ALSO INSIDE Could Single-Payer Health Insurance Work Here? PAGE 8 Don’t Look Now... Fiduciary’s Coming! PAGE 18 Your Clients’ Untapped Life Insurance Market PAGE 42
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IN THIS ISSUE
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APRIL 2018 » VOLUME 11, NUMBER 3
Don’t Look Now – Fiduciary’s Coming By John Hilton
Advisors discuss how they have spent their time preparing their firms for the first wave of fiduciary regulations from the Department of Labor. INFRONT
38 6 Ways Brokers Can Get More Out of the Enrollment Off-Season
8 S ingle Payer – Could It Work Here?
By Susan Rupe A single-payer health care system is a way of life in a number of countries around the world. But not all of these systems are the same, according to an industry association leader who has studied the issue.
By Shea Treadway By putting in the effort now, you’ll make life easier for the next open enrollment season while expanding your business at the same time.
28 Could Your Clients’ Parents Be an Untapped Life Insurance Market? By Sam Goldsmith The four most common types of life insurance policies that children purchase for their parents.
30 How End-of-Life Documents Are Like a Love Letter
10 Success Is Your Duty
An interview with Grant Cardone What does it take to crush your goals and achieve 10X success? Grant Cardone freely admits he is obsessed with success and says you should be too. In this interview with Publisher Paul Feldman, Cardone says if you are not successful, it is because you chose not to be.
InsuranceNewsNet Magazine » April 2018
By Edward C. Auble End-of-life planning involves more than having life insurance. Here’s how to help your clients think of what those they leave behind will need after they’re gone.
34 W hy Some Advisors Don’t Like Selling Fee-Based Annuities By Cyril Tuohy Fee-based annuities were supposed to be the answer to annuity sales in the post-fiduciary world, but many advisors find the products complicated.
42 Until Robo-Advisors Learn Empathy, They Are Not Real Competition By Nick Richtsmeier There is demand for the digitization of the financial services industry, and we need to learn from it.
44 Stock Market, DOL Rule Create Chance for 401(k) Re-evaluations By Ric Lager The Wall Street roller coaster, combined with the fiduciary rule, give you an opportunity to review your clients’ 401(k) plan.
“Kansas City Life has the best story to tell in the industry.” – General Agent Thomas Vanlaarhoven, Morgan 24/7 Financial Services
A team approach has helped Morgan 24/7 Financial Services ascend to the top of Kansas City Life Insurance Company. Pictured (from left): Agent Jane Krier, Field Manager Randy Warren, Agent Dean Vagnozzi, General Agent Thomas Vanlaarhoven, Field Manager Rob Greco, Kansas City Life President, CEO and Chairman of the Board Phil Bixby; and Field Manager Nicole Smith.
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IN THIS ISSUE
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APRIL 2018 » VOLUME 11, NUMBER 3
50 THE AMERICAN COLLEGE: Designations Demonstrate Career Commitment
48 MDRT: Importance of a Holistic Plan When Working With Clients By Elizabeth Dipp Metzger Although holistic planning requires a greater time commitment, it deepens the relationship between an advisor and a client.
46 How to Study for a Licensing Test
By Brad F. Charles Watch out for the words that can trip you up in an exam.
52 LIMRA: Shaping Expectations for Customer Experience By Todd A. Silverhart What the life insurance industry can learn from a pizza company’s reinvention.
49 NAIFA: The Tax Cuts and Jobs Act: What It Means for Advisors
By Jocelyn Wright By expanding your body of knowledge, you differentiate yourself from other advisors.
By Diane Boyle The new law does not impose new taxes on life or health insurance, annuities, retirement savings, or employer-provided benefits.
EVERY ISSUE 6 Editor’s Letter 16 NewsWires
26 LifeWires 32 AnnuityWires
36 Health/Benefits Wires 40 AdvisorNews Wires
51 Advertiser Index 51 Marketplace
275 Grandview Ave., Suite 100, Camp Hill, PA 17011 tel: 717.441.9357 fax: 866.381.8630 www.InsuranceNewsNet.com PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli MANAGING EDITOR Susan Rupe SENIOR EDITOR John Hilton SENIOR WRITER Cyril Tuohy VP MARKETING Katie Frazier SENIOR CONTENT STRATEGIST Kristi Raynor
AD COPYWRITER AD COPYWRITER CREATIVE DIRECTOR SENIOR MULTIMEDIA DESIGNER GRAPHIC DESIGNER CHIEF OPERATIONS OFFICER QUALITY MANAGER
John Muscarello James McAndrew Jacob Haas Bernard Uhden Shawn McMillion Doug Cooper Sharon Brtalik
TECHNOLOGY DIRECTOR MEDIA OPERATIONS MANAGER NATIONAL SALES DIRECTOR NATIONAL ACCOUNT MANAGER NATIONAL ACCOUNT MANAGER EXECUTIVE ADMINISTRATOR CORPORATE ACCOUNTANT
Joaquin Tuazon Ashley McHugh Tim Mader Brad Costolo Samantha Winters Kathleen Fackler Elizabeth Nady
Copyright 2018 InsuranceNewsNet.com. All rights reserved. Reproduction or use without permission of editorial or graphic content in any manner is strictly prohibited. How to Reach Us: You may e-mail firstname.lastname@example.org, send your letter to 275 Grandview Ave., Suite 100, Camp Hill, PA 17011, fax 866.381.8630 or call 717.441.9357. Reprints: Copyright permission can be obtained through InsuranceNewsNet at 717.441.9357, Ext. 115, or email@example.com. Editorial Inquiries: You may e-mail firstname.lastname@example.org or call 717.441.9357, ext. 117. Advertising Inquiries: To access InsuranceNewsNet Magazine’s online media kit, go to www.innmediakit.com or call 717.441.9357, Ext. 115, for a sales representative. Postmaster: Send address changes to InsuranceNewsNet Magazine, 275 Grandview Ave., Suite 100, Camp Hill, PA 17011. Please allow four weeks for completion of changes.
Living Benefits: Changing Real Lives Bonnie Thomas:
What is a Living Benefit?
In insurance terms, Living Benefits are Accelerated Benefit Riders (ABRs)1 which provide the option of receiving a partial or full accelerated life insurance benefit if the insured experiences a qualifying medical condition.
What can a Living Benefit mean to a family?
To an individual or family facing the trials of a critical, chronic, or terminal illness, a Living Benefit can mean the freedom to make choices, provide for a family, and peace of mind. Ask for the ABR brochure (10743) to learn more. 888-501-4043, option 1 | img.anicoweb.com The case studies are actual cases of individuals filing a claim for accelerated benefits under the Chronic, Critical, and Terminal Illness Riders on their life insurance policies. The product, amounts in force, amount requested and final disposition are all factual but the names and the specific situations have been changed to protect the recipients. 1) The riders are offered at no additional premium. However, the accelerated payment will be less than the requested death benefit because it will be reduced by an actuarial discount and an administrative fee of up to $500. The amount of the reduction is primarily dependent on American Nationalâ€™s determination of the insuredâ€™s life expectancy at the time of election. Form Series ABR14-TM; ABR14-CH; ABR14-CT; ABR14-TM(NY); ABR14-CH(NY). Forms may vary by state and may not be available in all states. This ad is not intended for distribution or promotion of riders available in California. Please see your agent for Brochure 10743-CA for information on Accelerated Benefit Riders available in California. New York Chronic Illness Rider: This product is a life insurance policy that accelerates the death benefit of account of chronic illness and is not a health insurance policy providing long term care insurance subject to the minimum requirements of New York Law, does not qualify for the New York State Long Term Care Partnership program, and is not a Medicare supplement policy. American National Insurance Company, headquartered in Galveston, Texas is licensed to conduct business in all states except New York. Business is conducted in New York by American National Life Insurance Company of New York, headquartered in Glenmont, New York. Each company has financial responsibility only for the products and services it issues.
IMG-L53 | INN 04.18
WELCOME LETTER FROM THE EDITOR
You Might As Well Jump
have been dogged by a somewhat dispiriting thought for most of my professional life: I get into an industry just in time to turn the lights off. First it was news radio, just as stations started cutting news staffs; then it was newspapers as they discovered the phrase “Do more with less;” followed by an insurance association as associations were hemorrhaging members; and finally, a print magazine in the life insurance industry. A bit of a double whammy on the last one. The standard greeting was approximately “Welcome! You should have been here 10 years ago — things were great then! Anyway, shut off the lights if you’re the last one out!” Each one of those industries did sustain systemic change, but it finally occurred to me that I would hear this anywhere. Rarely is there a person who says, “You came here right on time!” Well, not after the job interview. We find ourselves at a pivotal moment. I could have written that sentence in any Letter From the Editor in the 10 years I have been writing them. It has always been true. In John Hilton’s main feature this month, he examines the endless flypaper unspooled by regulators to trap insurance agents and financial advisors. As the Department of Labor reconsiders its fiduciary rule, many other entities are racing ahead. The Securities and Exchange Commission, states and the National Association of Insurance Commissioners are all getting in with their own fiduciary rulemaking. And who knows what the DOL itself might do with its rule? The insurance industry, from company to seller, is nervous about all of it. The DOL rule itself was crafted out of malice toward annuity sellers. The name (the conflict-of-interest rule), tone and stretched evidence all point to a prejudice against commission sales. Of course, some slimy creatures have abused clients for the sake of a high commission, but that is true of some fee-grubbers and outright thieves in the fiduciary world as well. Just as FINRA and the SEC go after those miscreants, state insurance departments constantly issue press releases trumpeting the latest arrest of an insurance agent. Critics point to “churning” as a leading offense in life insurance. But exchanging annuities to the detriment of a client is 6
InsuranceNewsNet Magazine » April 2018
2014 CONSUMER COMPLAINTS Total Securities
SEC (top 10)
FINRA NAIC Fixed Annuities
illegal under the suitability standard as well. Offenders don’t just get fined — they also are arrested and jailed. And generally speaking, if an action is against a client’s best interest, it is also considered unsuitable. The fiduciary system sees a vast number of complaints and crimes. As you can see in an accompanying chart, complaints about financial advisors by far outnumber consumer complaints about annuities. The 2014 figures were in a 2015 report examining the DOL’s reasoning behind the then-proposed fiduciary standard. Jack Marrion, an annuity analyst with Advantage Compendium, compiled the report for Americans for Asset Protection. The report also identified other areas where data were misrepresented to support the DOL’s conclusion. On top of the questionable basis for the rule, the DOL also locked out annuity sellers and distributors from selling fixed indexed annuities with IRA money. Independent marketing organizations, which serve independent annuity sellers, were not classified as financial institutions, a designation that would be required to sell FIAs. The financial institution definition and requirement remain in the rule delayed by the DOL until July 2019. If it stays in the rule at that time, it is likely to put almost all IMOs out of business, as Hilton reported in his feature this month. This is all to say that the insurance industry has plenty to fear from all of the efforts to disrupt the business. But you don’t have to fear. Because you are reading this, you are the kind of agent or advisor who wants to do your best for your client. You want to be the go-to person. So you might also know that expectations are changing. Sure, regulators can seem pretty ham-handed in what they are doing, but they are just a small stream in the current.
Source: Americans for Asset Protection
Institutions are failing many Americans. Their employers are walking away from their pension promises. Health care costs, even when consumers are insured, are draining substantial wealth from most families. Many people are saying that it might be foolish to assume that the full promise of Social Security will be kept when they retire. With all of these concerns, what are the best-interest people recommending? Typically not annuities. Usually it’s a model plotting how long a client’s money should last. Those models often do not withstand academic review. Several studies show clients outlasting their money. Those models are the province of the wealthy, which is who registered investment advisors serve. According to Cerulli Associates, 68 percent of the money managed by RIAs comes from high-net-worth individuals. Who serves the rest of America? Commission-based agents agents, primarily. You are the answer for many families. Their future depends on your excellence. Does that mean broadening to get a securities license or a new accreditation? It might. But to do what you have always been doing is to surrender. Nobody owes you stability. That never existed. I came to understand that myself at some point. I had imagined that I was always on a threshold, in the middle of two distinct eras. But that turned out to be an illusion. Rather than a threshold, it is more like a thin bridge over the rushing river of change. We can stay here or jump in. It looks like a whole lot more fun in the water. Steven A. Morelli Editor-in-chief
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Single Payer — Could It Work Here? A health insurance association leader says the United States is not ready for a European-style, single-payer system.
