance, educational and service needs has been very effective. While the way we do business may be rare for a marketing organization, it is valued by broker/dealers and RIAs. Q: How can a marketing organization’s foundation of experience be a game changer in the next two years?

Experience and a commitment to executing at a high level will be incredibly important moving forward. Financial institutions will look to work with only the best organizations. Sales volume, while important, will take a secondary role to compliance with the new rule.

No matter what challenges arise, we have long positioned our organization to be responsive. We provide training and education in various forms. We are committed to providing relevant and timely information through our magazine, e-newsletter, website and mobile app.

When you combine our top-notch service model, experienced staff and compliance-friendly marketing programs with our commitment to do business the right way, we are

in an excellent position to continue to help our producers succeed.

Q: What advice do you have for financial professionals to help them thrive through this uncertain period leading up to the April 2017 applicability date of the rule?

The best advice we can offer is to be patient while the industry and financial institutions figure out what is required to comply with the rule.

At this time there are at least five lawsuits filed looking to overturn or alter the new rule. We are supportive of these efforts, and while we hope for a positive outcome, we will continue to make preparations to comply. If those lawsuits fail and the rule is implemented, there will obviously be a number of changes to the way most of us do business.

We advise producers to evaluate their relationships over the coming months and make sure to align themselves with the right organization that has a well-thoughtout model to support their sales and move forward regardless of the eventual outcome. We are here to be that resource for financial professionals. We believe those financial professionals who take the time to understand the rule and do things right will be the most successful long term. In the meantime, our advice is to continue to serve your clients’ needs. •

Commit yourself to growing an ever-successful business as you continue to serve your clients!

Download Ann Arbor Annuity Exchange’s “Commitment to Success” gift bundle, which includes: • Successful Selling: Multi-Generational Wealth… or Health? a white paper outlining a unique way to add value for your clients • Partner for Success™ Guide, featuring 7 ways to “Sell Smarter” • IGNITE! 2016 Marketing Guide, featuring 3 great ideas for lead generation

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August 2016 2016 »» InsuranceNewsNet InsuranceNewsNet Magazine Magazine August

35 35

LIFEWIRES

Nassau Re Purchases The Phoenix Cos. It started out in 1851 as the American Temperance Life Insurance Co., founded by civic, religious and business leaders in Hartford, Conn. Now known as The Phoenix Cos., the former mutual insurer has a new owner, Nassau Re. Phoenix will continue to be headquartered in Hartford, with another office for the life insurance Nassau Re will be the new captain of The division in East Greenbush, N.Y. The company has Phoenix’s “boat” building in Hartford. about 650 employees, with 360 in Hartford.

Nassau Re put $100 million of new equity capital into Phoenix, as well as $80 million of reinsurance assets to support PHL Variable Insurance Co. Its new owner said the cash infusion should accelerate the company’s turnaround.

Nassau Reinsurance was launched in New York City last year to invest in life, annuity and long-term care insurance.

The Phoenix’s CEO, James Wehr, retired July 1, and will be replaced by Phillip Gass, Nassau Re’s CEO.

25%

of underwriters predict a pandemic of a currently unknown disease

LIFE INSURERS ENVISION MORE PANDEMICS IN FUTURE

Influenza! Ebola virus! Zika virus! SARS! These potential pandemics are enough to give anyone nightmares. Life insurers are placing their bets on how frequently and how severe these diseases will strike the population over the next several years.

Nearly three-fourths (70 percent) of life insurance underwriters expect the number and severity of epidemics and pandemics to increase over the next five to 10 years, according to a recent survey by Munich Re US Life.

Among the over 100 underwriters surveyed, 46 percent believe influenza (such as bird flu or swine flu) is the potential pandemic disease that carries the most risk for the insured population, followed DID YOU

KNOW

?

36

by a currently unknown disease (25 percent), Zika virus (14 percent), Ebola virus (8 percent) and SARS (7 percent).

When asked how recent epidemics such as Ebola virus and Zika virus have affected consumer behavior regarding life insurance purchases, nearly two-thirds (64 percent) of respondents felt they have had no impact, while 34 percent believe there are now more consumers seeking coverage.

MORE SAY ‘NO THANKS’ TO LUMP-SUM BENEFIT

More young consumers are saying, “Show us the money!”

— but in monthly payments.

An increasing number of the under-40 age group would sooner take their life insurance benefits as monthly income payments instead of a lump sum, according to LIMRA. In a study on life insurance product designs, four in 10 consumers under age 40 prefer a monthly income benefit, while approximately 30 percent favor a lumpsum payment.

The 2016 Insurance Barometer found

Three in 10 Americans say they would likely share data from activity trackers (Fitbit, Jawbone, etc.) with a life insurance company. Source: LIMRA

InsuranceNewsNet Magazine » August 2016

QUOTABLE

Product design innovations may eventually help the industry grow in markets that have proved difficult in the past.

— Scott Kallenbach, research director, LIMRA Strategic Research

61 percent of all consumers own life insurance to replace lost income, and 44 percent said they own life insurance to supplement retirement income. These percentages increase among millennials and Generation X consumers.

NEW PRODUCT NEWS

Life carriers are offering new features to spice up their existing product lines. Here are a few examples of the newest products to hit the market.

Guardian Life, seeking to inject more flexibility into whole life, has launched a new rider to make the products more affordable. In addition, policy loan options will give policyholders more borrowing flexibility. The rider and the loan options are available on policy forms L-95, L-99 and L-121.

Lifetime Protection Builder rider offers decreasing term coverage for a 15-year period. On the five-, 10- and 15-year anniversary of the policy, term coverage drops by onethird in exchange for the opportunity to buy the same amount of death benefit coverage in a new whole life policy with no additional underwriting.

AXA Equitable and MONY Life have refined the long-term care rider on their single life permanent products.

The client must qualify separately for the rider, and a client may qualify for the insurance but not the rider. The rider also has restrictions and limitations. Life insurance with the long-term care rider will provide one pool of money available for their benefit.

GROW YOUR SALES WITH SECURIAN’S LIFE SALES STRATEGIES FOR: BUSINESS OWNERS Take BOLD action to identify business owners’ needs, create strategies and implement solutions.

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HIGH NET WORTH CLIENTS Make your clients’ estate plans EPIC by helping them maximize their assets for retirement and at death.

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MILLENNIALS AND UP Give your sales a LIFT and show clients why permanent life insurance should be part of their financial strategy.

LEARN MORE: securian.com/LIFT

For more information about these complimentary marketing campaigns and other resources, visit securian.com/LifeHub or call 1-877-696-6654.

hij abc INSURANCE | INVESTMENTS | RETIREMENT

Please keep in mind that the primary reason to purchase a life insurance product is the death benefit. Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods.

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

400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2016 Securian Financial Group, Inc. All rights reserved.

F82624-30A 4-2016 DOFU 4-2016 43721

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

August 2016 » InsuranceNewsNet Magazine

37

LIFE

Freedom From Estate Taxes Without Loss of Asset Control ealthy individuals who hate W to lose control of their assets might change their minds if they knew of a way to have estate tax freedom combined with flexibility.

By Russell E. Towers

T

he popularity of the irrevocable life insurance trust (ILIT) is well-documented. Billions of dollars have been gifted by estate owners to single life and survivorship life irrevocable trusts to help heirs pay federal estate taxes.

However, when estate owners realize an irrevocable trust cannot be changed, they sometimes decide to “think about it.” Or when estate owners realize they don’t own the cash value of the policy and have no access to it for lifetime financial needs, they feel a loss of control.

These wealthy individuals who hate to lose control of their assets might change their minds if they knew of another way.

38

They want to find a way to have estate tax freedom for irrevocable trust benefits, business management flexibility to modify or terminate the plan at any time, and management control of policy and asset values.

Fortunately, such a legal concept does exist. It’s called a Family Limited Partnership (FLP) and follows the Uniform Limited Partnership Act. This concept links the legal, tax and financial advantages of FLPs and life insurance as an alternative estate transfer plan compared with irrevocable trusts funded with insurance.

Under the Uniform Limited Partnership Act, there must be two classes of partners: the general partner and the limited partner. The general partner has complete authority concerning the partnership’s operation and investments.

The limited partners have no voice in management (control) of the partnership assets. They do have liquidation priority over general partners upon dissolution of the business and are not personally li-

InsuranceNewsNet Magazine » August 2016

able for partnership debts. Their liability is limited to their investment of capital in the partnership.

The FLP is a partnership composed of parents (often as 2 percent general partners) and children (often as 98 percent limited partners). Children usually receive their capital contribution to the partnership via lifetime exemption and/ or annual exclusion gifts from their parents. The objective is to shift as much asset and “leveraged” financial growth as possible to the limited partners.

In doing so, this moves assets away from the 40 percent federal estate tax bracket of the general partners without the general partners giving up management control of the capital assets contributed. The usual assets that may be transferred to a family limited partnership are rental real estate, shares of a limited liability corporation (LLC) and the stock of a closely held C-corporation.

S-corporation shares and professional corporation shares are not permitted.

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855-277-2090, ext. 8120 August 2016 » InsuranceNewsNet Magazine

39

LIFE FREEDOM FROM ESTATE TAXES WITHOUT LOSS OF CONTROL

BEFORE

AFTER

Initial Capital Structure of FLP

Capital Structure of FLP After Discounted Split Gifts of LP Shares

Partner

Interest Capital Value

General partner (Mr. A)

1%

$160,000

General partner (Mrs. A)

1%

$160,000

Limited partner (Mr. A)

49%

$7,840,000

Limited partner (Mrs. A)

49%

$7,840,000

100% $16,000,000

(fair market value)

Family Limited Partnership

Legal formation. A basic requirement is that the partnership be a legal partnership and follow the guidelines of the Uniform Limited Partnership Act. A Certificate of Limited Partnership is filed with the Secretary of State where the partnership is located, and names of partners become public record. Assets are transferred to the FLP, which issues general and limited partnership interests. The partnership assets are owned by the partners as tenants in common, meaning each partnership interest is subject to probate at death.

Probate may be avoided, if desired, by creating a revocable living trust to hold title to each partner’s share.

In a typical family situation, one or both parents will receive a general partnership interest and, in most cases, a limited partnership interest. The parents then gift the limited partner shares to the children all at once or over a period of time. Sometimes the parents may have a C-corporation own their general partner shares in order to limit their liability.

When the parents transfer limited partner shares to the children, there are gift tax considerations and a Form 709 U.S. Gift Tax Return must be filed.

Partners are taxed on their share of partnership profits, even if the profits are not distributed but reinvested in the partnership. Each partner’s "capital account" is important to understanding the concept. The "basis" in the partnership is accounted for each year on the Form 1065 Partnership Information return and the 40

Partner General partner (Mr. A) General partner (Mrs. A) Limited partner (Child) Limited partner (Child)

K-1 returns for each individual partner according to ownership percentage. Annual pass-through K-1 partnership income will be reported on the Schedule E of each partner’s personal Form 1040 U.S. income tax return.

Partners may receive deductible compensation income for services rendered to the partnership. This taxable compensation income typically is allocated to the general partner parents before partnership profits are allocated to all partners. This sense of control of the income stream should soothe any fears of loss of control by the general partner parents.

The death of all general partners dissolves the limited partnership unless continuity is provided in the partnership agreement. The partnership agreement should provide that the continuation right automatically accrues to a surviving general partner’s spouse. This is especially important if survivorship life insurance is a partnership asset to be used to help pay second-death estate taxes. The FLP then could be dissolved at the death of the surviving parent.

Here’s a hypothetical formation of an FLP to give you an idea of how asset values are transferred for gift tax purposes.

A valuation discount of 30.48 percent for a gift of the limited partner shares will be assumed in this example. Valuation discounts for lack of marketability and minority ownership interests offer an important incentive to form an FLP. Assume a fair market value appraisal of rental real estate is $16 million. What does the FLP

InsuranceNewsNet Magazine » August 2016

Interest 1% 1% 49%

Capital Value $160,000 $160,000 $7,840,000

49%

$7,840,000

(discounted to $5,450,000 gift value) (discounted to $5,450,000 gift value)

100.0% $16,000,000 look like before and after discounted gifting of capital (limited partner shares) to the children or trusts for their benefit?

Clearly, the picture begins to emerge.

The parents have made a discounted splitgift lifetime gift exemption transfer of $10.9 million of limited partner shares to their adult children or irrevocable trusts for their benefit. And $800,000 of net rental K-1 income can be distributed to the partners personally, accumulated in the partnership or used by the partnership to purchase survivorship life insurance on the lives of the general partner parents. The FLP will be applicant, owner and beneficiary of the policy. The general partners (parents) have full legal authority to either distribute or accumulate net rental income and purchase the insurance on their lives. As general partners, the parents could distribute any policy cash values by loans or withdrawals as taxable compensation to themselves for management services provided to the FLP. Valuation Discounts. The FLP is an estate planning tool that allows a general partner who also owns limited partner interests to gift those limited partner interests away yet still retain management control. The control a general partner retains over the FLP will not cause estate tax inclusion of the limited partner interests.

In addition, the gift is valued after taking into account the lack of marketability discount and minority interest discount. Any appreciation of value accrues to the limited partner child.

The use of these discounts allows the

August 2016 Âť InsuranceNewsNet Magazine

41

LIFE FREEDOM FROM ESTATE TAXES WITHOUT LOSS OF CONTROL

Partnership K-1 Income Flow Cash Flow From FLP — Net Rental K-1 Income After Business Expenses

Partner General partner (Mr. A) General partner (Mrs. A) Limited partner (Child) Limited partner (Child) Assume 5% Net K-1 Income On $16,000,000 Fair Market Value

parents to gift more than they would otherwise be entitled to gift.

Minority discounts are specifically allowed in valuing both corporate and partnership interests. There should not be different rules used to value minority interest in closely held partnerships and closely held corporations.

From a practical point of view, a 30 percent discount for lack of marketability and minority interest seems safe for an FLP. A fair market value appraisal of the property transferred is still required.

This would allow usage of the lifetime gift exemption and no lifetime gift taxes. In the example above, this discounted gift removes $4,780,000 of value from the parents’ estate and, in a 40 percent federal estate tax bracket, saves a potential $1,912,000 of federal estate taxes. All future appreciation on these limited partner shares also is removed from the parent’s gross estate.

Creditor protection of FLP. Generally, a judgment creditor cannot directly attach FLP assets. The FLP’s assets are the assets of the partnership — not the partners. A creditor may reach only the debtor/partner interest in the partnership, which is the right to receive a share of the profits and distributions. The creditor cannot obtain any greater rights than the debtor/partner. Since a partner does not have a personal right to assets owned by the partnership, the creditor cannot reach specific partnership assets.

A judgment creditor has the right to apply to the court to obtain a charging or42

Interest Capital Value 1% $8,000 1% $8,000 49% $392,000 49% $392,000 100.0% $800,000

der. A charging order does not allow the creditor to reach the partnership assets or become a partner. It entitles the creditor to receive the debtor/partner’s share of profits and distributions.

Even if a charging order is in effect, the general partner remains in control and can control the flow of income out of the FLP. Also, the general partner may pay legitimate deductible salaries to decrease the partnership net income. The FLP may retain and reinvest current profits. This will prevent the creditor from receiving current funds. The creditor receives funds only if there are distributions, and a creditor cannot demand partnership distributions. Thus, the creditor’s charging order may not be totally satisfied until the partnership is dissolved and all partner shares distributed.

Comparison of FLP and ILIT. Both the FLP and ILIT are excellent estate planning concepts to transfer estates with the smallest possible shrinkage. The ILIT may not be altered, amended or changed. The FLP is amendable by the partners.

Using the ILIT requires an insured estate owner to relinquish virtually all control over the policies and trust assets. Using the FLP, the general partner insureds have management control over all partnership assets, including life insurance policies. The value at which partnership assets, including insurance death proceeds, are included in their gross estate depends upon the partnership ownership interest. The partners can possess a small percentage and still

InsuranceNewsNet Magazine » August 2016

serve as the managing general partners.

Thus, the insured general partners retain some measure of control without having the entire death proceeds included in the taxable estate.

The ILIT may be created to hold only life insurance policies, with premiums gifted to the trust by the grantor and spouse. The ILIT may also manage assets that have been transferred to the trust.

The FLP must manage assets to qualify as a legitimate partnership and may own insurance as one of those assets. Of critical importance is the absolute requirement that any insurance owned by and payable to the FLP be free of federal estate taxes except to the extent of the general partners' percentage ownership interest in the FLP. If ownership of insurance by an FLP presents a problem to the client or legal advisor, then partnership income distributions can be made directly to the limited partner children. The children may purchase insurance directly on their parents’ lives, with the children as equal owners and equal beneficiaries. This arrangement will provide estate tax-free insurance proceeds to the children to help pay estate taxes.

Russell E. Towers, JD, CLU, ChFC, is vice president of business and estate planning with Brokers’ Service Marketing Group. He may be contacted at russ.towers@ innfeedback.com.

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(800) 345-8816 F www.piu.org F piu@piu.org August 2016 » InsuranceNewsNet Magazine

43

ANNUITYWIRES

Athene Going Public, Eyes Expansion One of the nation’s top sellers of fixed annuities is looking at doing some serious expansion in the retirement services marketplace.

Athene Holding filed for an initial public offering. The date and a price for the IPO have not been announced, but the size of the offering is estimated to be as much as $1 billion, according to Renaissance Capital’s IPO Center.

The company, which sells annuities in the U.S. through Athene USA, has climbed annuity league tables steadily since its founding in 2009.

In the first quarter, the company sold $663.4 million worth of fixed annuities, the bulk of which were fixed indexed annuities (FIA), according to LIMRA Secure Retirement Institute. Athene Annuity & Life Assurance was the No. 8 seller of FIAs in the first quarter.

The past five years have been busy ones for Athene Holding as the company has bought, on average, one company a year. These acquisitions fueled Athene's growth from startup to a company with $79.4 billion in assets at the end of last year.

ANNUITY CARRIERS IMPROVE THE AGENT PORTAL EXPERIENCE

The agent portal is like the online “front door” of an annuity carrier. Now more carriers are giving their portals more curb appeal by improving the agent experience.

That’s the word from Novarica, which found that a poor or mediocre internet experience can give agents reasons to drop an annuity company’s products.

Annuity carriers are gradually upgrading their systems in an effort to boost sales. For example, Great American Insurance refreshed its agent portal and deployed an electronic application system for annuities within the past 12 months. As a result, new annuity business processing time at Great American improved by 75 percent.

Fidelity & Guaranty Life implemented a new online platform in less than four months. The premium target of $300 million was reached in less than three weeks, Novarica reported.

DID YOU

KNOW

?

44

QUOTABLE

Improved There are 11longevity companies is,offering at once, (qualifying QLAC among thelongevity most remarkable annuity contract) products. achievements in allWhile of human this is a small and history andnew onepart of our of the greatest DIA market, we expect to see an uptick challenges. in sales in 2016.

— Laura Carstensen, founding director of the Stanford University Center on Longevity

CRAVING THAT LIFETIME INCOME

GREAT-WEST, STANFORD PARTNER ON LONGEVITY

It’s the question that’s at the core of retirement income planning: How long will my client live? Great-West is partnering with Stanford University to answer that question.

One of the goals of the Great WestStanford partnership is to help agents think beyond the traditional financial nuts and bolts of longevity — securing guaranteed income using annuities or retirement strategies, said Stephen Jenks, chief marketing officer for GreatWest.

With thousands of baby boomers retiring every day, more agents and brokers are in the midst of a transition from financial advisors to “longevity advisors,” Jenks said.