By Susan Rupe
there are two words that strike fear into the hearts of those who sell health insurance, they are the words single payer. A single-payer health care system is a way of life in most countries around the world. But not all of these systems are the same, and it’s unlikely any of them could be adapted for use in the United States, said an industry association leader who has studied single-payer systems in other nations. Janet Trautwein, CEO of the National Association of Health Underwriters (NAHU), has studied single-payer systems through Trautwein the London School of Economics. She discussed her findings with a standing-room-only group at the association’s recent Capitol Conference.
Why Single Payer?
Trautwein said her interest in studying single-payer systems came from seeing the American health care system become increasingly more expensive over the years. The United States spends about twice as much per person on health care than other wealthy nations spend. The total health expenditure per capita in the U.S. was $10,348 in 2016, according to the Kaiser Family Foundation. That compares with $5,550 in Germany, $5,385 in the Netherlands, $4,752 in Canada and $4,192 in the United Kingdom. Despite this high spending, Americans have worse health outcomes than many of their European counterparts. Hospital admissions for asthma, congestive heart failure, hypertension and diabetes are more frequent in the U.S. than in comparable countries, according to Kaiser. The U.S. also has a higher rate of disability 8
InsuranceNewsNet Magazine » April 2018
and premature death than do the United Kingdom, Canada, Japan or much of Western Europe. “You always hear someone saying, ‘We should do it like Canada does it!’ or ‘We should do it like Great Britain does it!’ And then you always hear about rationing and all the negative things associated with that,” Trautwein said. “So my thought was: are all single-payer systems the same?” Although all of Europe has some provision for universal coverage, that coverage is delivered differently depending on what country you’re in, she said. Trautwein said as she dug deeper into various nations’ health care systems, she saw that some were more flawed than others. “I asked, is there anything out there that we can use in this country because our private system is actually better for the type of country we have. But are there things we could do that might be useful? And to be honest, I didn’t find any.” What she did learn is that Europeans readily accept a health care system that would seem repugnant to most Americans. “A lot of it stems from that post-World War II feeling of solidarity in Europe,” she said. “They all had to work together for the good of everyone in order to rebuild. It’s a very strong cultural norm over there.” Another thing that Trautwein said she took away from her study is that reinsurance plays a strong role in the European single-payer systems, particularly in the Netherlands and Switzerland. “They use reinsurance to balance out adverse selection because the health insurance there is all guaranteed issue,” she said. “But there’s not much of an issue with adverse selection because people there don’t wait until they’re sick to get insurance. They’re insured all the time.”
What was the biggest takeaway? Although Trautwein said no two single-payer systems are the same, they all have two big things in common.
The first commonality is that everybody is in the system. The second is that the government is involved in setting the cost of medical care. “In the United Kingdom, the government sets prices,” she said. “In others, the government is an active negotiator in setting the costs of care. In this country, outside of Medicare and Medicaid, that is not happening. We have a much more free-market system here. Sometimes it results in more expedient care, but it also can be more expensive.” Trautwein pointed out that the U.S. system of employer-based health coverage that has tax-preferred status and where employers are heavily involved in insurance is unique. The United States’ history of not having government involvement in provider pricing for private plans works against a European single-payer model, she said. In addition, the size of the U.S. population, its diversity and the division between rural and urban populations also work against a single-payer model. Trautwein presented this comparison of how single-payer systems work in a sampling of countries she has studied. Here is how the system works in three of those countries.
Netherlands Of all the nations she studied, Trautwein said the system used in the Netherlands is the one that would mostly likely fit the U.S., although she said that cultural differences between the populations of the two countries make it unlikely that such a system would end up being implemented here. The Netherlands has universally mandated private insurance through a national exchange, and the private plans provide mandated benefits. The government regulates and subsidizes insurance. The system is financed through a payroll tax and community-rated insurance premiums as well as through general tax revenue. Although insurers negotiate pricing with providers, there is some government involvement in the system, especially in terms of hospital pricing.
TIMELY ISSUES THAT MATTER TO YOU INFRONT
Canada Proponents of a single-payer system for the U.S. often cite Canada’s system as a model. Trautwein broke down the main points of the Canadian system. Canada has a regionally administered public insurance program paid through federal and provincial taxes. Despite this public program, she said, about two-thirds of Canadians buy voluntary coverage for services not covered by public insurance. Coverage levels are determined by each province, and there is no cost-sharing for covered services. Provincial governments negotiate with medical providers and pay them. Most outpatient specialist care is provided in hospitals. One consequence of the Canadian health care system, Trautwein said, is that the wait time for elective procedures is high.
United Kingdom The single-payer system in the United Kingdom is the most heavy-handed in terms of the government deciding which services are available to individuals, Trautwein said. The British created the National Health Service. The service owns some physician practices, although many private physicians practice in England as well. Many residents of the U.K. have supplemental insurance that allows them to access coverage more quickly or to receive treatment in private hospitals.
We might see some expansion of the public programs we already have, but I don’t believe we will see a Medicare-for-all program. I don’t think people would accept that.” In the U.S., the Republicans control the White House and both houses of Congress, effectively precluding any single-payer system from getting enough traction to pass, Trautwein said. But she cautioned that interest in single payer is growing. A single-payer bill sponsored by Sen. Bernie Sanders, I-Vt., has 16 co-sponsors in the Senate. In addition, she said, frustration with the current health care system opens the door for a broadening of our current public programs little by little. This could lead to incremental changes in our current government health care programs. Such changes could include a buy-in to Medicare, a buy-in to Medicaid or a public option. All of these programs would likely be permitted to use government-negotiated prices in competition with commercial products, which are required to operate without this advantage, she said. 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. Follow her on Twitter @INNsusan.
Where Are the Agents? Health insurance agents have some role in the countries where single payer is in use. But they have a different role than agents do in the U.S., Trautwein said. Agents in single-payer nations are more involved in voluntary or supplemental coverage, selling products to cover things that are not covered by that country’s health insurance or that enable people to access services more quickly.
“I don’t think we are at the point where we are ready to have the government be the sole provider of health care, plus we are much larger in population than any of these countries that have single payer.” “But it’s still not the same role as an agent in the U.S.,” she said. “An agent here is involved in voluntary coverage through an employer; it’s more of an active role and more prescriptive role. In other countries, the insurers take more of a prescriptive role.”
Efforts to Establish Single Payer in the U.S. Despite the fact that the single-payer idea is floated in the U.S. from time to time, Trautwein said she believes that the odds of it becoming a reality are unlikely. “I believe our culture plays a big part in this,” she said. “I don’t think we are at the point where we are ready to have the government be the sole provider of health care, plus we are much larger in population than any of these countries that have single payer.
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InsuranceNewsNet Magazine » April 2018
SUCCESS IS YOUR DUTY INTERVIEW
uccess is not an option. It is your obligation. So much of our time slips through our fingers because we can’t focus. It is a very human problem that is amplified by today’s electronics and ever-present noisy distractions. We can’t do the work that’s necessary for our success and even pay attention to the people who are necessary for our happiness. That is the simple message from Grant Cardone, an old-school sales motivator who doesn’t so much train as he does preach. He doesn’t preach a droning Sunday sermon, either. It is a foot-stomping, straight-talking, high-volume “Hallelujah!” that can’t help but get you out of your seat (or on the phone) and selling, which is why he will be the keynote speaker at the InsuranceNewsNet Super Conference, Sept. 26-28 in Chicago. It doesn’t hurt that Cardone has a Southern-fried accent from his native Louisiana as he riffs through his againstthe-grain wisdom. He does not shy away from saying that “advisors” are just people who do not want to admit that they are salespeople. His direction is hardcore hard selling: If you are not selling enough, you don’t have enough prospects in your pipeline. If you are not successful, it is because you chose not to be. If you have seen one of his many videos on YouTube and or seen his appearances on news outlets such as CNBC, you know that he is not like anybody else. For example, Cardone calls buying a house a sucker’s bet, although he got his start in real estate and now owns 5,000 apartments and plans to own 10,000. Despite being a multimillionaire and owning five companies that he says yield $100 million in revenue, he still rents his own residence. When he is not running his companies from his Miami base, he is out traveling to companies — including Google, Sprint, Aflac, Toyota, GM and Ford — to coach their sales teams. He often videos himself on the road with his latest thoughts for his eager fan base. He posts those short videos, but he also does other media, including radio and video from his Grant Cardone TV Network operation. He freely admits he is obsessed with
success. In fact, the latest of his seven books is called Be Obsessed or Be Average. In this interview with Publisher Paul Feldman, Cardone tells how success is your duty, obligation and responsibility. FELDMAN: A lot of people in our industry don’t see themselves as salespeople. What would you tell them? CARDONE: I would tell them they skipped a step. They went from maybe being a student and they jumped into business. They’re intelligent, they’re great and they have a great product to represent. But where’s the revenue piece? Where’s the income piece? The only reason a business fails or succeeds is not the quality of the product but the amount of the revenue it produces. That’s how we measure businesses. How much money does it make? Even Elon Musk is asked that question every day. Whether he wants to go to Mars, build electric cars or create solar panels, the question is going to be “Hey, Elon, when are you going to start making some money?” The insurance agent, the financial planner, the small-business owner needs to make money selling a product or a service. Or they need to go raise money, get investors — which, by the way, is a sales job all in itself. FELDMAN: How about those who recognize that they are in sales but don’t believe they need sales training at this point in their career? CARDONE: Maybe you don’t need to do it. What you do need to do is understand the game is changing. Entire industries are being disrupted at rates that have never existed on this planet. Insurance agents, real estate agents, financial planners, dentists, chiropractors are under the threat of either government regulation or industry disruption. There is going to be something happening in these spaces. It’s already started to happen with banks, ATMs and the retail environment. Where people are not achieving at high levels, they’re going to be replaced by more efficient means. It happened to the horse. I know that was a long time ago, but it will happen to the bank teller, and it will happen to insurance agents. It will happen
to financial planners. Trust me, Amazon’s looking at both these spaces right now, figuring out how they can displace average producers and small-business owners who only make a little crumb. Why go for the crumb when you can have the whole cookie? FELDMAN: Are people thinking too small? CARDONE: Unfortunately, this is what most people are doing. Most people have gone into business saying I am better off making $60,000 or $70,000 a year working for myself than working for somebody else. But it’s not true, and my message to small-business owners is quit lying to yourself. It is not better to work for $60,000 or $70,000 a year, whether it’s for yourself or someone else. Simply, you’re not making enough money to have freedom. FELDMAN: A lot of our readers would consider themselves solopreneurs. They don’t have staff; they’re doing everything. What advice do you have for people that are in that mindset? CARDONE: You put a fancy word on it, solopreneur. What does that even mean? It’s made up. Call yourself little baby business boy. Punk businessman. Tiny thinker. Susceptible to big guy. You’re going to get crushed. You will not be able to provide for your family. That’s what you should call yourself, not “I’m a solopreneur. I’m a business owner. I’m self-employed.” These are fancy words for something. What does it mean that you’re a solopreneur? Does that mean that you’re the warden and the prisoner? Why would you start a business that never becomes a business? A business is something that’s going to operate whether I’m there or not. The value of that business is determined by how much money is made and who’s making the money. It shouldn’t have to be me every second of every day. I say this with empathy and understanding because from the ages of 29 and 45, I tried to be a solopreneur, only to find out it is an impossible business proposition. Smaller is not better. Faster is better. You have to be big as well. You can’t be small today and think that you’re still going to exist in the future. April 2018 » InsuranceNewsNet Magazine
INTERVIEW SUCCESS IS YOUR DUTY FELDMAN: What does it take to be great at sales today? CARDONE: To be great at sales or to be great at anything, you need to make a commitment to something. I’m not great at sales because I love sales. I don’t know that Tom Brady’s great at being a quarterback because he loves football. A lot of people think “I need to love something to be great at it.” No. You need to commit to it. I don’t do sales because I like it. I actually hate sales. I’ve written seven books; most of them mention sales. The 10X Rule and Be Obsessed or Be Average really didn’t talk about sales much. I’ve written 13 bestselling business programs for large sales organizations. There’s not one book or program or speech where I say I love to sell. I don’t love to sell, but I do like to make money. And I love to be successful. And I love growing my business. And I love taking care of my family. And I love hiring new people. And I actually love paying the IRS a lot of money. I love that. To get those things that I love, whether it’s taking care of my family or getting great schooling for my kids or giving a lot of money to my church, I need to sell to do it. Average salespeople do not get paid. Not in real estate, insurance, financial planning. FELDMAN: You say you really need to decide whether you’re going to be a professional or an amateur. CARDONE: You need to decide whether you’re going to be a maniac. The people who are winning on this planet are the ones who are out of balance while the rest of the world seeks balance, some harmonic state. People are like, “I’m going to be a hummingbird. I’m going to float.” Look, even the hummingbird’s going 600 miles an hour so that he can keep himself aloft. Look at the bumblebee. The bumblebee is doing something that is physically impossible. How? Through a lot of activity. People who do great things on this planet, they have a big support system around them – it’s got to be big. Jesus is still selling today. Tremendous support system. Lots of money. Taking in money every day. You 12
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have to. They have to be out there promoting and expanding. But it all started from a small idea. I’m going to leave my village, and I’m going to go out and I’m going to speak the Word, which is promotion. Jesus was obsessed. Fast-forward. Look at Steve Jobs. Different kind of dude. Totally obsessed with the idea of Apple. Not the iPhone, but Apple. Changing the way people use technology. Making it comfortable where people are using it and depending upon it every day. I suggest to people, give up your Mommy and Daddy’s idea about just be happy, just be grateful. Take one vacation a year at the Holiday Inn, where you get a free breakfast. You’re going to fly on points everywhere. You might get an upgrade; let’s hope for an upgrade. And 30 years from now, you pay your house off. If 2007 and 2008 taught me anything, it taught me that the middle class is one economic break from poverty at any given day. FELDMAN: How does getting obsessed help people avoid financial disaster? CARDONE: I would tell people that they need to become obsessed with a lot of things. You need to become obsessed with success. You need to become obsessed with money, finances and new income. You need to become obsessed with getting known so that people can actually buy your product or service. You need to become obsessed with getting attention in the marketplace. You need to become obsessed with social media. If you ask your entire audience, “Could you do more than you’re doing now?” I’ll bet you it’s over 94 percent. And the other 6 percent just said no because they don’t like me and want to disagree with me. They’re thinking, there’s no way I’m going to agree with this dude about anything. That’s because my message is really one that goes against the last 30 or 40 years. Particularly in America, where we’ve been influenced by psychiatry and psychology to embrace our inner child. Mommy and Daddy are to blame for everything, and we didn’t enjoy our life enough, and that money doesn’t matter, and money won’t make you happy. Money won’t make you happy, but I’m going to tell you something. Success will make you happy. Success is a game. When
you win, you feel good. Everybody feels good. That’s why they stand up and say, “Wow! We did it!” That’s what I’m really talking about when I talk about money. Money is just part of the way to measure a person’s success. FELDMAN: And money is the vehicle for doing all of the things that you want to do. CARDONE: And doing the things you want to do in the future. Mike Tyson gets paid hundreds of millions of dollars to fight, and then he blows it all. That’s not success. That’s regret. A successful person is also not somebody who makes millions and millions of dollars, then hoards it all because they’re worried about losing their money, and they die with millions of dollars in a bank account. Success is not “I’m successful in my business, I make a lot of money, but my marriage is falling apart, my kids are on drugs and I hate myself.” I’m talking to people about being obsessed with having everything. All of it. Not balance, but expansion in every major part of your life. To have that, you have to be obsessed. It’s not going to come easily. FELDMAN: How do you sustain your own obsession? You’re creating, you’re speaking. I see you on social media. CARDONE: I say yes. When you called up and said, “Hey, can you do an interview with us?” I’m like, “Yeah man, let’s roll.” I say yes. I feed the beast. The first 30 years of my life, I tried to conform to society. I tried to be everybody’s friend. I tried to be like what everybody else wanted me to be. Every time I tried to bring it down, simmer down, get less attention, dream less, the sicker I got. I literally got physically sick. I got uncomfortable. I got unhappy. I was irritable. I didn’t like work. I felt burnt out all the time. By the way, I’m not here to just be me. I’m here to seek my potential. I don’t even know who I am. I want to find out who I can be. Every time I create a new program or write a book, I’m not doing that to try to make money. I’m buying real estate right now; we own about 5,000 apartments. I’m going to try to go to 10,000. I don’t know if I can do it, and
Turnkey asset management platform helping financial firm rise to the
Top of the Industry T
he financial industry is constantly evolving, and one firm that has consistently stayed in the spotlight is Brookstone Capital Management. In just 12 short years, Brookstone has become an industry leader and the top choice among independent insurance agents and financial advisors. With a one-stop-shop focus, Brookstoneâ€™s turnkey asset management platform has provided all the resources needed to support and transform an advisory practice. It all began in 2006, when CEO Dean Zayed had a vision to create a company with one goal in mind â€” to make advisors the most enhanced asset gatherers possible. Now in 2018, with more than 350 advisor affiliations, Zayedâ€™s vision has become a reality. â€œI truly believe that our advisors are given the most complete set of tools to grow their business,â€? says Zayed. â€œFrom day one, my goal was to give Brookstone advisors a turnkey solution that can be used effortlessly to enhance their practices. Our consistent growth and advisor retention are a result of that model.â€? In fact, Brookstone has been on an upward growth trend, with assets under management exceeding $2.3 billion.
Part of Brookstoneâ€™s success has been building an advisor-centric team that supports Zayedâ€™s vision. And, Chief Operating Officer Darryl Ronconi has been focused on advisor needs. â€œOne of my top priorities has been, and continues to be, listening to advisors. We need to know what they want to be success-
ful,â€? Ronconi says. â€œThis is a partnership, and we have to be on the front lines with our advisors. We have to understand their struggles and be able to provide solutions to overcome them.â€? Ronconi has been determined to make the overall advisor experience a positive one.
â€œThis is a partnership, and we have to be on the front lines with our advisors.â€? Darryl Ronconi Chief Operating Officer
Maintaining an Edge
Over the past few years, advisors have been transitioning to Brookstone in record numbers. Maintaining an edge in a competitive industry is not easy, but Brookstone has always led the way. National Director of Business Development Derek Gubala says, â€œAdvisors want a few simple things that they are not getting from our competitors. They want high-level service, comprehensive training and an investment platform that makes them feel confident. With the flexibility, performance and low cost of our platform, it really becomes an easy decision for advisors.â€? Gubala is right; as Brookstone is a leader in the space with a 1.50% fee schedule and the freedom of open architecture.
Enhanced Investment Platform
Brookstoneâ€™s enhanced investment platform is the creation of Chief Investment
Officer Mark DiOrio, CFA. DiOrio is one of three Chartered Financial Analysts on the Brookstone team. As such, he understands the need to adapt and stay competitive in all market cycles. â€œWe have created a platform that is adaptable and applicable to each individual investor. We utilize a combination of strategic/tactical and active/passive approaches â€” all with the goal of limiting large drawdowns and delivering competitive returns. â€œOur platform is designed for every level of advisor. From our turnkey, in-housemanaged models to fully customized solutions, we can be as simplified or complex as an advisor would like,â€? DiOrio notes.
Reputation & Stability
Reputation and stability in the industry have also been important to Brookstone. Advisors want to align with a firm they and their clients can trust. Under the leadership of Chief Compliance Officer Matt Lovett, Brookstone has always put emphasis on protecting their advisors. However, Lovett realizes their business needs. He says, â€œWe understand our advisors, and our team is focused on providing quick response times to get the solutions they need to attract and work with clients. We do not want any disruptions to their businesses.â€? â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€” Itâ€™s no surprise that Brookstone Capital Management is the top choice for financial advisors. As more advisors align with them, it seems as though the sky is the limit for this industry-leading firm! â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”â€”
Find out how your RIA measures up!
Visit YourNextRIA.com to download your RIA checklist. April 2018 Âť InsuranceNewsNet Magazine
INTERVIEW SUCCESS IS YOUR DUTY I don’t think it’ll make me happy if I do do it, but I do know this. I’ll start knocking on the door of my potential. I’ll start discovering more interesting parts of me. That’s what keeps me jacked up. That’s why I’m excited all the time. Half the time I’m excited, I’m scared, I’m curious. It’s like a child. That’s what keeps me interested.
What people need to focus on is can they do more or not? Could you be more charitable? Could you talk to more people? Could you send out more email? Could you do more on social media? Could you follow up with your customers better? Could you have a bigger smiley face? Could you hug your kids one more
Look, 76 percent of America is living paycheck to paycheck. Something is wrong with the mindset. To live in America, where you have choices, where people could make as much money as they want to. Yet, almost eight out of 10 people live paycheck to paycheck. Something’s wrong with the thinking.
Money won’t make you happy, but I’m going to tell you something. Success will make you happy. Success is a game. When you win, you feel good. I tried the other way. I tried to be satisfied. I tried to play golf three times a week. I tried all the vacation stuff. But really what I want to do is I want to be productive. At the end of the day, if I’m more productive, I like giving money to charity. I’ve raised over $115 million for charity. I’ve given almost $20 million of my own money to charities. When the hurricane happens in Houston, I go there and help. When it happens in Florida, I help. I don’t mean I just write checks. I do write checks, but I get my friends to write checks. Then I go there and throw down and help. I’m part of a planet, and it needs help, and I can’t help if I’m low on energy and low on money and low on friends. FELDMAN: How do you keep your level of energy? CARDONE: No clue. I use it. I use all my old energy, and new energy seems to show up. I think people are trying to save their energy. Somebody said to me once, I need to catch up on sleep. I’m like, you can’t catch up on sleep. That’s dumb. If you only slept four hours yesterday, sleeping eight hours today doesn’t catch you up on the four hours you missed yesterday. 14
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time? Could you love your wife a little better? Could you have sex with your partner more often? Whatever it is, you doing more of it ain’t going to kill you. We look at the things people do too much of — the bad stuff. If I just do more of the good stuff, I will literally suffocate having time to do the bad stuff. Stay so busy that you don’t have time for boredom to set in and start distracting the human being’s potential. FELDMAN: You talk a lot about 10X. Why is 10X thinking critical to business today? CARDONE: That was the concept of my sixth book. I was really trying to understand why I had underestimated my ability in life and in business. I had underestimated everything I could do in my life. Some people go out and overspend. I’ve never overspent. I have always underestimated my ability to produce. All my thinking has been too small from the very get-go. All the thinking in public schools is very small. What do you learn there? Read, write and count. Nobody teaches you to think big. Even if you’re setting goals, we know the goals that you’re setting are smaller, based on the education that you received.