Another goal is for Great-West researchers at the company’s Empower Institute to collaborate closely with Stanford University academics. More than 140 Stanford faculty members are affiliated with the university’s Center for Longevity.

was named the fixed index annuity leader for 45% of workers worry they won’t meet their retirement consecutive quarters, basedSource: on sales.

Prudential goals through their25current workplace plans.

InsuranceNewsNet Magazine » August 2016

More than three-quarters of Americans who are familiar with guaranteed lifetime income options are hoping their defined contribution plans will provide the same level of retirement income protection once afforded by pension plans. These consumers say they would likely choose those guaranteed lifetime income options — if their plans offered them.

That’s the word from a Prudential Retirement study. But many of those retirement plan participants will have to wait. About 35,500 DC plans so far offer guaranteed lifetime income solutions — often paired with autoenrollment. But that figure represents only 4 percent of plans, because many plan sponsors have assumed there would be very little interest from employees.

Prudential found that 78 percent of plan participants who said they were familiar with guaranteed lifetime income options believe it’s “very important” to include them in workplace savings plans. And 77 percent said they would choose such an option.

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The 10 Selling Roadblocks to Watch For Be sure to address all the Roadblocks first, as early in the conversation and meeting process as you can.

Successfully remove the Roadblocks and the road to the sale will be clear—no old-school closing techniques are needed.

1

Client has no emotional motivation to change. Clients are driven to buy by their emotions.

Without significant negative emotion, called Breakthrough Emotion, no sale can be made.

2

Client won’t leave current advisor, or themself. Bring up the fact that your client will have to leave their current advisor in the first meeting. Otherwise, after all your planning work is done they may realize they are more attached than they thought.

3

Client doesn’t give a clear “Yes” or “No.” Make sure to get an Upfront Agreement regarding your process and how decisions are made. Make sure they know you won’t accept a “Think about it,” and only will accept a “Yes,” “No,” or “Next Meeting.”

4

Client doesn’t see you as being different or unique. You must be able to complete this statement “Working with me will be different from any experience you’ve ever had working with any other financial professional because …” and ensure your clients know why.

5

Client wants something that is unrealistic or unobtainable. Have your clients articulate their irrational thinking and how they got there. Continue to address this Roadblock in the first meeting and throughout subsequent meetings anytime it appears.

6

Client wants to take control of the meeting process. It’s important to make the client feel like they are in control, it makes them feel safe. At the same time, however, you must ensure you maintain control of the entire meeting process and don’t let your client veer you off course.

7

Client is overly focused on details instead of concept. Details, especially in the first meeting, are distracting and will throw your entire meeting off course. Remember, the sale is essentially made in the Concept Box so stay here until that occurs.

8

Client has inaccurate or biased information. Your clients are getting information from all over the place. Your job is to help sort through that information with them and teach them what is accurate. Provide transparent information with both pros and cons.

9

Client has a fear of being burned due to past experience. Question your clients on if they’ve ever been burned in the past right in the first meeting so that experience isn’t stuck in the back of their minds the whole time they are with you.

10

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August 2016 » InsuranceNewsNet Magazine

45

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MILLI

ANNUITY

How Creative Destruction Shapes the Fixed Annuity Market S ome wins and losses in the annuity space prove the theory of a famous economist back in 1942.

By Charlie Gipple

I

(VA) product line has struggled. Meanwhile, all four segments of the fixed annuity space — indexed annuities, fixed annuities, single premium immediate annuities (SPIAs) and deferred income annuities (DIAs) — have excelled. I do love and personally sell VAs and predict that eventually they should recover.

However, the numbers are very telling.

love economics! As I think of what the annuity business is going through, I think of the economic term “creative destruction” that the great Austrian econoJoseph Schumpeter mist Joseph Schumpeter coined the phrase introduced in 1942. Since “creative destruction” then, this term has been in economics in 1942 adopted by economic and it has since been practitioners from high adopted in everyday school economics teachteaching. ers to Federal Reserve chairs such as Alan Greenspan.

Creative destruction is the notion that in the process of evolution, free markets can be somewhat messy in making progress. Although the world is a better place because of evolution, progress and upgrades, the process can be quite a disruptor for those who are on the wrong side of creative destruction.

For example, the horse and buggy were creatively destroyed by the invention of the automobile. The bow 1Q 2016: The Numbers and arrow were creatively destroyed by Total annuity sales in first-quarter 2016 the firearm. Although these impacts of were $58.9 billion, which was up 9 percent innovation may be negative to obsolete compared with first-quarter 2015, accordproducts, is there anybody on earth who ing to LIMRA. This was on the heels of a believes that purging the antiquated to flat sales year in 2015, with $236.7 billion make way for the innovative is negative? in total annuity sales.

Probably not.

Variable annuity sales for first-quarter As I look at the latest trends in the an- 2016 were $25.6 billion, which was down nuity space, the term “creative destruc- 18 percent compared with first-quarter tion” certainly comes to mind. There 2015. This was the lowest sales level have been wins as well as losses in the seen in 15 years. This decline was very past four years. The variable annuity broad with 19 of the top 20 VA carriers 46

InsuranceNewsNet Magazine » August 2016

reporting declines. This comes on the heels of 2015, when variable annuity sales had decreased by 5 percent — marking the fourth consecutive year of contraction. This is the first such four-year drop in the 40 years that LIMRA has been tracking variable annuity sales. VAs now represent only 44 percent of total annuity sales, the lowest percentage seen in more than 20 years.

What is causing this creative destruction in the variable annuity world? The No. 1 instigator was the 2008 financial crisis. During the financial crisis, many manufacturers realized that the “arms race” of guaranteed lifetime benefits (GLBs) had led them into trouble and it was too costly for them to continue offering those living benefits.

This led many VA carriers to exit the VA business. For those that continued, they either eliminated products, “derisked” their GLBs or did both. Carriers’ derisking of the GLBs had a significant impact on election rates and, of course, sales.

For example, at the GLB peak, those benefits were being elected on around 90 percent of variable annuities sold. Then, from 2011 to 2014, the number of variable annuities sold with GLBs had decreased by 28 percent.

Over that same time period, sales of variable annuities without GLBs increased by 66 percent.

Again, with creative destruction there are losers as well as winners. Within the confines of the VA world, the winners of this process have been the new VA innovations introduced by the carriers over

HOW CREATIVE DESTRUCTION SHAPES THE FIXED ANNUITY MARKET ANNUITY

Annuity Industry Estimates (Dollars in billions) Q1 2015

Q1 2016

% Change

VARIABLE ANNUITIES Separate accounts

25.7

20.1

-22%

Fixed accounts

6.7

6.5

-3%

Total Variable

$32.4

$26.6

-18%

FIXED ANNUITIES Fixed-rate deferred

6.3

12.0

90%

Book value

4.3

6.7

56%

Market value adjusted

2.0

5.3

165%

Indexed

11.6

15.7

35%

Fixed deferred

17.9

27.7

55%

Deferred income

0.57

0.73

29%

Fixed immediate

2.0

2.5

25%

Structured settlements

1.4

1.4

0%

21.9

32.3

48%

$54.3

$58.9

9%

Total Fixed TOTAL

Industry estimates reported for the first-quarter 2016 based upon data from 64 companies, representing 96 percent of total sales.

Source: LIMRA Secure Retirement Institute, U.S. Individual Annuity Sales Survey (2016, first quarter)

the past few years. Those recent VA innovations come in three broad flavors: investment-only VAs (IOVAs); VA + deferred annuity (VADAs); and structured product VAs (SPVAs), also known as buffered VAs.

FIAs Maintaining Strong GLWB Features

Fixed indexed annuities certainly have been a benefactor of the creative destruction experienced by their big brother, the variable annuity. FIA sales were $15.7 billion in first quarter 2016, which was up by 35 percent over first quarter 2015.

This is on top of a 2015 FIA production increase to a record-breaking $54.5 billion, a 13 percent increase from the previous year. FIAs have been able to maintain very strong guaranteed lifetime withdrawal benefit (GLWB) features that are more easily hedged within the design of an FIA product than within a VA product.

These benefits that once defined the

VA world are now defining the FIA world, as around 60 percent of FIAs sold have a GLWB rider attached. GLWB development on FIAs has been moving at a rapid pace. Furthermore, crediting strategy evolution has been taking off as the manufacturers continue to introduce “uncapped strategies” at a breakneck pace.

In the 21 years (since 1995) that indexed annuities have existed, this product line has seen its share of creative destruction as well. They have evolved from being complex, high-commission and highsurrender-charge products.

For example, the average commission on an FIA 10 years ago (in first quarter 2006) was 8.3 percent. Today, that commission has dropped to 5.4 percent.

Furthermore, in first quarter 2006, more than 60 percent of FIAs sold had surrender periods longer than 10 years. Today, fewer than 20 percent of FIA products sold have surrender periods greater than 10 years.

FIAs have not been the only benefactors

of the VA business’s contraction. The entire fixed annuity business has seen growth as a result. In first quarter 2016, fixed-rate annuities — multiyear guaranteed annuities (MYGAs) and book value annuities — increased by 90 percent over first quarter 2015.

As banks continue to pay very low interest rates, these products will continue to grow because it is all about relativity.

For example, the average five-year certificate of deposit is paying 0.83 percent at the time of this writing, according to Bankrate.com. Can a five-year MYGA triple what clients have available in CDs? Yes, it is very probable, and without the Form 1099 coming on top of it!

The new kids on the block, deferred income annuities, reached $729 million in first-quarter 2016 sales, which was an increase of 29 percent over first quarter 2015. This product line will continue to proliferate as companies build more and more of these products and leverage the required minimum distribution delaying technique these products offer.

As far as the future of FIA goes, the new source of potential creative destruction is the Department of Labor’s (DOL’s) fiduciary rule that takes effect in April 2017.

As we know, the DOL is mandating that FIAs fall under the Best Interest Contract Exemption in order for the agent to get paid commission.

This rule will affect a good amount of FIA business because the new regulation focuses on qualified money. Considering that 60 to 65 percent of FIA sales are “qualified sales,” the DOL rule could have a significant impact on FIAs. Time will tell how significant that impact will be. I tend to be optimistic because I believe in my heart that these products are so good, their popularity cannot be stymied.

Clearly, it has been a great year so far in the fixed annuity/FIA business. Despite the significant storms coming in with the DOL rule, I believe the annuity will be able to put more emphasis on the creative and less on the destruction.

Charlie Gipple, CLU, ChFC, is senior vice president of sales and marketing with Partners Advantage Insurance Services. Charlie may be contacted at charlie. gipple@innfeedback.com.

August 2016 » InsuranceNewsNet Magazine

47

ANNUITY

RMD Expertise Can Save Your Clients From Painful Tax Bite R equired minimum distributions from income annuities could yield a nasty surprise from the taxman. Here’s how you can avert any potential pain.

By David P. Vick and Abigail Vick

W

e received the following email from an advisor who might be asking the same questions most advisors ask about required minimum distributions from annuities and income riders.

I am wondering if you can point me to a publication that can help me understand how the RMDs from income annuities are seen by the IRS. I recently became aware that the payment of an individual retirement account turned into an annuitized contract is able to cover only the RMDs of that 48

specific account. This means that if you have $100,000 annuitized and a 7 percent payout, it covers only the RMDs for that account, leaving the other IRA accounts subject to full RMD withdrawals. Even if the payment for the annuitized contract is equal to the RMD need for all accounts, it can only account for itself. Is that also true of guaranteed minimum withdrawal benefits, as they are technically not annuitized contracts?

I also became aware that if you have a 401(k), a 403(b), an IRA and a profit-sharing account, you will need to take the RMD from each of them. Only like to like can satisfy the RMD requirement. If you had four IRAs, one of those accounts would be able to satisfy the requirements for the others, but not if each is titled differently.

InsuranceNewsNet Magazine » August 2016

We believe this is one of the most confusing areas of retirement planning.

Most advisors are unsure on these particular rules, so let’s take a look and see how the rules apply to annuities and income riders, and how to avoid a nasty 50 percent penalty for your clients.

First, the easy stuff. All accounts that are holding pretax money — usually 401(k)s, 403(b)s, employee stock ownership plans, profit-sharing plans and traditional IRAs — have required minimum distributions. Most of your clients are familiar with this concept, but how to take those distributions is the $64,000 question.

The IRS says you can take distributions out of “like” accounts. Now, we know that I just referred to all these accounts as “similar” because they all hold pretax money, but that’s not actually “like” enough. Each investment vehicle that we just mentioned — 401(k)s, 403(b)s, employee stock ownership plans, profitsharing plans and IRAs — is its own

RMD EXPERTISE CAN SAVE YOUR CLIENTS FROM PAINFUL TAX BITE ANNUITY separate category. So if a client has two IRA accounts, they may combine their two RMD amounts and withdraw that amount from a single account. But they cannot combine the RMD amounts from their IRAs with their 401(k) RMD amount and take all three RMD amounts out of one account.

For example, Mr. Smith, who is 72, has two traditional IRAs, each worth $200,000. You advise him to purchase an annuity in Account A in 2016. Account B is fully invested in stocks and bonds. For 2016, he has RMDs for Accounts A and B, each $12,903. Since Account A’s annuity contract doesn’t start distributing

Becoming an RMD expert can save your clients thousands of dollars in unnecessary tax payments. Don’t let improper minimum distribution management happen to your clients.

The other nice feature about taking IRA distributions is that you do not need to divest your assets to qualify as having taken your RMD. For example, if your client has their portfolio distributed as they like it and has no intention of selling their stocks or bonds, they simply can move the market value that they need from their IRA into an individual or joint brokerage account. This action will qualify for your client’s RMD as long as the market value of the assets is the same amount (or more) as the client’s RMD amount for their IRAs. This means no reallocation of funds for you or your client. Instead, their portfolio can remain balanced, and can be sold or adjusted at a later date as necessary.

What if your client’s situation is a little more complicated and they now have an annuity in their IRA? Having an annuity definitely changes the circumstances.

Let’s start with the purchase. Let’s say you have a client who is over the age of 70½, they need to take an RMD from an IRA and it’s in their best interest to purchase an annuity with that account.

The initial purchase of the annuity will not count as that year’s distribution. So a distribution still must take place for that IRA. Now if the client has another IRA, you can combine the distribution from both accounts and take the full amount from the second account.

income until 2017, Mr. Smith must take both RMD amounts from Account B for 2016. He decides to transfer $25,806 out of Account B to satisfy his RMDs for Accounts A and B. If your client has not started to receive income from their annuity but is over the age of 70½, their RMD still will be calculated by the annuity’s fair market value. The FMV is the cash account value. However, if the client has additional features on their annuity that add value, such as a death benefit or income rider, it could be included in the calculation of the FMV and increase the amount of the RMD that must be taken. The Internal Revenue Code describes additional benefits as being calculated at their present value. These benefits could be included in the annuity’s FMV if the additional benefits themselves are 120 percent of the cash account value.

An example to illustrate this completely would be quite lengthy, so let’s say that the insurance company holding the contract most likely will be mailing the client the FMV amount. If it’s not proactively mailed, call the insurance company and ask for help calculating it.

It’s a complex calculation, and any miscalculation could cost your client some of their hard-earned money. But you should know that, depending on the additional benefit, it could increase your

client’s FMV, which will increase their RMD until they turn on their income or annuitize the contract. After the client starts receiving income, the RMD calculation is no longer necessary.

After the annuity starts to produce income — whether through annuitization or an income rider — the IRA becomes a defined benefit plan instead of a defined contribution plan. So the IRA account is no longer “like” the client’s other IRA accounts that are still contribution plans.

This annuity, from which the client is receiving income, now is under a separate section in the Internal Revenue Code that discusses how distributions from defined benefit plans must be taken. The client no longer has to worry about taking RMDs from this IRA because it is being taken care of for them through the regularly scheduled income payments.

However, if the client has another IRA, its distribution is considered separately and must be handled separately.

For example, Mr. Clark is age 75 and has two IRAs. Account 1 is an annuity from which he has been receiving annual payments for three years. An RMD is no longer being calculated for this account because it is now a defined benefit account. Account 2 is a bond portfolio and has an RMD of $10,000. All of the $10,000 RMD for Account 2 must be withdrawn only from Account 2. Account 1 cannot cover any of the RMD amount for Account 2.

By becoming an RMD expert, you can save your clients thousands of dollars in unnecessary tax payments. Don’t let improper minimum distribution management happen to your clients. Be proactive in saving them the pain of a 50 percent penalty!

David P. Vick is the founder and president of Vick & Associates, a financial marketing organization in Scottsdale, Ariz. He may be contacted at david. v i c k @ i n n fe e d b a c k .co m .

Abigail Vick is a securitieslicensed financial professional with experience as an active trader in the broker/ dealer sphere. She recently transitioned to holistic financial planning. She may be contacted at abigail.vick@innfeedback.com.

August 2016 » InsuranceNewsNet Magazine

49

HEALTH/BENEFITSWIRES

QUOTABLE

A Last-Ditch Effort to Woo Reluctant Young Adults The feds are persuading more young people to jump into the pool — the risk pool, that is.

Younger adults are overrepresented among Americans who’ve been fined for lacking health insurance, so federal health officials along with the IRS are doing some arm-twisting to get more of the under-35 demographic to buy health insurance.

People under the age of 35 accounted for 30 percent of all taxpayers during 2014. But this age group made up 45 percent of filers who either paid a penalty or claimed an exemption from the coverage requirement in the Affordable Care Act. As part of its outreach, the Centers for Medicare and Medicaid Services said they will use more email messages during this fall's open enrollment period to reach younger adults. Young adults are almost twice as likely as older consumers to enroll because they receive an email message about exchange coverage, said Joshua Peck, chief marketing officer for CMS.

HEALTH CARE COSTS EATING AWAY SOCIAL SECURITY BENEFITS

They would if they could. That’s the sentiment from many recent retirees, who wish they could have begun claiming Social Security at a later age. The reason? High health care costs are eroding their Social Security benefits.

The third annual Nationwide Retirement Institute survey found that about one in four recent retirees (23 percent) would change when they started drawing Social Security to a later age. Of those recent retirees who wouldn’t change, 39 percent say a life event compelled them to start drawing when they did.

More than a third of current retirees (37 percent) said health problems keep them from living the retirement they expected — and 80 percent of recent retirees said those health problems came earlier than expected. Health care expenses specifically keep one in four current retirees from living the retirement they expected.

“The average American claiming at 62 will spend about 61 percent of their monthly Social Security benefits on health DID YOU

KNOW

?

50

care costs,” said Dave Giertz, president of sales and distribution for Nationwide.

SHORT-TERM INSURANCE UNDER FIRE

A growing number of Americans have been buying short-term insurance plans in response to the ACA’s requirements to have health coverage. But the Obama administration wants to set some limits on that trend.

The U.S. Department of Health and Human Services proposed limiting short-term health policies to a term of three months. Currently, short-term policies can be issued for a term of up to one year.

In addition to setting time limits on short-term policies, HHS ruled that coverage cannot be renewed at the end of the three-month period. The proposed rule also improves transparency for consumers by requiring issuers to provide

The employee benefit broker channel saw the largest market share gain in 2015, accounting for 60 percent of all voluntary sales.

Source: Eastbridge Northwestern Consulting Mutual

InsuranceNewsNet Magazine » August 2016

Source: Business Wire

No amount of repair or polish can change the fact that this Cadillac is a clunker.

— Janet Trautwein, National Association of Health Underwriters CEO, on the so-called "Cadillac tax” on high-cost health plans

notice to consumers that the coverage is not minimum essential coverage, does not satisfy the health coverage requirement of the ACA, and will not prevent the consumer from owing a tax penalty.