FELDMAN: What are your thoughts about hard selling? CARDONE: If you have a good product and a good service, you should be willing to push people hard. I have no problem with pressure. I do the right thing to people. If it makes them uncomfortable and me uncomfortable, I still do the right thing. You don’t raise $115 million for charity without pushing people, trust me. Rich people do not give money easily, and they never give you all they can without a push. Diamonds don’t become diamonds because they sit in the earth. They never become the diamond without the pressure. Pressure makes diamonds. Pressure makes targets achievable. Pressure is what will get Elon Musk to Mars. The greats love the pressure. They get used to playing under pressure. I was at the seventh game of the World Series. Look, the Astros love the pressure. FELDMAN: What about the softer sell? CARDONE: In sales, everybody’s like, “I just want you to know I’m not selling anything. I don’t want to pressure you.” I would never say those things to somebody. I would say, “Hey, I am selling you,
SUCCESS IS YOUR DUTY INTERVIEW and I will pressure you if you show me that you can’t make the right decision.” Right now, I’m working with a company that does $5 billion in sales. I’m going to get an agreement to get a percentage to take them from $5 billion to $7 billion. Now, if there’s some goofball in that company, some guy making $80,000 a year that doesn’t like me or is threatened by my technology or my solutions, I definitely will pressure him. I’ll definitely call him out and say he’s an idiot. Because I’m going to take that company from $5 billion to $7 billion. If somebody doesn’t take that company to $7 billion, the company is going to go to $3 billion, because it can swing either way. If you have the potential to go from $5 billion to $7 billion and you don’t, then I guarantee you’re going to $3 billion. So, the people in the company need to pressure the company to hit their targets and exceed their targets. That takes people willing to push. You win because you push. You don’t win because you just show up. FELDMAN: What happens if the buyer pushes back and says you’re applying too much pressure? CARDONE: I don’t want to pressure you, man. But look, you and the wife are making the wrong decision here. You’re thinking you’re not going to buy the life insurance. You want to think about it a little longer. Look, you’ve been thinking about this for 30 years. Your wife is exposed right now. Your life is exposed. It’s time to do something. If I’m selling gym membership and you’re 40 pounds overweight, I am going to say, “Dude, when are you going to do it? You didn’t get 40 pounds overweight in three days. This has taken a lifetime. You’ve known it. This isn’t the first time.” FELDMAN: Are there any ways to soften a buyer? CARDONE: I wouldn’t worry about it. The ultimate way to be a great salesperson is to keep a full pipeline. The best salespeople I know have full pipelines. I don’t need to do personalities, tonality, match, mirror. I don’t need to do any of the tricks. I need a full pipeline. Full pipeline means when you say no to me and you walk out of my office, there’s somebody else sitting in the
chair after you leave. That’s why people have to get known. It’s never been easier than it is today to get known. Facebook, Twitter, Snapchat, Instagram. These are all instruments. They’re today’s billboards. The top insurance agent in your city used to have every billboard, every bench. Did radio and TV. Facebook is now that medium to where I get known and I can create a full pipeline. FELDMAN: What would you say are the most violated basics people overlook when they’re trying to sell? CARDONE: They don’t even think about making the sale. They think about getting people to like them. Listen to what salespeople say: “I don’t want to sell you anything.” Well then, what are you doing here? I’m not sure what we’re doing. People say dumb stuff. The guy wants to be a businessman without being a salesman. The guy at Morgan Stanley wants to be a financial planner. I’m like, “Dude, you ain’t a financial planner. You’re a salesman. What’s the problem here?” The problem is you’re at a barbecue and you don’t want to tell somebody you sell financial instruments. You want to tell them you work for Morgan Stanley. Basically, we’re 11th graders. “I’m on the football team.” You’re more interested in impressing people with your title than you are impressing yourself and your family with your finances. I’m a dad. I think I’m a good dad. I want to show my kids that I am actually Superman. They think I am. Now I need to prove to them I am. The way I do that is I take care of them. I don’t take care of them just because I get them a place to live. I take care of them because if something happens to me, their financial life is not going to change because I’m not around any more. What happened in my life is that when I was 10 years old, my dad died. When my dad died, our entire mode of operation, everything in our household, changed because
the next week, a check didn’t come in. My dad was a successful guy. My dad worked hard every day, but he did not do enough to take care of my family after he died. A little bit of life insurance, just enough that my mom never had to work again, but not enough to where my mom wasn’t scared every day. FELDMAN: You also have different ideas about time management. What are your thoughts on that? CARDONE: I think the idea of time management is ridiculous. I’ve been around some unbelievably successful people. They’re not trying to manage time; they’re trying to create it. They figure out ways to create time. They figure out how to buy time. That’s what people should be doing. How can I buy time? Some people would say time is not for sale. Dude, that’s not true. I don’t want to manage it any more than I want to manage money. I don’t want to manage money. I want so much money I don’t need to manage it. I want to create. I want a bigger social presence. I want more customers. I don’t want to just manage the ones I have. Look at Amazon. Amazon is not managing what they have. They’re going out and acquiring everything they can. That’s where we’re at today. People need to think bigger. Everybody needs to go exponential rather than thinking about being a manager. Why did we go from business owners to managers? A manager is many levels below business owner. The business owner, the entrepreneur, is the guy or gal who is putting time and energy and resources at risk to expand with a product or a service or an idea. That’s a long way from being a manager. I don’t know what happened that all of a sudden we’re managing time, we’re trying to balance our lives. You go from this gung-ho entrepreneur to a guy talking to me about being a Buddhist monk. Which one you going to be, man? I want to own the mountain and rent it to the monk.
GET MORE GRANT! Listen to the live interview at www.insurancenewsnet.com/INNPodcast. April 2018 » InsuranceNewsNet Magazine
20 States File Suit Against ACA A group of states is attempting to do what Republicans in Congress could not —
get rid of the Affordable Care Act (ACA). Twenty states filed suit in U.S. District Court in the Northern District of Texas to have the ACA declared unconstitutional. At issue is the tax penalty associated with the law’s individual mandate. The states contend that since the GOP tax law eliminated the ACA’s tax penalty the law itself is unconstitutional. The tax law eliminated the ACA’s tax penalty, without eliminating the mandate itself. “What remains, then, is the individual mandate, without any accompanying exercise of Congress’s taxing power, which the Supreme Court already held that Congress has no authority to enact,” the complaint states. The goal of the lawsuit is to repeal the health care law so that Republicans can replace it, said Texas Attorney General Ken Paxton. Congress since taking over the Fed, said that the outlook for the U.S. economy “remains strong” despite the recent stock market turbulence. He said the central bank is on track to gradually raise interest rates.
EXPERTS SAY STOCKS WILL BOUNCE BACK
The stock market took investors for a dizzying ride recently, but experts are encouraging them to wait for the bounce back. The Dow Jones recorded the biggest point loss in its history, although its prior months of rapid growth mean that the dip — as a percentage total — was less than 5 percent But leaders, including those in the White House, said that the fundamentals of the economy are strong, and experts agree that the phenomenon was more of a correction than a crash. Meanwhile, Federal Reserve Chairman Jerome Powell, in his first remarks to
WHAT MOST THREATENS THE ECONOMY?
The White House Council of Economic Advisers announced what it believes poses the greatest threat to the U.S. economy, and the answer might surprise you as much as it might scare you. The internet was named as the economy’s biggest threat — bigger than budget or trade deficits or China or Russia. The internet — if turned against us through hacking and cyberattacks — has the potential to shut down most of the economy. It represents a “potential threat to all Americans using any information and communications technologies” — that
KNOW The IRS overpaid nearly $3.5 billion in DID YOU
Affordable Care Act tax credits last year.
InsuranceNewsNet Magazine » April 2018
Source: Congressional Budget Office
Far worse damage is generally done to a portfolio by the reaction to market volatility than by the volatility itself. — David E. Hultstrom, financial advisor from Woodstock, Ga.
is, almost everyone. The council cites one study estimating $1 trillion worth of damage could be caused by a cyberattack on “critical infrastructure” — such as the power grid or the payment system. In its report, the council estimates that computer crime cost the U.S. between $57 billion and $109 billion in 2016.
ALBERTSONS BUYING RITE AID
Here’s one more in a long list of mergers and megadeals affecting the health care world. Albertsons, the grocery chain that owns retail brands Safeway and Vons, is plunging deeper into the pharmacy business with a deal to buy Rite Aid, the nation’s third-largest drugstore chain. The companies say the deal should close in the second half of this year, but regulators and Rite Aid shareholders still have to approve it. Albertsons said it will continue to run Rite Aid stand-alone stores, and most of the grocery operator’s pharmacies will be rebranded as Rite Aid. Rite Aid’s larger rival Walgreens had tried unsuccessfully to buy the chain, but the company scuttled that push last year after encountering regulatory resistance. Last September, Walgreens agreed to buy nearly 2,000 Rite Aid locations and some distribution centers for about $4.38 billion. Rite Aid transferred about 625 stores to Walgreens.
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The DOL rule may be paused, but it’s still a go for SEC, states, NAIC — and the DOL, again. BY JOHN HILTON
InsuranceNewsNet Magazine » April 2018
he woman was a longtime client who needed a second rollover because she had changed jobs. Financial advisor Keith Gillies was eager to help. “It was literally a transfer amount of just a few thousand dollars, but we probably spent five or six hours doing paperwork on that,” recalled Gillies, managing principal of New Orleansbased Wealth Solutions. “We did it because we want to do and we feel at our firm that we should do those kinds of things.” Other firms and advisors might not be so interested in combating the new regulatory regime in order to service those smaller accounts, he added. Gillies focused much of 2017 getting his firm into compliance with Gillies the first wave of fiduciary regulations from the Department of Labor. The impartial conduct standard went into effect June 9 and, among other things, requires advisors to act in the client’s best interest. To prove that involves documentation, and Gillies added a staff member just to make sure the firm is in compliance with the DOL rule. “Basically, it’s just trying to keep up with the paperwork,” said Gillies, a certified financial planner. “And it seems like even though we try to get all the paperwork right the first time, it seems like there’s always another form.” Unfortunately, the DOL rule is just the start of the regulatory headaches. Gillies has two national partners — one headquartered in New York and the other in Maryland. Both states are among those with fiduciary or best-interest regulations in the works. That means advisors are likely facing a future of compliance with federal regulations plus an added layer of differing state regulations. It all leaves Gillies unsure about his future, an uncertainty shared by many, from manufacturers creating fee-based products that may or may not sell to independent marketing organizations (IMOs) that
DON’T LOOK NOW, FIDUCIARY’S COMING COVER STORY risk being frozen out of the business if the DOL rule isn’t amended. While the DOL rule is delayed and likely to be neutered, new fiduciary rule efforts at the Securities and Exchange Commission as well as the states leave folks like Gillies more concerned than ever. “I’m licensed in very many states, and if each state comes up with a different standard, I just don’t know what I’m going to do,” Gillies said. “I mean it may be just time to say, ‘You know, I’m just going to sell [the agency] and go spend some time on the beach.’” As we near the oneyear anniversary of the partial enactment of the controversial DOL fiduciary rule, the selling landscape for commission-based agents is more muddled than ever before. For many years, it was just the DOL and its attempts to establish fiduciary rules for agents selling into individual retirement accounts and plans. The DOL draws its authority from the Employee Retirement Income Security Act of 1974. In reality, the DOL’s best argument for acting was that it could. State insurance regulators were not interested, and the SEC was habitually beset by political infighting. Now that the latter two actors are at full strength and ready to move on fiduciary or best-interest rules, a fullon turf war threatens to leave agents exposed to a myriad of regulation layers. “Historically, these Campbell have been much more in synch,” said Bradford P. Campbell, partner with the law firm Drinker Biddle & Reath. “When we start having different new fiduciary standards, which are in theory higher than the existing standards in terms of their obligations, then we run the risk of them no longer being appropriately in synch or being less in synch than they are currently.”
DOL Working to Amend
In reality, the Trump labor team kicked off its fiduciary rule tinkering Jan. 3 when Preston Rutledge was sworn in as assistant secretary of labor for the Employee Benefits Security Administration. “The significance of Preston Rutledge being at a desk … cannot be overstated,” said Fred Reish, partner with Drinker Biddle & Reath. “Without political leadership, nothing could proceed in terms of revising the fiduciary regulation and the prohibited transaction exemptions.” The first set of fiduciary rules made it to the finish line after the Trump administration stumbled with its labor secretary nominee. By the time Alexander Acosta was confirmed on April 26, 2017, there wasn’t enough time to delay the Impartial Conduct Standards, which went into effect June 9, 2017. Those standards require advisors and agents to act in the client’s best interest, make no misleading statements and accept only “reasonable” compensation. Acosta succeeded in getting the second round of fiduciary rules delayed until July 1, 2019. That’s where Rutledge comes in — he will be the point man on any rule rewrite. And experts are convinced that will happen. It’s the second part of the rule that is so loathed by the industry. It creates a private right of action within the Best Interest Contract Exemption, and also penalizes IMOs by not allowing them to act as “financial institutions” for the sale of certain annuities. “I think it is very unlikely that notion [giving investors the right to sue] is going to be adopted by the Trump administration in whatever amendments they make,” Campbell said during a recent webinar on the issue. “That said, it is all still under review, and that’s one of the things we’ll see here in 2018.” It is very likely the DOL will release its amended fiduciary rule in fall 2018, he said. The agency will need to allow time for public comment and perhaps a public hearing, depending on the changes it April 2018 » InsuranceNewsNet Magazine
COVER STORY DON’T LOOK NOW, FIDUCIARY’S COMING wishes to make. All of that information gathering and feedback with the industry will start from scratch given the new team of regulators at the DOL, Campbell noted. “So I think ’18 is going to be a flurry of activity as everyone goes in to discuss the rule and what should or shouldn’t be in the final version,” he said. Although July 2019 is the effective date for the fiduciary rule, “we could be looking at July 2020 instead of July ’19 before compliance is required,” Reish added. “I think this is going to be a long, drawn-out process.” Then there’s the lingering court case in the Fifth Circuit Court of Appeals in New Orleans. The industry plaintiffs are consolidated from three lawsuits that were filed in 2016 in U.S. District Court for the Northern District of Texas. While the plaintiffs lost the federal court decisions, the Dallas court was chosen specifically because appeals would go to the Fifth Circuit. The Fifth Circuit is generally considered the most conservative in the country, with decisions that frequently define the government’s role narrowly. The appeals court heard arguments July 31, 2017, and most industry experts predicted a ruling by the end of 2017 at the latest. But that hasn’t happened, and some analysts say the court might consider a ruling unnecessary since the DOL is likely to amend the rule anyway.
SEC on the Move
Meanwhile, the SEC began making moves to revive its own fiduciary rule almost as soon as Jay Clayton was confirmed as its new chairman. Agency staff worked diligently on a fiduciary standard for years under former chair Mary Jo White, but political divisions kept that work from seeing the light. Things got so bad that the SEC was down two commissioners from late 2015 until Jan. 11, 2018, when Robert Jackson and Hester Peirce were sworn in. In their Oct. 14 testimony before the Senate Banking Committee, both Peirce, a Republican, and Jackson, a Democrat, voiced support for a fiduciary standard. While there is an expectation that a Republican-led SEC will be able to work easily with a Republican-led Reish DOL, some are not so sure about that. There are still “overlapping jurisdictions” and natural differences between the two agencies, said Michael B. Koffler, former SEC staffer and partner at Eversheds Sutherland. The fiduciary issue has highlighted some of the differences in the regulatory regimes the agencies administer.
» DOL FIDUCIARY RULE TIMELINE 1974: The Employee Retirement Income Security Act of 1974 (ERISA) is passed into law. ERISA defines a plan fiduciary as anyone who gives investment advice for a fee or other compensation with respect to any money or other property of a plan or has any authority or responsibility to do so. 1978: The DOL is given fiduciary oversight responsibility under Title I of ERISA. As part of Title I, the agency tackles oversight of most private-sector employee benefit plans. 2000s: Momentum grows among some lawmakers and administration officials for an expanded fiduciary standard. Growth of 401(k) and Roth IRA contributions is cited as the main reason. 401(k) holdings grew from $384.9 billion in 1990 to $3.2 trillion in 2011, according to the Employee Benefit Research Institute. 20
InsuranceNewsNet Magazine » April 2018
“The SEC saw what was happening in an area in which it traditionally has had jurisdiction,” he said. “It didn’t like the direction the DOL was headed down.” For his part, Clayton pledged to work with the DOL on a rule that will maintain the investors’ freedom of choice. “They have a mandate; we have a mandate. They’re not the same, but we can cooperate and get there, I believe,” Clayton said during an October appearance before the House Committee on Financial Services. “The devil’s in the details, and we’re working on it.” The SEC has an advantage in that it can set regulations for qualified and unqualified dollars, whereas the DOL is limited to qualified retirement assets. That also makes it harder for the two agencies to harmonize on a rule. “There ought to be consistency with us and the Department of Labor,” Clayton told the committee. “We can’t have asymmetric standards. You can’t put one hat on when you’re talking about 50 percent of your assets and another hat on when you’re talking about another 50 percent. It makes no sense.”
October 2010: The DOL announces plans to redefine when a person providing investment advice becomes a fiduciary under ERISA. January 2011: The SEC releases a staff study recommending a uniform fiduciary standard of conduct for broker-dealers and investment advisors. September 2011: The DOL withdraws its fiduciary-only rule, vowing to re-propose the rule in the future. February 2015: The White House releases the CEA report, “The Effects of Conflicted Advice on Retirement Savings”; President Barack Obama signals push for fiduciary standard in address to AARP. February 2015: DOL sends a retooled fiduciary-only rule to the Office of Management and Budget for review.
DON’T LOOK NOW, FIDUCIARY’S COMING COVER STORY The final SEC rule will largely build on the rule staff produced under the prior chair, Koffler said, with various tweaks to reflect the views of the new members. But Clayton would prefer a 5-0 vote on the rule, he added, as opposed to slipping something through by a slim 3-2 margin. The insurance industry and broker-dealers will probably like what comes out of the SEC, Koffler said. Stand-alone advisors probably won’t like it as much. It would be a surprise if the SEC opted for a rule resembling the DOL’s complicated exemptions with the right to sue, Koffler said. “I don’t think the SEC has nearly the appetite to come up with rulemaking like that,” he said. “It’s very complicated and very rigid, and I just don’t see the SEC wanting to follow that approach.” The National Association of Insurance Clayton and Financial Advisors is hopeful the SEC will produce an “umbrella” regulation that ends up outflanking other agencies, said Judi Carsrud, government affairs director for NAIFA. “[The SEC] making it a priority is, I think, all good news in terms of having clear, straightforward rules easy to comply with and easy to know you’re in compliance
with,” she said. “All of that is looking good to ease some of the confusion.”
States in Play
The relatively quick passage of a state fiduciary regulation in Nevada last summer sent a chill through the industry. Even more surprising was Republican Gov. Brian Sandoval’s decision to sign the bill. The law took effect in July and imposes a fiduciary standard on brokers and advisors that applies to both retirement and non-retirement accounts. Moreover, it extends existing fiduciary rules from “financial planners” to brokers and investment advisors. State regulators took note in New York, California, New Jersey and Connecticut and quickly got to work on their own fiduciary rules. “The message that has started to come out from the states is ‘If the SEC doesn’t act, then we will.’” Koffler said. ‘We are not going to stand on the sidelines when it comes to protecting our citizens.’ So that’s another pressure point for the SEC to act.” Like toothpaste released from a tube, the state’s rush to enact fiduciary rules
April 2015: DOL officially re-proposes a fiduciary-only rule, which is followed by a public comment period. The DOL proposal is actually three rules: extending the fiduciary standard to anyone who gives retirement plan advice, the Best Interest Contract Exemption (BICE) and changes to other exemptions. Aug. 10-13, 2015: DOL holds a four-day public hearing on the fiduciary-only rule. About 75 speakers address the agency over the four days. Written comments and petitions number more than 391,000. Spring 2016: Analysts say DOL needs to publish a final rule by May in order to meet Obama’s goal of having a new rule in place before he departs the White House in January 2017.
is likely not reversible. And that means a major headache for the insurance industry — a complex fiduciary scheme that varies from state to state. New York upped the ante when it introduced a best-interest proposal that covers “all sales of life insurance and annuity products, beyond the types of advice covered by the DOL rule,” Gov. Andrew Cuomo said. The New York standard would continue to exempt policies/contracts used to fund qualified retirement plans, ERISA plans and employer-sponsored IRAs. The proposal also would not apply to sales of mutual funds or other securities unless related to an annuity or life insurance product. For all other sales, the proposal would require licensees to apply a standard very similar to the DOL’s best-interest standard as well as the ERISA “prudent person” rule. Critics claim the New York proposal, which was scheduled to become law after this issue went to press, is too punitive on insurers. The New York proposal imposes “burdensome compliance obligations” and “certain requirements that appear impractical,” Drinker Biddle & Reath concluded in its analysis.
NAIC in the Game
In an attempt to bring some uniformity to state rules, the National Association
April 2016: The DOL published its final fiduciary rule, with one significant change: fixed indexed annuities were added to the BIC exemption. The rule was made “effective” June 7, 2016, with the applicable date delayed until April 10, 2017. June 1, 2016: Eight industry and trade groups, including the U.S. Chamber of Commerce, file a lawsuit against the DOL in the Northern District of Texas. Other court challenges follow, most claiming that the DOL didn’t have the authority to enact the new rules. Feb. 3, 2017: President Donald Trump directs the DOL to review the fiduciary rule. Trump asks for an updated economic and legal analysis of the rule to consider whether it has harmed or is likely to harm investors due to a reduction in savings offerings.
April 2018 » InsuranceNewsNet Magazine
COVER STORY DON’T LOOK NOW, FIDUCIARY’S COMING of Insurance Commissioners took on the charge to create a model law. What the NAIC produced, however, seemingly failed to please either side. Similar to the DOL rule, the NAIC model would place limits on agent compensation, require more disclosures and set a best-interest standard. NAIC model laws must then be adopted by a state before they are applicable. On one side, industry organizations say the model law standards are too harsh and will suffocate annuity sales. These organizations are precise with their arguments, having battled the DOL over its fiduciary rule for the past several years. “The proposed revisions to the existing model would dramatically alter the standard of care that applies to the sale of all forms of annuities and impose broad new compensation restrictions without offering clear benefit to consumers,” wrote Wesley Bissett, senior counsel for government affairs for the Independent Insurance Agents and Brokers of America. On the other side, several state officials weighed in urging the NAIC to strengthen the model law to cover life insurance in addition to annuities. Likewise, the NAIC stipulation that all “non-cash” compensation exceeding $100 must simply be disclosed was termed “insufficient” by Jodi Lerner, attorney for the California Insurance Department. “Bonuses, contests, special awards, differential compensation and other incentives that are won or received as a result of having sold a threshold dollar amount of annuities would reasonably be expected to affect a producer’s ability to act impartially and in the consumer’s best interest,”
Lerner wrote. “Therefore, these types of incentives should be prohibited.” The NAIC is “likely” to issue a revised draft of its model law, Eversheds Sutherland lawyers wrote in a client alert. The timeline puts “the New York proposal on a path for potential adoption before the NAIC completes its process,” the alert stated. The longer the NAIC process drags on, the less it will even matter. More states are likely to follow New York and pass fiduciary rules without waiting. Products with more complex models are sure to attract the attention of state regulators, said Howard Mills, global insurance regulatory leader for Deloitte. “I think they’re going to get much more granular on what is a suitable sales practice, on insurers acting in the best interests of their consumers, particularly around products like variable annuities, long-tail products,” he said. “I think that’s going to be clearly a very strong focus going forward.”
While all of the fiduciary activity swirls about the industry, one thing few have feared is punishment. Although the Impartial Conduct Standards carry a significant burden, the DOL forewarned the industry that it would not seek to punish offenders as long as they were making “good-faith” efforts at compliance. As a result, some firms focused more on adopting the necessary policies and procedures than putting them into practice. That might prove to be a mistake. On Feb. 15, Massachusetts Secretary of the Commonwealth William Galvin surprised the industry by announcing state charges against Scottrade Inc. for
» DOL FIDUCIARY RULE TIMELINE CON’T March 3, 2017: The DOL issues a proposal for a 60-day delay to the fiduciary rule’s April 10 applicability date — to June 9. The delay rule is successful, but the DOL later decides not to oppose the June 9 date of implementation. March 2017: Several industry groups were on the losing side of a decision by a Dallas judge to uphold the fiduciary rule. The plaintiffs appeal to the Fifth Circuit in New Orleans. 22
InsuranceNewsNet Magazine » April 2018
violations of the DOL fiduciary rule. Massachusetts regulators claim the discount brokerage engaged in improper sales practices. Scottrade “knowingly” tied sales contests to retirement accounts, regulators say in the 20-page court filing. But all of the violations alleged by the Massachusetts Securities Division are of state law. In short, the state claims Scottrade ignored the policies and procedures it put in place starting June 9 to comply with the DOL rule. By ignoring those policies, the state claims Scottrade violated state laws by conducting transactions in bad faith. Galvin seeks a return of profits Scottrade earned from the alleged activities and is seeking an undisclosed administrative fine. The Scottrade situation is unsettling to the industry. “So the state is asserting that Scottrade’s failure to follow its own policy constitutes a violation of Massachusetts state law,” said Bruce L. Ashton, a lawyer with Drinker Biddle & Reath. “They only quote one part of the policy, and there may be other aspects of the Scottrade written supervisory procedures that are relevant and show that the company is not failing to observe the standards. But that remains to be seen.” Court documents reveal how Scottrade prepared for the initial requirements of the DOL rule — very well, it seems — and then allegedly failed to adhere to its new standards. State regulators described an “aggressive sales culture” that peaked with “call nights” and sales contests between December 2015 and April 2017 as Scottrade sought business ahead of its merger with TD Ameritrade.