RISING PREMIUMS RATTLE SELF-PAYING CONSUMERS

Millions of Americans who pay the full cost of their health insurance will receive some unwelcome news in the mail this fall, when it comes time for renewal notices.

Premiums are expected to climb next year in many areas because major insurers have taken significant financial losses under the ACA. Enrollment has been lower than anticipated, new customers were sicker than expected and a government system to stabilize the markets had problems.

“People receiving subsidies can protect themselves from premium increases, but others who buy their own coverage don't have that option,” said Larry Levitt, who tracks the health law for the Kaiser Family Foundation. He estimated 5 million to 7 million consumers nationally may be paying full freight.

The ACA provides incomebased subsidies for consumers who buy individual policies on HealthCare.gov and state insurance markets. About 10 million people get assistance, helping reduce the uninsured rate to a historically low 9 percent.

But there's no subsidy for those making more than $47,520 for an individual and $97,200 for a family of four — cutoffs that represent four times the federal poverty level. Also, subsidies are not available for consumers at any income level who purchase outside of HealthCare.gov or a state marketplace.

Everyone has a moment when tomorrow becomes real.

Voluntary benefits from Transamerica can help protect your clients’ employee investment. For over a century, Transamerica has helped employers provide a secure tomorrow for employees through a broad product portfolio.

Visit TransamericaBenefits.com, or call (866) 872-6726 for more information.

Products underwritten by Transamerica Life Insurance Company, Cedar Rapids, Iowa.

CHOGENEB-0216

HEALTH/BENEFITS

HRAs Help Small Businesses Preserve Benefits, Save Money Here is how to set up a strategy that can be used as a funding mechanism to improve a standard health reimbursement arrangement.

By Kent B. Utsey

H

ealth insurance agents face numerous challenges. The Affordable Care Act (ACA) and an evolving legislative landscape have added complexities to the industry.

At the same time, insurers are reducing or completely eliminating commissions, while digital health care companies are attempting to lure small-business owners and individuals away from using agents.

But new opportunities exist, and the insurance agents who capitalize on them stand to benefit significantly. Perhaps the biggest untapped market is small businesses — specifically those with fewer than 50 employees.

Although the ACA does not require them to provide benefits, these companies are struggling to attract and retain talent.

According to the career resource website Glassdoor, when it comes to recruiting talent, nearly three in five workers (57 percent) report benefits and perks among their top considerations in an employer.

Some small-business owners may think they can “go it alone” and circumvent using an agent, but there are risks to this approach.

Insurance agents offer small businesses many advantages, including knowledge of different health plan choices, the ability to navigate the enrollment process, insight into compliance and regulatory issues, and assistance with claims and plan changes.

But even these advantages may not be enough to convince small-business owners with tight budgets to use an insurance agent. However, agents who go beyond offering traditional PPOs and HMOs to bring clients the latest and most innovative strategies stand a better chance of convincing small-business owners to turn to them.

52

Strategic Innovation Brings New Sales Opportunities

Some agents may be familiar with the health reimbursement arrangement (HRA) strategy, which allows the employer to offer a less expensive high-deductible health plan (HDHP). These plans have a lower fixed cost than low-deductible group health policies, and when coupled with an HRA, they minimize the financial burden on employees.

However, there are risks involved with HRAs. One way insurance agents can showcase their expertise is to make sure small-business owners are aware of those risks, and provide solutions for them.

For example, if the HRA is designed poorly or paying too much for first-dollar coverage, or if the group is particularly unhealthy, excess medical claims may exceed any savings won by switching from a low-deductible policy to an HDHP. Contingent liability also may be a problem. If the employer is on the hook for $2,000 to $10,000 of medical expenses for each and every employee, that is a significant financial risk.

Finally, even a well-designed, wellmanaged HRA with no excess usage will have some increase in medical expenses

InsuranceNewsNet Magazine » August 2016

due to medical inflation.

There is a way for employers to put a cap on their contingent liability and structure their HRA to reduce claims costs year over year. Agents can help their clients design and manage intelligent HRAs that stabilize the cost of benefits and avoid the financial risk that could potentially destroy a company’s bottom line. One approach is a health matching reimbursement arrangement (HMRA). It can be used as a funding mechanism to improve a standard HRA. Insurance agents can sell this option to their clients by focusing on the cost savings and reduced risk. Employers can set aside money to protect themselves against medical inflation and claims risk.

Deposits are “matched” by the HMRA provider, using actuarial principles, so financial protection grows very quickly. Once sufficient reserves are built, the money can be used to reduce claims expenses each year in the future.

For small-business clients, an HRAHMRA approach is like putting money in the bank and being able to live off the earnings. The result is significant cost savings for the company, a reduction in claims risk and the ability to go

HRAS HELP SMALL BUSINESSES PRESERVE BENEFITS, SAVE MONEY HEALTH to even higher deductibles with even lower premiums or to consider a partially self-funded plan.

How to Implement This Strategy

Insurance agents with a thorough understanding of how to implement an HRAHMRA strategy will demonstrate their added value to their small-business clients. The following steps lay out the best approach.

[1] Determine the HRA plan design.

A good way to do this is to decide how much the employee maximum out of pocket will be, given the HDHP deductible, because that determines how much of that deductible the HRA plan will pay. Limit it to expenses allowed by the HDHP only, and make sure employees are paying some percentage of the charges every time they go to the doctor, or that they have some other incentive to use the money wisely.

[2] Next, decide what deposit level they want to make to the HMRA accounts to build the assets. This is based

on employer budget and how low or high the employer wants their claims cap to be in subsequent years. It is a per-employee, per-month (PEPM) deposit.

The goal is to build up assets in years one and two. This money can be used during this time if needed, but the objective is to build assets for the long term.

Once those asset levels are achieved, there are no further monthly deposits.

Only minor maintenance fees (and agent commissions) need to be covered.

[3] The employer then decides the amount of their claims cap each year, based on their financial goals, HMRA assets available and benefits budget. This amount can be changed at any time. Once that cap is reached, the HMRA takes over paying the claims.

[4] Setup can be done electronically or online.

[5] Deposits are bundled with regular HRA payments, so it is a single-check solution. HMRA balances are viewable online, and the HRA administrator is

responsible for paying claims out of employer money, or HMRA money once that cap is reached. The employer has no additional administrative burden, and the process is invisible to employees. Claims are submitted and paid the same way, regardless of whether they are paid with employer funds or HMRA money.

The intricacies of today’s health insurance choices leave many small-business owners scratching their heads. Add to it the cost and administrative time commitment, and it is not surprising many either stick with their old policies that are wasting money or decide to opt out altogether.

By making employers aware of new, more cost-effective and risk-adverse choices, agents stand to build their customer base and bottom line.

Kent B. Utsey is the founder and CEO of American Health Resources, a benefits strategy and administration company. Kent may be contacted at kent.utsey@innfeedback.com.

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August 2016 » InsuranceNewsNet Magazine

53

NEWSWIRES

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Financial Anxiety Taking Its Toll America used to be known as the “land of the free and the home of the brave.” Now it seems as if we have become the “land of the anxious and the home of the worried.”

A study from Northwestern Mutual seems to bear that out, finding that an increasing number of Americans are gripped with financial anxiety. The large majority of Americans (85 percent) reported feeling financial anxiety today, and it’s getting worse: 36 percent said their anxiety has gone up in the past three years, versus only 14 percent who said it has gone down. More than a quarter of Americans (28 percent) worry about their finances every day.

Among those feeling financial anxiety, 67 percent said it is negatively impacting their health, 70 percent said it is negatively impacting their happiness and 61 percent said it is negatively impacting their home life.

And the biggest financial fear? Having an unplanned financial emergency, according to 38 percent of those polled.

AS WOMEN AGE, FINANCIAL CHALLENGES INCREASE

If it seems as though you are seeing an increasing number of older women on the job, you are not just seeing things. The fear of not having enough retirement income has been enough to keep older American women in the workplace.

That fear has sparked an unusual spike in employment among older American women, AARP reported. These older women workers are staying on the job because they will live to older ages than men while at the same time having less accumulated wealth.

In fact, older women are the only category of people whose numbers in the workforce haven’t declined or remained flat. Looking at either age or gender alone shows no similar increase.

AARP has reported that in 1992, only one in every 12 women in the United States worked past age 65. Today, that number is one in seven. In another eight years, one in every five women over 65 will still be in the workforce.

It's a huge change in workforce demographics, and it may be due to a number of factors. Women find themselves apDID YOU

KNOW

?

54

proaching retirement age with more debt, less savings and fewer pensions than workers in previous generations. In addition, older women were one of the hardesthit groups during the recent recession; many lost jobs, and fewer were able to regain employment.

SENIORS LOSE BILLIONS BUT FEAR TO REPORT EXPLOITATION

Elderly Americans are the victims of an estimated $36 billion worth of financial exploitation a year, according to AARP. Financial exploitation is the most frequently reported form of abuse against adults. One in five seniors has been financially exploited, with the average elderly Americans have victim los- been financially exploited. ing $120,303, AARP said.

But for every reported case, 23 stay under wraps due to embarrassment, fear or lack of evidence, said Sandy Markwood, CEO of the National Association of Area Agencies on Aging.

1 in 5

Average loss: $120,303

The number of renters dedicating at least half of their income toward housing hit a record high of 11 million Source: Renaissance Capital people in 2014.

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

InsuranceNewsNet Magazine » August 2016

We have created a world where people no longer have pensions, and they are cast adrift to figure out their financial future themselves. There’s a great societal need here that we need to address as an industry.

— Tom O’Shea, Cerulli Associates

“They may be fearful that if they report they have been duped, somebody may say, ‘It is time for Mom to move out of her house,’ and again, most old adults don’t want to move out of their house,” she said.

In many cases, elders may be afraid to report because they fear their families may be victimized again.

COLLEGE ‘VICTORY LAPS’ CAN COST BIG BUCKS Here’s an easy way to get on track financially: Push Junior to complete college on time. Finishing that four-year degree in four years gives a financial boost not only to the college student but to the parents who are helping foot the bill.

Many students joke about going to college on the “six-year plan” — otherwise known as taking “victory laps.” But students in a four-year program who take six years to graduate can expect to lose as much as $300,000, according to a new study from NerdWallet.com using National Association of Colleges and Employers data.

That's not just extra tuition and mounting student loan interest; it's also the lost value of retirement savings and wages from two extra years out of the workforce.

With parents as the No. 1 source of college funding — according to Sallie Mae — extra years of paying their children’s tuition also has a detrimental effect on families.

In an HSBC survey, 58 percent of parents said paying for their child’s education makes it more difficult to keep up with other financial commitments. Yet 60 percent said they were willing to go into debt to fund a child’s education, while 37 percent prioritize college over retirement savings. Another 37 percent put it ahead of paying credit card debt.

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August 2016 » InsuranceNewsNet Magazine

55

Farmers, Ranchers Need a Special Breed of Retirement Planning W ith the average farmer approaching retirement age, there is an opportunity for you to provide the special planning that farmers need to have the type of retirement they envision.

By Louis Shuntich

T

he average farmer in the United States is 57 years old. It’s reasonable for someone that age to start thinking about succession planning in terms of having enough money for retirement and deciding what to do with the farm. Financial planning is an important tool to reach a successful outcome in both of those areas.

First, let’s address the issue of having enough money in retirement. Farmers and ranchers may be forced to accept a lower standard of living in retirement unless they develop realistic and effective financial plans to have the lifestyle they want.

This problem is especially challenging for them as self-employed people because they don’t work for an employer that sets 56

up a retirement plan for them. Further, they tend to get so caught up in day-today activities that they neglect financial planning. Beyond that, many simply do not plan correctly or save enough.

The good news is that farmers are uniquely positioned in terms of flexibility to set up their retirement plans, because they can go from providing 100 percent of operations and management responsibility to simply renting their land. Either way, the first step in creating a retirement plan is to visualize what that plan should look like by writing down a description of its aspects, including what the farmer or rancher would like to do with their remaining years.

From a practical perspective, farmers and ranchers should outline the things they need to be doing to make their dreams a reality. It starts with figuring out how much they will need in retirement to live as they want.

On that score, financial planners normally assume that an individual will need anywhere from 70 to 100 percent of their

InsuranceNewsNet Magazine » August 2016

working income for retirement.

However, when farm families calculate the costs of retirement, a primary consideration is to recognize that an annual estimate of costs of living allocated across a 25-year period is too vague. That is because months and years in retirement are not all the same in terms of cost. Nonetheless, coming up with a monthly figure is a good start.

The next step is to figure the costs that are not incurred monthly, such as vacations and other wants.

How Much Will They Need in Retirement?

Once the long-term budget is in place, the next step is to determine how much the desired standard of living will cost and then compare that figure with the farmer’s net worth. Net worth is calculated by subtracting total liabilities from total assets (Assets - Liabilities = Net Worth). After that number is known, the farmer can figure out the additional amount they will need to accumulate for their retirement.

FARMERS, RANCHERS NEED A SPECIAL BREED OF RETIREMENT PLANNING When making the calculation of how much additional wealth is needed for retirement, time is the farmer’s best friend.

By engaging in a regular program of investing as early as possible, they can take advantage of the power of compounding.

One of the most efficient ways of acquiring wealth is to take advantage of retirement plans established under IRS regulations for the self-employed. Included are individual retirement accounts, Keogh plans and simplified employee pensions.

IRS Publication 560 provides an explanation of the plans that are available for farm families. Note, however, that each farm and ranch operation has a different ability to use these arrangements and that each type of plan is unique, so it is important to find the right one for each individual situation.

Besides putting money in tax-favored retirement plans, farmers can create a portfolio of investment assets. The key is for them to start early and invest continuously at a level of risk that is appropriate to their situation and personal disposition.

Further, studies show that the most important factor impacting one’s rate of return is asset allocation. In fact, asset allocation will account for 90 percent of the investor’s return, with market timing and the selection of individual securities making up only the remaining 10 percent.

What to Do With the Land?

In addition to setting up tax-favored retirement plans and investment portfolios, there is the question of what to do with the land and equipment. In that regard, farmers may intend to sell their land and equipment to an outsider to generate the income they need.

Alternatively, they may plan to transfer it to the next generation, but that leaves the issue of how that generation will pay for it, along with the following questions: » Is the next generation committed to farming or ranching? » Is the present owner/operator willing to share control and work side by side with the next generation? » Do the two generations share a common vision for the future of the farm or ranch? » D o e s the f ar m or ranch have the

Farmers and ranchers may be forced to accept a lower standard of living in retirement unless they develop realistic and effective financial plans to have the lifestyle they want. economic capacity to realistically support both generations?

» What is the best way to go about selling the property?

» Is there a viable plan for treating offfarm family members fairly?

» What is the best way to invest the sales proceeds to provide for the future?

» Is there enough operational capital to fund the transition to the next generation?

» Does the farmer want to stay on in an advisory management capacity? If so, for how long and at what compensation level?

» How will both generations be housed on the property?

This raises the question of what to do if the next generation does not want to take over operating the farm. In that case, there must be a plan to transition from an operating farm entity to an incomeproducing investment.

This assumes that the owner/operator is willing and able to become the managing landlord or can find someone to handle their interests. Of course, there would have to be sufficient rental income to support the farmer’s overall needs and objectives.

If renting cannot provide the needed income, some alternatives might be to find a tenant or to hire a professional farm manager. On the other hand, if none of these options prove to be viable, then the farmer should consider selling the property. This raises the following questions: » How do you determine the best selling price? » Should any part of the business be spunoff to enhance profitability of the rest of the operation? » Is a sale a financially viable option considering what the proceeds will be after deducting its costs? » What is and is not included in the sale (Assets, intellectual property, brand names, trademarks, customer lists, etc.)? » What are the tax consequences of selling, and how might they be minimized?

The best way to determine the value of the farm may be to get an appraisal by a specialist. The specialist can make an assessment based on the amount of acreage, the value of machinery or equipment in the operation, and the crop or livestock the farm is able to send to market.

Moreover, the professional appraiser might help pinpoint problems that could reduce the property’s value, and may suggest changes to improve the operation and its overall value. In any case, if equipment is going to be sold, make sure it is clean and in working order before sale. It is also a good idea to have documentation that demonstrates the value of the farm, such as copies of tax returns.

The farmer should be sure to keep track of all licenses and permits operated under their business so they can cancel them when they cease operating.

Next, they should have a written agreement containing all the terms of the sale and should plan for how the farm’s short-term and longer-term debts will be paid off.

Finally, they should be sure to keep all of their employment records up to date and make certain that all employment taxes are paid.

Now that you know some of the fundamentals of farm family succession, it’s time to sow some seeds for a fruitful new practice.

Louis Shuntich, JD, LLM, is director, advanced consulting group, Nationwide Financial.

He may be contacted at louis. shuntich@innfeedback.com.

August 2016 » InsuranceNewsNet Magazine

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BUSINESS

Top 5 Reasons to Walk Away From a Client S ometimes it’s just not worth holding on to a relationship that is not salvageable. Here are some scenarios when it’s all right to fire a client.

By Joseph E. Roseman Jr.

Y

ou’ve seen many articles giving advice on how to keep a client.

This isn’t one of those articles.

Nobody wants to see a client jump ship and take their business to another firm. But there are times when it’s not worth remaining in a client relationship and you need to let that client go.

On several occasions throughout my years in the financial services industry, I have had to walk away from or — as some would say — “fire” a client.

Let’s take a look at the top five reasons a financial advisor should walk away from a client.

The client gives you incorrect 1 information about their financial situation.

Determining clients’ income streams and monthly expenses is critical to being able to give them the proper advice on their retirement. Two of my clients (a married couple) started working with me shortly after they came to one of my Social Security maximization workshops. At the end of the workshop, I offered the couple a follow-up meeting so that we could go over any Social Security optimization and retirement income planning questions they had. The husband was set to retire in two months at the age of 67. The wife was 58 and had a few more years to work.

My planning process for the couple was very thorough and covered areas such as income and expense analysis, completion of a risk tolerance questionnaire, and a session in which the couple and I could talk extensively about their retirement goals and objectives. After several meetings with the couple, they became my clients.

58

When the couple and I discussed what their monthly expenses and income streams would be after the husband retired, he told me they would spend $4,000 per month. Together we concluded their income streams would add up to $5,000 per month between the wife’s salary and the husband’s pension and Social Security.

The husband began his retirement, but only two months later he called me. He said he was unhappy that he and his wife couldn’t live on the amount of money they had coming in each month. After another round of meetings, we discovered that the husband had only guessed at their expenses, even though he had given us the monthly expense number in writing. As we dug deeper, it turned out their monthly expenses added up to $7,000 per month, not $4,000 per month.

InsuranceNewsNet Magazine » August 2016

With the new monthly expense number, the couple was forced to take some other assets and turn them into income streams sooner than they or I had expected. The conclusion was that the wife would have to work another five years to secure their retirement. The husband became extremely difficult to work with after that and when their annual contract was up, I decided to terminate my relationship with them.

client does not follow your 2 The advice, especially upfront.

Your clients need to trust you. One sign of that trust is when your clients follow your advice. While I was advising a married couple, we discovered the husband had a pension.

Most pensions have several options available (lifetime only, 100 percent

TOP 5 REASONS TO WALK AWAY FROM A CLIENT BUSINESS spousal benefit or 50 percent spousal benefit, to name a few). Because the husband was nine years older than the wife and had health problems, I advised him to take a lesser pension payout that would in turn pay his wife a 50 percent partial benefit at his death.

When the husband signed up for his pension, he took the lifetime-only option, which meant a higher payout for him. But at his death, his pension benefit would be terminated and his wife would receive nothing. This was why I terminated their contract. If your clients don’t take your advice, then why are you working for them?