June 9, 2017: The DOL rule takes partial effect, with the Impartial Conduct Standards setting a new standard for agents and advisors. July 31, 2017: The Fifth Circuit Court of Appeals hears arguments on a plaintiffs’ appeal to have earlier court decisions vacated. The court has yet to rule on the appeal. September 2017: The DOL unveils a rule to delay the second phase of the fiduciary rule until July 1, 2019.
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COVER STORY DON’T LOOK NOW, FIDUCIARY’S COMING Scottrade crafted strong policies to comply with the new rules, state regulators said in court docs, but they never put those standards into practice. “Despite its addition of policies related to the fiduciary rule, Scottrade expanded the scale and scope of the very sales practices its policies were designed to curtail,” the court filing reads. Scottrade launched a pair of sales contests between June and September 2017, with the first campaign offering $285,000 in cash prizes, according to court documents. “Both the Q3 and Q4 sales contests perversely incentivized Scottrade agents to bring in new assets from customers, including through the rollover of retirement assets,” according to court documents. Still, the charges do not specifically say incentives were awarded for sales, Ashton noted. “Were the contests and any accompanying rewards directed at effort rather than results?” he asked. “If directed at effort, this might not violate either the policy or the Impartial Conduct Standards.”
A Strong Precedent?
The big news is the precedent set by the Scottrade charges. Other regulatory entities might now view DOL rule violations in the similar context. The Massachusetts strategy reflects “emphasis by all securities regulators on individual investors, especially retirement
investors,” said Brendan McGarry, an attorney at Kaufman Dolowich & Voluck in Chicago, who advises broker/dealers and advisors. Scottrade’s reaction will be noteworthy, he added. Will the firm argue that state regulators are usurping the DOL? Or will they bypass a counterargument and move straight to negotiations? Meanwhile, the pro-fiduciary forces are pleased by the Massachusetts news, said Barbara Roper, director of investor protection for the Consumer Federation of America. “We’ve always hoped that the states could play a role in enforcing the rule, but we didn’t know this was in the works,” she said. “It is very encouraging to see them step in and play this role, and hope this is just the beginning.” Eugene Scalia, attorney for plaintiffs in the Fifth Circuit appeal, took immediate note of the potential harm to the industry. In a brief filed the day after Garvin announced the Scottrade charges, Scalia urged the court to rule sooner rather than later. “Although Massachusetts’s attempt to use the Fiduciary Rule in this manner lacks merit, it confirms Appellants’ concern that the portions of the Rule that took effect on June 9, 2017, will continue to impose extensive burdens and costs on Appellants’ members, even while other aspects of the Rule have been postponed,” the brief read.
» SEC FIDUCIARY RULE TIMELINE 1934: The Securities Exchange Act gives the SEC the broad authority over all aspects of the securities industry. July 2010: The Dodd-Frank Act is signed into law, and giving the SEC the authority to establish a fiduciary standard for brokers and investment advisors if it determines there is a need. March 2013: The SEC issues a Request for Data and Other Information: Duties of Brokers, Dealers, and Investment Advisers. May 2015: FINRA Chairman and Chief Executive Officer Richard Ketchum states support for a uniform fiduciary standard under the SEC and FINRA, and not DOL. 24
InsuranceNewsNet Magazine » April 2018
Pay Attention – It’s the Law
While the Scottrade case can be dismissed as an outlier from a very liberal state, the simple reality is the fiduciary rule, at least parts of it, is the law. The Drinker Biddle legal team, who count many large firms among their clients, say they are concerned about lax attention to the new rules. “The area that I’m most concerned about are recommendations for distributions from plans and rollovers to IRAs. That is the one area that applies to RIAs as well as broker/dealers,” Reish said. “Just in talking to people in the industry, I’m concerned that folks are short-circuiting the process.” Furthermore, the burden of proof — should a recommendation be challenged in court — lies with the advisor, Reish noted. “The burden of proof is on the advisor, the RIA, the broker/dealer, to show they complied,” he said. “Therefore, you need documentation. That’s a huge difference from traditional thinking, and processes have to be documented.” 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. email@example.com or follow him on Twitter @INNJohnH.
2015-16: During several public appearances and testimony on Capitol Hill, former SEC chairwoman Mary Jo White backs a fiduciary standard and says SEC staff are working on a rule. But political infighting keeps the agency two members short of a full five-member commission. June 1, 2017: New SEC Chairman Jay Clayton announces a renewed SEC effort to write a fiduciary standard and solicits comment from the industry. Jan. 11, 2018: Robert J. Jackson Jr. and Hester M. Peirce are sworn into office as SEC commissioners, returning the commission to a full five members for the first time since late 2015.
DON’T LOOK NOW, FIDUCIARY’S COMING FEATURE
IMOs Hope for Fair Shake From Fiduciary Rules By John Hilton The C2P Advisory Group visited the DOL in 2016 to help regulators understand how an independent marketing organization sells annuities. Clients receive the “Bucket Plan” guide to financial planning with an emphasis on retirement, C2P executives told Assistant Secretary Phyllis Borzi. The fiduciary planning model stems from the book “The Bucket Plan: Protecting and Growing Your Assets for a WorryFree Retirement,” by C2P founder Jason L. Smith. The visit went very well, or so thought Doug King, CEO of C2P Advisory Group. C2P executives
hoped the visit would give the DOL the knowledge it needed to give IMOs some standing to serve as financial institutions in its fiduciary rule. The financial institution is the liable party in an annuity sale. “They did not give us, nor could they give us, an approval and say, ‘Yep, that’s what we want,’” King recalled. “But they did make the comment that ‘That’s how we hope all of the financial institutions would operate.’” But instead of making room for IMOs, the DOL proposed a “Super-IMO” exemption that limited the financial institution designation to IMOs with three consecutive years of at
» STATE FIDUCIARY RULES TIMELINE 2003: The National Association of Insurance Commissioners adopted a suitability model for making recommendations to consumers. Second quarter, 2015: The NAIC charged its annuity working group with producing a new annuity transaction model regulation. The blue states show where the NAIC Model Regulation has been or is in the process of being adopted.
April 2017: Nevada introduces the stiffest state regulation of financial advisors to date. The bill not only extends the fiduciary standard to all financial planners, including broker-dealers, but it also requires financial planners to disclose any profits or commissions they might receive from a client’s investments.
least $1.5 billion in premium. If the exemption remains, only a few IMOs will qualify. “Groups like us, who follow a fiduciary process, would effectively be eliminated from being a financial institution,” King said. “It puts us out of business, to be perfectly blunt. I just don’t see how that’s in the best interest of the client.” Banks, insurance companies, securities brokers and investment advisor intermediaries were identified as financial institutions when the DOL rule was issued in April 2016. Insurance intermediaries were left out and included in the separate best-interest contract exemption for insurance intermediaries issued in January 2017. Many of the requirements in BICE for insurance intermediaries mirror the requirements of the standard BICE, and meeting the terms of the exemptions
is a must for distributors seeking to retain the income from commissions and overrides. The high bar is necessary precisely because IMOs are not regulated in quite the same way as other financial institutions, DOL officials claimed. IMOs will still be responsible for selling huge volumes of fixed indexed annuities and will make as many as 227,000 annuity disclosures every year to retirement plans and IRAs, the DOL estimated. King isn’t so sure about that. “We went back to them and tried to help them understand that what it would do is actually the opposite of what they hoped to do,” he said. “Meaning that it would create more groups to sell more annuities that may or may not be in the best interest of the client in order to get over that standard.”
July 1, 2017: Republican Gov. Brian Sandoval shocks the industry by signing Senate Bill 383 creating the fiduciary standard. Summer 2017: On the heels of the Nevada legislation, Connecticut, New York and New Jersey consider legislation to address concerns over fiduciary duties, focusing on expanding disclosure requirements. Dec. 27, 2017: New York unveils a fiduciary standard that covers life insurance as well as annuities and requires advisors to act in the best interest of their clients. February 2018: The NAIC annuity transaction model law is criticized from both sides for being both too weak and too damaging. The NAIC model would place limits on agent compensation, require more disclosures and set a “best interest” standard. April 2018 » InsuranceNewsNet Magazine
Voya Not Sure About Life First, Voya announced it
would shed its closed block of variable annuities and its portfolio of fixed and fixed indexed annuities. Now the company is thinking about what it will do with its individual life insurance business. Earlier this year, Voya officials said they will conduct a review of the company’s individual life business. Voya’s annuity business is combined with the individual life business, so once the two businesses are disentangled and the annuity business sale is completed, Voya will have an opportunity to take a new look at the life business, executives said.
NEGATIVE OUTLOOK FOR LIFE SEGMENT
TERM LIFE COULD SEE A BOOST IN 2018
Changing distribution models are likely to give term life an edge at the expense of permanent life products, according to an A.M. Best analysis. Faster underwriting processes, a focus on complying with principals-based reserving and repricing in line with new 2017 mortality tables also will be factors in the life insurance business during the coming year, analysts said. Whole life will struggle against universal life products, many of which have interest crediting rates based on equity indices or new business interest rates, the analysts wrote. The analysts also predicted a change in the mix of new business coming from alternative distribution models. They foresee a move away from traditional faceto-face channels as insurance companies penetrate the middle market, primarily through the sale of term insurance. DID YOU
A.M. Best researchers also were pessimistic about what 2018 will bring to the life insurance segment. Best’s outlook for the segment is negative. Life sales will remain in the low single digits. Companies that don’t keep up with technologies that help them cut distribution costs and speed up the pace of issuing policies will be ripe for consolidation, Best researchers wrote. This year could also shed new light on mortality trends, which have been plateauing as the average life expectancy in the U.S. showed a slight decline in 2015 for the first time since 1993. People who die earlier than expected mean life insurers also have to pay benefits sooner than planned.
WHY DON’T MORE PEOPLE OWN LIFE INSURANCE?
Why don’t more Americans own life insurance? The Federal Reserve Bank of Chicago attempted to answer this question. The share of Americans with life insurance has fallen from 77 percent in 1989 to less than 60 percent today. In 1965, Americans purchased 27 million policies, individually or through employers, according to the American Council of Life Insurers. In 2016, a population that was more than 50 percent larger still bought only 27 million policies.
We’re looking at a number of strategic paths and really the strategic fit of the individual life business as part of Voya. — Carolyn Johnson, CEO of Annuities and Individual Life, Voya
But the Fed bank looked at the demographics and the life insurance numbers and concluded that if various population groups had acted the same way in 2013 as they did in 1989, 78 percent, not 60 percent, of U.S. households would have had life insurance. The study also looked at the relationship between life insurance ownership and education and income levels. In 1989, 76 percent of Americans with a high school
diploma owned any kind of life insurance. By 2013, that share had declined to 55 percent. For those with a college degree, ownership fell to only 73 percent from 88 percent. Similarly, among people in the top 20 percent of the income distribution, life insurance ownership fell to 85 percent from 94 percent, while it dropped to 27 percent from 44 percent among those in the bottom 20 percent of income.