3

The client is belligerent and disrespectful.

You work to serve your client with the best of intentions. All relationships go through their rough patches, and it’s always best for both sides to have open communication. Clients should feel comfortable voicing their concerns if they’re unhappy, but if they become belligerent and disrespectful, it’s time to move on from them.

4 The client is being dishonest.

If your client asks you to lie for them or sign a document that is in any way not true, don’t do it! No matter how long your relationship or how much income is involved, it’s not worth losing your license or ending up in court. On two occasions, I had a client ask me to lie for them. Both times, I refused to do what the client asked.

Soon after that, they took their business away and I was happy to sign the papers to transfer their assets to another advisor.

You are not meeting client 5 expectations. Or your client’s objectives have changed and their new objectives and goals do not meet your advisory skill.

Maybe you have been working with a client to accumulate assets, but you are not good at income planning, Social Security planning and distribution planning. Let’s face it — we advisors cannot be experts in everything. If you run into a situation where the client’s needs no longer mesh with your skill set, then find a partner who has that skill set or be willing to give the client up to another advisor who has the

needed skill set.

Accumulation planning and distribution planning are very different. If you are good only at helping clients accumulate, then be willing to give them up to a competent distribution expert at the appropriate time.

As advisors, we work hard to secure and maintain client relationships. I would never tell you to walk away just because the relationship became difficult. However, sometimes the relationship is not salvageable or repairable. So we must be smart enough to listen to that old Kenny Rogers song and “know when to walk away, and know when to run.”

We must do what is in our client’s best interest. Sometimes that means becoming more educated, but sometimes, to maintain our integrity as well as our sanity, we need to walk away.

Joseph E. Roseman Jr., CRPC, CSSCS, NSSA, ChFEBC, is managing partner of O’Dell, Winkfield, Roseman & Shipp in Charlotte, N.C. He may be contacted at joseph.roseman@ innfeedback.com.

WHO SAYS THE SUMMER MONTHS HAVE TO BE SLOW?

3 REASONS TO CALL CURRENT CLIENTS AND NEW PROSPECTS NOW! Stop awkward phone calls and forced touch points. You can remonetize your current book of business or gain new prospects an easier way. Use 3 questions to address gaping holes in clients’ and prospects’ existing financial plans.

Call #1: The summer is a time to travel. Emergency medical transportation can be $60,000+. Do you have a plan?

Call #2: 46 decisions have to be made immediately by surviving family members upon the death of a loved one. How to pay for final expenses shouldn’t be one of them. Does your family have access to immediate funds upon your passing?

Call #3: 80% of beneficiary forms on financial accounts are incorrect. Are your accounts going to be dispersed to the correct heirs upon your passing?

PROVEN: Using these 3 reasons, our advisors get more referrals and additional business opportunities than any referral methods they have used in the past.

Solve these problems and make more sales with “The Ultimate Touch Point Trifecta,” your free guide available at

www.BetterTouchPoints.com.

August 2016 » InsuranceNewsNet Magazine

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MDRT INSIGHTS

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

What to Do When Your Client Reaches ‘The Great Awakening’ S mall-business owners who think that selling their business will fund their retirement may be in for a rude shock. Here is how you can set them straight.

By Tom Fowler

T

ransition is an inevitable experience in the life of a business.

Business owners can deny it, run from it, fight it or try to avoid it.

They can wait until transition is forced upon them by age, infirmity, disability, circumstances or change of direction. Or they can acknowledge it, plan for it and manage it.

One thing that’s certain is that one day every business owner will exit their business because of death, disability or retirement. Studies conducted by numerous professional organizations inform us that the majority of business owners have not taken the necessary steps to plan their ultimate transition out of the business.

According to the FPA/CNBC Business Owner Succession Planning Survey released in 2015, 78 percent of small-business owners said they plan to sell their businesses to fund their retirement. Unfortunately, these owners often miscalculate what their true retirement income needs are. When they sell the business, they often have to finance the purchase with a series of notes.

They overlook the fact that they are mortgaging their financial future on the continued success of the business.

In my experience, one of the biggest reasons a small-business owner cannot exit their business is that the majority of their wealth — 60 to 80 percent — is tied up inside the company. They have no plan to convert the business value to cash and very little if any personal wealth to supplement the shortfall. This is “The Great Awakening.”

Business owners often find they own a well-paying job instead of owning a business that has value to a potential buyer.

There is a huge perception gap on the part of business owners on what it takes to capitalize on a successful sale at the end 60

of their career.

Most have no concept of how to value their business.

Either their ego rules the day and sets an unrealistic business value, or they sell but end up leaving 30 percent of value on the table.

When business owners wait too long to begin planning, they can find themselves with a limited number of planning options because of that short time frame. How do we, as advisors, motivate then to start the planning process? We start where we can.

Ask the Right Questions

I believe there are a number of questions that a business owner must answer to exit their business successfully. The first is “Do you have a catastrophic plan in place?” The second is, “Are you building wealth outside the business?”

Creating and implementing a wealthbuilding strategy outside the business may be the first step in creating the ultimate business transition plan. If a business owner has created personal wealth apart from the business, they have maximum flexibility in their transition planning. If they haven’t built wealth outside of the business, they are more dependent on circumstances and the decisions of others.

There are many ways to create wealth outside the business. One of the easiest is to have the owner implement one of the tax shelters the IRS provides, such as a qualified retirement plan. You can start with a IRA or a SIMPLE 401(k) plan. These plans are easy to implement, have virtually no expense costs and can be created with a small dollar outlay.

As the company grows, the owner can implement a 401(k) plan, which allows deductions from $18,000 up to $53,000 per owner, depending on how the plan is structured and the person’s income. If the business owner hasn’t accumulated

InsuranceNewsNet Magazine » August 2016

what they need in their 401(k) plan, they could consider adding a cash balance plan, which allows contributions up to $250,000 or more depending on the owner’s income and age.

Life insurance is an excellent vehicle for building wealth outside the business. It can be part of the business owner’s catastrophic plan. If the owner dies too soon, life insurance provides for the family. It provides a tax-free income in retirement.

It can provide a death benefit as well. Life insurance is self-completing. Should the owner become disabled prior to retirement, waiver of premium can be included to guarantee the contract benefits with no additional premiums paid. Plus, in many states, life insurance proceeds are exempt from creditors’ claims.

Assisting business owners in building wealth outside the business may be the best way advisors can help the owners mitigate the potentially disastrous results of The Great Awakening. It is an essential step in creating the ultimate business transition.

Tom Fowler, CLU, LUTCF, is president of the Fowler Financial Group, Bellevue, Wash. He is a 27-year member of MDRT with three Top of the Table and 14 Court of the Table qualifications. He has written two books, 8 Crucial Questions You Need to Answer to Successfully Exit a Small Business and Six-Word Lessons to Build a Sustainable Legacy. Tom may be contacted at tom.fowler@ 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 Ways to Ace Your Next Annuity Sale T he mere mention of the word “annuity” can send clients running for the door if the proper context isn’t established first.

I

By Curtis Cloke

n today’s world of volatile markets and long lifespans, annuities are powerful tools that can help clients create a more secure retirement. However, perhaps more than any other financial product, annuities are also incredibly misunderstood by the public.

While you may be excited about the features of a particular annuity, the mere mention of the word “annuity” can send clients running for the door if the proper context isn’t established first. That is why great advisors know they must bring their clients along emotionally by asking the right questions, defining personal and financial goals, and designing a plan that will infuse their clients with confidence that those goals will be reached.

Annuities can play an important role in your plan, but it’s your understanding of these products and how you position them that will allow you to make the sale. With this in mind, here are four ways to help increase your annuity production.

1] Take an Agnostic Approach

I believe the No. 1 goal of today’s best advisors is to create the best possible plan based on their clients’ needs. It’s your job to continually test your assumptions and different retirement strategies. Clients can intuitively sense when an advisor is product neutral. This agnostic approach breeds trust and makes the sale natural.

Although this always has been a good practice, in the post-fiduciary rule world that is rapidly approaching, it will become the standard.

2] Become an Authority

You also should be knowledgeable. With easier access to information than ever before, there’s no excuse for being uninformed.

Publications such as InsuranceNewsNet and Advisor Today are powerful resources to help you stay current on the latest trends.

3] Buy Income and Invest the Difference

While most people have heard the expression “buy term and invest the difference,” this presents an interesting twist for income annuities.

One objection advisors often encounter is that clients don’t want to give up control of their money by purchasing an annuity.

However, the reality of the matter couldn’t be further from the truth.

If a retiree needs $30,000 in annual income from a $1 million portfolio at 3 percent interest, how much of that portfolio can be used for other purposes? The answer, none of it. The entire portfolio is held hostage for its income-generating purpose.

An alternative approach is to “buy income and invest the difference.” Use a portion of the portfolio to secure guaranteed lifetime income with an annuity.

This frees up the rest of the portfolio to potentially invest more aggressively, ride out the extremes of market volatility, leave a legacy, secure long-term care protection or achieve other financial goals.

4] Build a Bridge to Bigger Benefits

There are tremendous advantages for retirees who are able to maximize their Social Security benefits. Maximizing Social Security significantly reduces longevity risk, can generate powerful tax advantages, and can maximize the survivor benefit, which is critically important after the first spouse dies. The challenge, of course, is delaying retirement to age 70.

One strategy to make this easier is to

bridge the eight-year gap by transferring some nonqualified money into a period certain annuity. This provides clients with a predetermined and level payout. However, there is also an underused tax advantage to this strategy.

Income from stocks, bonds or mutual funds is taxed as LIFO (last in/first out). Everything that clients gain from these investments would be subject to tax. However, income annuities use the tax-exclusion ratio. Typically, only 5 to 25 percent of the payouts are subject to tax, while 75 to 95 percent is considered a return of principal. We call this FIBO (first in/blend out) because the income is blended out as a combination of principal and income. The result is a larger portion of spendable income.

In an age of so much financial uncertainty, annuities are a powerful tool in the financial advisor’s arsenal. However, as the saying goes, with great power comes great responsibility. Consider how you can incorporate the ideas in this article into your practice. Use them in your clients’ best interest, and you’ll be sure to ace your next annuity sale.

Curtis Cloke, CLTC, LUTCF, RICP, is an award-winning retirement expert, trainer and speaker with more than 29 years of experience in the financial-services industry. Curtis may be contacted at curtis.cloke@innfeedback.com.

August 2016 » InsuranceNewsNet Magazine

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THE AMERICAN COLLEGE INSIGHTS

With over 89 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.

The DOL Rule: Lessons From the Ant and the Grasshopper T he Department of Labor is not trying to discredit the financial services industry with this rule.

It is, instead, attempting to set specific parameters around the retirement advice provided to potentially vulnerable consumers.

By Craig Lemoine

T

he Department of Labor’s conflict of interest rule, often referred to as the fiduciary rule, has arrived on the financial services scene. Its reception has been predictably divisive. The first few lawsuits in what will likely be a parade of litigation have been filed, aiming to stop, dismantle or delay the rule.

Now that the fiduciary rule’s hurdles are in place, the industry and consumers alike soon will know whether the rule has strong enough legs. Waiting for the outcome of a challenge before preparing for the rule’s implementation should remind us of the fable of the ant and the grasshopper. Let’s not find ourselves outside in the cold, shivering and unprepared, come next April’s deadline.

The new rule expands an existing fiduciary duty to include recommendations concerning retirement assets. This will target individual retirement account holders and rollovers as well as those who are acquiring, holding, exchanging or distributing retirement assets. This broad net definition covers just about every working or retired American, from a coffee-shop employee saving $50 weekly in a Roth IRA to a small-business owner opening her first 401(k) plan to a corporate officer facing retirement with a few million dollars in a profit-sharing plan. All of these are owed a fiduciary duty of care.

It’s About Relationship

A fiduciary duty can be illustrated as a relationship between two parties. Michael Jensen and William Meckling, in their paper “Theory of the Firm,” set up the discussion of principal and agent conflicts. A 62

client (young employee, business owner, retiree) is viewed as the principal. The principal has an interest in retirement.

That interest may be accumulating capital, developing an income strategy, meeting bequest motives, developing an appropriate risk tolerance or a combination of motives. In financial planning, we refer to this interest as helping the client understand and meet specific goals.

The counterpart to a principal is an agent. The agent may be an insurance agent, investment advisor, broker, banker or other financial service professional. The agent also has a set of goals and motivations, such as profit, sustainability, growth and financial success.

The principal/agent model has natural conflicts. An agent has a set of best interests (success and profit) that may not lead to the best way for the principal to realize their goals and dreams. The model is often complicated by including the interests of the firm, which include the interest of the shareholders or the interest of the company’s policyowners. Multiple interests can be in conflict.

The conflict between agents, principals and firms can resolve itself in any number of ways. One party could win at the expense of the others; a natural market may develop that balances interests; or a regulatory policy may be imposed on a principal, agent and firm to ensure consumer interests are met. When we view the Department of Labor (DOL) fiduciary rule, we need to consider this framework.

DOL Takes Aim at ‘Vulnerability’

The Department of Labor stated that retirees and accumulators (principals) were vulnerable, and this vulnerability was leading to excess costs and fees.

The excess costs and fees, coupled with increases in consumer longevity, contributed to underfunded or unsafe retirement strategies, according to the DOL. Enforcing a fiduciary standard requires all parties (principals, agents and firms) to

InsuranceNewsNet Magazine » August 2016

align their interests to that of the principal.

Requiring a fiduciary standard puts profit and growth secondary to meeting the client’s financial planning goals, which is the first priority.

And this leads to the core of the rule.

The DOL questions certain compensation structures that might lead to biased advice. Commissions, assets under management models, even hourly fees have the potential to create conflicts between principals and agents. Conflicted compensation is prohibited under the new rule, unless the agent works under a prohibited transaction exemption.

The DOL then can influence the principal/agent relationship by setting specific processes and rules regulating the allowable uses of prohibited transactions. The DOL is not trying to discredit the financial services industry with this rule. It is, instead, attempting to set specific parameters around the retirement advice provided to potentially vulnerable consumers.

The ant prepares for the change in seasons, stores food and devises strategies for survival. Let’s not take the short-sighted perspective of the grasshopper when preparing for the future of financial planning.

Take a lesson from the ant, and recognize the opportunities that exist today to create new models and procedures that will benefit not only the profession, but also the retirement security of the clients whose best interests we are pledged to serve.

Craig Lemoine is director of the Northwestern Mutual Granum Center for Financial Security at The American College. Craig may be contacted at craig. lemoine@innfeedback.com.

ADVERTISER INDEX Phone

Pg

Advertiser

Website

Phone

Pg

63

Legacy Shield

www.generatewarmreferrals.com

844-308-0707

15

Mutual Trust

www.mutualtrust.com/opportunity

800-323-7320 ext 5140

5

NAFA

www.nafa.com

Oxford Life

www.oxfordlife.com

Peak Pro Financial

www.iulforseniors.com

Petersen International

www.piu.org

800-345-8816

43

Securian

www.securian.com/lifehub

877-696-6654

37

Senior Advisory Group

www.bettertouchpoints.com

Advertiser

Website

Advantage Media Group

advantagefamily.com/ insurancenewsnet

American Equity

life.american-equity.com

888-647-1371

7

American National

img.anicoweb.com

888-501-4043

9

Americans for Annuity Protection

www.aapnow.org

32-33

Ann Arbor Annuity Exchange

www.committomysuccess.com

34-35

Brookstone Capital

www.brookstonedol.com

IBC

College for Financial Planning

www.cffpinfo.com/lutcf

1

Great-West Financial

www.greatwestproducts.com

Horter Investment

www.hortersuccess.com

Imeriti Financial Network

www.iulpayday.com

International Medical Group

www.travelmedicalpriority.com

John Hancock

www.performanceltc.com

888-266-7498

17-19

Kansas City Life

www.kclife.com

855-277-2090 ext 8120

39

800-520-7271

41 888-203-6221

23 27

59

IFC Transamerica Employee Benefits www.transamericabenefits.com

866-872-6726

51

Tucker Advisors

www.sellwithtucker.com

855-454-2638

BC

United Advisors

www.20millionmarketing.com

Woodbridge Wealth

www.woodbridgewealth.com/ beyond-the-traditional

FC, 20-21 855-601-9442

2-3 45

53 866-815-4431

August 2016 Âť InsuranceNewsNet Magazine

29

63

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.

LIMRA INSIGHTS

Advisors Must Know How to Pivot Online to Serve Today’s Consumer F ace-to-face remains the preferred method for most consumers to buy life insurance.

But online buying is appealing to many consumers, and its popularity will likely increase.

By Ashley Durham

S

ometimes, 17 percent represents a huge number. For example, in the LIMRA and Life Happens 2016 Insurance Barometer, 17 percent of adult consumers said they are “very or extremely likely” to purchase life insurance in the next year. This translates into a target market of 40 million prospects!

We also know from the Barometer that just over half (51 percent) of consumers would prefer to purchase coverage face-toface with a financial advisor or agent. The second most common preference (among all age groups) is online where one in five would get their life insurance protection.

Convenience and the ability to buy at their own time and pace are the main reasons.

A small number of people would buy life insurance online because they know what coverage they want. Most people, however, do not have a high level of understanding when it comes to life insurance. So it’s not surprising that the highest portion of consumers among all age groups still want to meet with a financial advisor or agent.

People said they generally want to see an expert so they can ask questions and get immediate answers. Most cite the additional information and advice they would get during a meeting as major reasons for their face-to-face preference. The potential to build a long-term relationship with an advisor is another major reason nearly half (47 percent) prefer a face-toface meeting.

Even those who start their purchase online usually end up completing the sale in more traditional ways. For example, while more than one in four consumers (28 percent) have gone online to purchase life insurance, few of them (15 percent) ended 64

up submitting their application online.

About a quarter of them (26 percent) completed the process on the phone with an insurance company or printed and mailed their application to the company. The highest share (30 percent) ended up completing their application in person with a financial advisor or agent.

Millennials, who are arguably most accustomed to online shopping, are most likely to try buying online. However, they are twice as likely to end up meeting with a professional to complete the process. This may be a reflection of younger consumers having less experience with financial services and products, making them even less comfortable buying life insurance without help.

That said, nearly all millennials (95 percent) would research life insurance online if shopping for it. And overall, 88 percent of consumers would use the internet for preliminary research. They want to be armed with facts, but most aren’t confident that they have real knowledge.

Financial professionals who adjust to the new consumer can remain an important part of the purchasing process. Today, consumers want service on their terms.

Sometimes that means face-to-face and other times that means online.

According to LIMRA’s Financial Professionals’ Use of Technology database, one in three financial professionals do not have a personal website. Among those who do, only one in 10 has an option for clients to submit an application online.

Those without a website should consider creating one that features enough

InsuranceNewsNet Magazine » August 2016

life insurance material to engage (but not overwhelm) clients and prospects. An informative web presence can be a fundamental step toward building client confidence and encouraging shoppers to move forward. Agents and financial advisors also can ask the companies they represent for links that allow clients to purchase directly through the advisor’s website.

Tools such as personal websites allow an advisor to remain central to the purchasing process. An online presence also appeals to those who want to connect with someone local for a question or claim. Two in three people said proximity is one of the major reasons they want to buy from an advisor or agent.

Although in-person remains the channel of choice for most, online already is appealing to many consumers, and its popularity will likely increase. Financial professionals who learn how to pivot and serve both options will be in a better position to meet the ever-changing demands of today’s consumers.

Ashley Durham is assistant research director, insurance research for LIMRA. Ashley may be contacted at Ashley.durham@innfeedback. com.

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