The board of directors of Nestle S.A. said it will explore options for its Gerber Life Insurance business, including a potential sale, as the company continues to alter its product portfolio. Source: Food Business News
InsuranceNewsNet Magazine » April 2018
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Could Your Clients’ Parents Be an Untapped Life Insurance Market? The right type of life insurance could be a way for your clients to help their parents with their income or legacy goals. By Sam Goldsmith
e sell life insurance to clients from all walks of life. The majority of our clients seem to be between the ages of 30 and 60. Although we don’t necessarily market to our current clients’ parents, recently we have thought about whether this is a market that our colleagues are leaving untouched. We sell to baby boomers in their 60s and 70s, and we sell to some clients in the silent generation who are in their 80s. But when we do, it usually is not because of a request from their children. Many of our colleagues try to sell to their clients’ children and grandchildren, but never to the parents. Could this be an untapped market for you and your practice? 28
InsuranceNewsNet Magazine » April 2018
Why should your clients want to buy life insurance on their parents? We sell life insurance to parents of clients if their parents’ demise will affect them financially. Most parents say they actually want to leave something behind for their loved ones if they can afford to do so. There are many different reasons why a life insurance policy taken out on parents is a good idea. But no matter the reason, if your client is looking for a policy for their parents, it’s essential to help them navigate the process and find the right product for them. Let’s look at the four most common types of life insurance policies that children purchase for their parents. 1. Simplified issue term. This is also known as no exam or non-medical life insurance. This type of life insurance is purchased without requiring a paramedical exam. The premium rates are comparable to traditional fully underwritten life insurance for below-average-risk clients, such
as those in the Table 2-4 range. Policy amounts typically cap at $350,000. Some carriers have age limits or require an exam due to health or age; however, coverage often is offered for clients up to age 65. This type of insurance is a great solution for clients with short-term needs — such as paying short-term debt — when a quick turnaround is desired. 2. Fully underwritten term life. This is traditional, fully underwritten life insurance, offered for a specific term – typically between 10 and 30 years but usually 20 years or less for baby boomers. The premium rates are affordable compared to other types of life insurance because it has a “shelf life” and is fully underwritten. Larger policy amounts — even over $1 million — are offered. A paramedical exam is required. This type of insurance is a good shortterm solution for those who desire affordable pricing.
COULD YOUR CLIENTS’ PARENTS BE AN UNTAPPED LIFE INSURANCE MARKET? LIFE
When considering life insurance for parents of your clients, the person (or sometimes entity) holding the rights to the life insurance contract must be established. 3. Simplified issue whole life. This is also known as final expense or no-exam whole life. Because this is a whole life product, the benefits will not expire. Policies typically cap at $50,000. No paramedical exam is required. Approval usually comes within a few days, after completing a health questionnaire and possibly a telephone interview. This is a permanent solution that is comparable to a Table 4 range fully underwritten whole life contract. It’s a great solution for those who don’t want to take a medical exam or whose health would not merit a standard or better underwritten rating. 4. Whole life or universal life fully underwritten. This is a permanent life insurance solution. The benefits and premiums can be designed to remain level for life. A paramedical exam is required for coverage. Larger policy amounts are offered, and the coverage can be illustrated with or without cash value. This solution is ideal for those who are looking for coverage at the best possible price and are willing to take an exam and qualify for a fully underwritten offer. We always try to underwrite physically first to establish whether the prospective insured should take an exam, then decide whether their needs are permanent or short-term. If the death of a client’s parents would lead to financial burden, there is a direct need to secure permanent life insurance on the parents unless that solution is unaffordable. In that case, term insurance is a backup plan. In order to purchase life insurance on a parent, or anyone for that matter, the owner must have consent and an insurable interest. They need to have an interest in their surviving, where a financial burden would occur if their parents were to die. The right product for a client depends
upon their needs and budget, so discussing assets and liabilities is very important. There possibly could be a need for longterm care benefits or a limit to what their needs are. A great example of using life insurance for parents is a policy my wife and I own on my father. My father wanted to help start an education fund for our children. Because he didn’t have assets of any substance to give us, he advised us he would like to start a life insurance policy where I am the beneficiary and my wife owns the policy on my father’s life. The death benefit will fund our children’s college education expenses. There are many ways to structure and pay for this plan — for example, monetary gifts from the children’s birthdays. My father paid for the policy at its onset, and eventually we took over the premiums along with aforementioned gifts. Using a permanent life insurance policy on your parent as a forced saving mechanism with a tax-free benefit is a safe and conservative way to put money aside for the future. Along with using a policy as previously described, there could be a few other reasons why your clients would want a life insurance policy on their parents. What are some other needs your clients’ parents might have?
» Long-term care. It’s never too late to
look at parents’ assets and see whether they have a need for long-term care coverage. You can offer permanent insurance solutions that offer living benefits to provide LTC solutions should the need arise. If the need doesn’t arise, then the life insurance policy plays its primary role of providing a death benefit.
» Final expenses, including funeral costs. Every parent needs proper planning
for end of life. The more prepared your clients are for that day, the easier it will be to swallow that pill. This includes coverage for debt repayment, mortgage, car loans and any medical expenses your client’s parents might leave behind.
» Income for surviving parent. This in-
volves supporting one parent — financially and emotionally — after another one dies. Many of our clients find that losing one parent is worse than losing both. The surviving parent will need comfort and support after such a life event, and many clients financially would not be able to afford the burden alone. Finally, when considering life insurance for parents of your clients, the person (or sometimes entity) holding the rights to the life insurance contract must be established. Who will own the policy? Will it be the children or the insured? Ownership is important because the owner can make changes to the life insurance policy, such as transfer of ownership, beneficiary changes or premium changes. Advisors are always looking for smart ways to grow their book of business, so the possibility of helping change the future for their clients’ families should be an enticing prospect. Sam Goldsmith is the principal broker of Goldsmith Insurance Agency, an independent life insurance agency in Denver. Sam may be contacted at sam.goldsmith@ innfeedback.com.
Like this article or any other? Take advantage of our awardwinning journalism, licensure and reprint options. Find out more at innreprints.com. April 2018 » InsuranceNewsNet Magazine
How End-of-Life Documents Are Like a Love Letter End-of-life planning involves more than buying life insurance and drafting a will. Here is how advisors can begin the conversation. By Edward C. Auble
have a mission: to create a truly comprehensive end-of-life checklist for my clients. Over the years, I have discussed end-of-life planning with my clients. Their prior planning, if any, has been universally spotty. Why? In many cases, it’s because they have an aversion to facing the inevitability of death. While folks generally understand that they should prepare a will, how many do so? Beyond this basic document, how many consider a durable power of attorney and/or a health care proxy? There are books and websites available to provide guidance, but most are limited in their scope or the information they provide is out of date. For example, a financial planner may have a checklist that covers investments, bank accounts and insurance but includes nothing about shutoff valves in the home or the location of keys or who has access to the safedeposit box. An attorney will provide legal documents but will not give advice on how to determine the radon level in the home. And it isn’t just the thought of death that inhibits end-of-life planning. Just tackling the subject is daunting. Where does one begin? What portion of the planning should be addressed early on? If the planning is for parents, are they willing to engage in the discussion? Are they mentally capable of doing so? Are there family squabbles? Neglecting to address end-of-life planning doesn’t mean there isn’t a plan. But it’s usually just a hodgepodge plan. It’s like dying without a will (intestate). The state will direct who gets your assets. And without a written end-of-life plan, you leave your loved ones with a steep learning curve and 30
InsuranceNewsNet Magazine » April 2018
questions that may never be answered. So, referring to the Montaigne quote below, I have identified a package of checklists and added my thoughts based on 45-plus years of experience in helping others with insurance, financial matters and personal planning. Consider me the “string” of this effort.
A Love Letter
I consider my personal end-of-life plan to be a “love letter” to those I leave behind. The plan says that in addition to the material and financial legacy, I wanted to try to answer all the inevitable questions that would arise at my death. Brief story — some years ago, Mary
The number of “gray divorces,” divorces of those ages 50 years and older, has increased significantly in recent years, according to Pew Research. If there are no children of the marriage, who will be available to handle end-of-life issues? Who will be the executor? My younger sister, a widow, lives three states away from me. As her executor, I face challenges that are compounded by distance and her aversion to using a computer. At my urging, she did purchase a filing cabinet to organize her documents. And I have talked to the professionals who serve her — accountant, lawyer, property/ casualty agent and stockbroker. How does an insurance or financial pro-
“I gather the flowers by the road, alongside the brook and in the meadow, and only the string that ties them together is my own.” Michel de Montaigne 1533-1592 came to my office. Her husband had recently died. While I had no insurance or business relationship with her, she sought my advice. Her responsibility in the marriage essentially had been to cook and clean. Her husband handled the rest and now, lacking a host of details, she was faced with a required IRS estate tax submission. And she was distraught! Life shouldn’t be that way. And it won’t be if your clients prepare your own “love letters.” Another brief story — the father of a friend was forthcoming about end-of-life details before his death. He even showed his daughter the secret hiding place in the basement where he kept his safedeposit box key. Had he not done that, she would have been unaware of the existence of a safe-deposit box. On the other hand, it was two months after his death before she found his will.
fessional get started in end-of-life planning? First of all, recognize that this subject is a very personal matter. You aren’t just discussing life insurance, for example. You are reviewing the individual’s whole personal “landscape.” They need to feel comfortable with you. When someone wants to engage me on end-of-life planning, I let them know that the first meeting might take a couple of hours. There might be subsequent meetings and/or telephone conversations. I ask them to bring relevant documents for my review, with the understanding that I am not an attorney or investment advisor giving professional advice. They will be advised that I am fee-based, based on total time spent, face-to-face or otherwise. At the end of the engagement, I will prepare a summary of my suggestions for them. A typical engagement might
HOW END-OF-LIFE DOCUMENTS ARE LIKE A LOVE LETTER LIFE
End-of-Life Planning — Some Questions Comprehensive end-of-life planning includes much more than a will, a durable power of attorney and a health care proxy. It needs to include matters concerning the home, the friends, pets, funeral arrangements, the business and obituary. For example, you have a beloved pet. How old is the pet? What medicines does it take? What food does it eat? How is its health? What is the veterinarian’s contact information? Some other questions:
• Are you a member of a gym? Any organizations? • What email accounts do you have? • What social media accounts do you have? • What are their passwords? Think of planning this way: What questions will your spouse or children ask when you are no longer able to provide answers?
consist of an initial two-hour meeting, another hour on the phone, and an hour reviewing documents and preparing a summary. Each situation has its own pattern. Done professionally, this planning can lead to spin-offs such as life and/or longterm care insurance sales. That said, keep in mind the reason for the engagement, and focus on that. You are consulting, not selling.
Checklist and Documents
What documents do I include? Executor’s checklist, guidelines on selecting nursing homes and continuing-care retirement centers, funeral pre-planning, filing systems, etc. And I include a checklist on items to be considered around the home, items such as location of the breaker box, gas main and the water shutoff valve. Is there any mold? When was the radon level
last checked? Almost everyone would like help with documents and guidance in their preparation. But that begs questions. What documents? Where are they found? To whom might I turn for comprehensive guidance? In providing the “string,” I believe I have answered these questions. Ultimately, no plan can be truly complete. After all, memories occasionally fail. Addresses change. Focus changes. However, with a comprehensive approach, updating a plan is easier. In one package, loved ones will find guidance on personal, business, legal, financial and health care information, calming advice during a stressful process. It is, after all, a love letter. For the moment, step away from the poetic love letter motif. In addition to considering your clients’ situations, consider your own real-world situations or,
for the moment, one of mine. My son is my executor. So identified in my will, he could probably gain access to my safedeposit box. However, additional documentation with the bank gives him immediate, assured access. My suggestion? Talk to your bank about your own situation. Now would be a good time. Try to imagine the questions your loved ones will have after your death. Then provide the answers now. You will feel better, and so will those you leave behind. They will know that you cared. Edward C. Auble, CLU, ChFC, MSFS, LUTCF, is the owner of Auble Financial, Paoli, Pa. Ed may be contacted at edward. firstname.lastname@example.org.
April 2018 » InsuranceNewsNet Magazine
Annuity Sales Continued Slide in 2017
$104B 2016 $96B 2017
After six consecutive quarters of decline, annuity sales continued their drop for 2017, according to LIMRA Secure Fixed Retirement Institute. In 2017, total annuity sales decreased 8 Annuities percent to $203.5 billion, compared with 2016. 2016 $222B For the year, fixed annuity sales fell 8 percent to $107.9 2017 $204B billion. Despite this decline, annual fixed annuity sales surpassed $100 billion for the third consecutive year. Total variable annuity sales for 2017 were $95.6 billion — 9 percent lower than 2016. This marks the first time in almost 20 years annual VA sales have fallen below $100 billion. Structured annuities were one of the bright spots in the annuity market in 2017. Structured annuity sales for 2017 were up 25 percent to $9.2 billion, compared to 2016.
2018 COULD BE A SLOW YEAR FOR ANNUITIES
Sales of individual fixed annuities are likely to be flat or slightly higher in 2018 as annuities compete with money market and short-term bond funds, according to a survey. The Department of Labor’s fiduciary rule and low interest rates are also expected to create sales drag this year, according to A.M. Best’s 2018 market preview. New product introductions, which help boost sales, have been “somewhat limited” in the fixed annuity market, wrote A.M. Best analyst Ken Johnson. However, the forecast wasn’t all doom and gloom. Sales of fixed indexed annuities and variable annuities are expected to turn higher once the market adjusts to new DOL compliance processes, Johnson wrote.
ANNUITIES BOOST RETIREES’ CONFIDENCE
Nothing boosts a retiree’s confidence of being able to afford their post-employment lifestyle like owning an annuity,
Retirees who own an annuity are more confident in their financial security
• Retiree owns an annuity • Retiree doesn’t own an annuity 64%
I am able to live the retirement lifestyle I want.
My savings and investments won’t run out if I live to 90.
according to LIMRA research. A LIMRA study found that 73 percent of retirees who own an annuity believe they will be able to live the retirement lifestyle they want, compared with just 64 percent of retirees who don’t. Nearly seven in 10 retirees who own an annuity are more confident their savings and investments will not run out if they live to age 90, compared with 57 percent of retirees who don’t own an annuity. And one is not enough when it comes to owning annuities. The report finds more than half of retirees who own an annuity (52 percent) own more than one annuity. Nearly a third (32 percent) own two annuities, and 20 percent own three or more annuities.
NEW PRODUCT NEWS
Carriers are launching new annuity DID YOU
About 60 percent of all fixed indexed annuities are sold through independent marketing organizations.
InsuranceNewsNet Magazine » April 2018
Thereimplementation are 11 companies offering The of QLAC (qualifying longevity annuity the Department of Labor contract) products. While this is fiduciary rulepart in of2017 had a small and new the DIA we expect to see anon uptick amarket, significant impact the in sales in 2016. individual annuity
— Todd Giesing, LIMRA Secure Retirement Institute
products left and right. Here is a rundown of some of them. American Equity Investment Life announced a new guaranteed lifetime income-focused fixed indexed annuity (FIA) with fee options. The FIA will be sold only through independent marketing organizations and independent agents on a commission basis, with the fee options applying to the guaranteed lifetime income rider. The FIA will come in two flavors: a bonus version and a non-bonus version. Each version, depending on the deferral period, will have two fee-based options for lifetime income. Lincoln Financial is targeting a May launch for its first buffered variable annuity (VA). Buffered VAs are sometimes referred to as indexed or structured VAs. Great-West Financial launched Capital Choice, an index-linked variable annuity, which offers advisors potentially higher yields than what is available through banks. The product also allows for market participation with limited downside. The new single-premium deferred index-linked variable annuity is being offered on a commission and fee basis, which will appeal to both independent broker/dealers and registered investment advisors. Brighthouse Financial announced a new version of its FlexChoice variable annuity living benefit rider. The new rider, FlexChoice Access, expands the number of available investment options to more than 50.
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Why Some Advisors Don’t Like Selling Fee-Based Annuities Despite the onslaught of new fee-based annuities on the scene, they remain a fraction of the overall variable annuity and fixed indexed annuity market. By Cyril Tuohy
egulators have pushed insurers to develop fee-based annuities, but financial advisors and brokers who sell them say these annuities remain clunky and aren’t as “clean” as commission-based annuities when the time comes to close a sale. Despite the onslaught of new fee-based annuities in the market over the past 18 months, sales of these products remain a fraction of the overall variable annuity and fixed indexed annuity market. In the third quarter, sales of fee-based variable annuities amounted to only 2.5 percent of the $21.8 billion in VA sales, LIMRA Secure Retirement Institute reported. Fee-based indexed annuities represented even less — 0.4 percent — of $13.7 billion worth of indexed sales in the third quarter, LIMRA said. Exploring the difference in fee structures between fee-based variable annuities and commission-based variable annuities helps explain why financial advisors have shied away from fee-based annuities for so long. Here’s how it all begins.
Fee-Based Burdens of SMAs
Taking a fee out of the annuity doesn’t make economic sense because of the tax consequences to the investor and the penalty incurred for an early withdrawal for clients younger than 59.5 years of age, according to financial advisors. Instead, clients need to write their advisor a check every year for their services or receive a fee from an outside advisory account, which many people find onerous. Advisors compare that to writing a check every year to a mutual fund for managing a 401(k). 34
InsuranceNewsNet Magazine » April 2018
oh $#!& The more popular option is for advisors to open an account separate from the annuity. Those accounts are known as separately managed accounts (SMA), or “sidecars,” from which to draw the fee. Under a fee-based model, an investor with, say, $100,000 wouldn’t lock the entire $100,000 into the annuity. Instead, following the counsel of the advisor, the investor might devote $60,000 to the annuity, for example. The remaining $40,000 would sit in an SMA, and the advisor would receive an advisory fee for managing the annuity and SMA. But the fee would come out of the SMA, since there’s no upfront compensation on a fee-based annuity. A 0.5 percent trail, or other agreedupon trailing fee paid every year to the advisor based on the aggregate account balance of $100,000, which fluctuates every year, would come out of the SMA value of $40,000. “It can get a bit more clunky, and it’s definitely not as clean as a commission-based variable annuity,” said Jessica Rorar, a senior planner with ValMark Investment Group in Ohio. “It’s a clunky mechanism on a fee-based chassis.”
Mortality and expense (M&E) charges are paid by the investor to the insurer out of the fee-based annuity. Insurance company marketers often tout the lower M&E charges on fee-based annuities compared with M&E charges on commissionable annuities. Strictly speaking, insurance companies are right. The M&E charge, sometimes referred to as a contract fee, on a fee-based annuity typically comes to 0.35 percent of the account value, compared with the 1.3 percent M&E charge typically levied by a commissionable annuity. But that’s a misnomer, as insurers don’t count the advisory fee coming to the advisor out of the SMA, according to advisors. And fee-based models can get more complicated quickly. Suppose the client decides to replace the advisor on the separate account because a new advisor promises to charge a lower fee on the $40,000 in the SMA. What then? The original advisor, who has no more assets on which to charge a fee, is left high and dry, since the fee can’t come out of the annuity without tax consequences to the investor. Sure, the advisor could ask for an annual fee from the investor for managing the
WHY SOME ADVISORS DON’T LIKE SELLING FEE-BASED ANNUITIES ANNUITY annuity account, but that leaves the clients paying a fee to the original advisor and another fee to the new advisor, which is more expensive for the client. A fee-based annuity without a corresponding account out of which to pay the advisor results in an orphaned annuity account, or a “house account.” Another advisor could take over the annuity, but not without a selling agreement with the variable annuity company, financial advisors said. So a fee-based chassis is far from ideal, but as insurers refine fee-based annuities over time, more and more advisors can expect to see their fees come out of the annuity, not out of a separate account, Rorar said.
The Cleaner, CommissionBased Sale
Contrast the fee-based model with a traditional commission-based annuity sale, which has been the preferred option for decades. If the client insists on placing the entire $100,000 in the variable annuity, then the commission-based route is a better option.
Insurers and advisors intend to continue with commission-based annuities for that very reason, advisors say. A $100,000 commissionable variable annuity, which would generate a commission of 4.5 percent, or $4,500 upfront, would be paid by the insurer to the agent through the M&E charge and not out of the $100,000 account value. In addition to the 4.5 percent commission, a 0.5 percent trail, or whatever agreed upon trailing compensation starting in the second year and thereafter, would also come out of the M&E fee. Many variable annuity companies charge 1.3 percent of the account value as an M&E contract fee, but commissionable annuities don’t come with the SMA. Although the investor sees an M&E fee come out of the commission-based variable annuity, it isn’t labeled a commission fee. Commission-based products, particularly those with longer durations, are often less expensive than fee-based contracts and in the best, or better, interest of the client, insurance executives and some financial advisors said.
Advisors are also free to set up a compensation structure in which they generate 2 percent in upfront commission with a 1 percent trail, an agreement that varies from one broker/dealer to the next, advisors said. With a commission-based model, the SMA upon which the advisor relies for compensation isn’t an issue. An investor looking to sink $100,000 into a commission-based variable annuity finds that with every quarterly statement, the principal — and more or less as the account value rises and falls with market cycles — is all there. InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril. email@example.com.
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April 2018 » InsuranceNewsNet Magazine
Bipartisan Governors’ Group Takes Aim at Health Care Three governors are attempting to do
what Congress has been unable to do so far regarding healthcare policy. Republican Gov. John Kasich Hickenlooper of Ohio, Democratic Gov. John Walker Hickenlooper of Colorado and Alaska Gov. Bill Walker, an independent, teamed up to announce their latest ideas for improving the nation’s health care system. Their blueprint lays out a host of ideas for improving affordability, restoring stability and promoting flexibility. Their goal is to allow states to innovate while eliminating duplicative and burdensome insurance regulations. The governors urge the federal government to restore insurer subsidies that were stopped by President Donald Trump, triggering sharp increases in premiums this year.
MAJOR POLICY GROUP PROPOSES ‘MEDICARE EXTRA’ PLAN
Meanwhile, a liberal group, the Center for American Progress (CAP), released the proposal “Medicare Extra for All.” This plan aims to make the program available to everyone — regardless of income, health status, age or insurance status, while preserving employer coverage for those satisfied with the existing system. Last fall, Sen. Bernie Sanders, D-Vt., announced similar legislation to offer health care to all Americans in a bill that advocates a true single-payer health care system, similar to Britain’s. The “Me dic are E xtra” version announced by CAP features an out-ofpocket limit, coverage for dental care and hearing aids, and integrated drug benefits. Under the plan, premiums would be capped based on income for the plan, which would offer zero or low deductibles, DID YOU
InsuranceNewsNet Magazine » April 2018
— Stefan Gildemeister, Minnesota State health economist
AETNA FACES PROBE OVER DOCTOR’S TESTIMONY
California is investigating Aetna after its former medical director testified that he never looked at patients’ medical records when making coverage decisions. During a deposition tied to a lawsuit against Aetna, Dr. Jay Ken Iinuma said he based his coverage decisions on information provided to him by nurses.
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OUCH! HOSPITALIZATION CAUSES FINANCIAL PAIN
Being in the hospital involves more than physical pain. It can deliver a serious punch to the wallet as well. A university study revealed that hospitalization and the health problems related to it can lead to a 20 percent drop in earnings and an 11 percent drop in employment for adults between 50 and 59 years of age. And that’s not all. Adults who have he alth problems leading to hospitalization have worse access to credit as a result, as well as larger unpaid medical bills and more out-ofpocket medical spending. The study was conducted by professors from Massachusetts Institute of Technology, the University of California at Santa Cruz and Northwestern University.
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Like everything in health care, the topic is complex, and simple answers that apply to all players in the market may not exist.
The doctor made that admission during a deposition tied to a lawsuit filed against Aetna by a college student with a rare immune disorder, CNN reported. The student accused Aetna of denying him lifesaving infusions, but Aetna contended that he failed to comply with their requests for blood work. But the case really boiled over about what Iinuma, who was Aetna’s medical director for Southern California at the time, said when questioned how the insurer determines what to cover. Iinuma said he never looked at patients’ medical records when employed by Aetna, instead basing his coverage decisions on information provided to him by nurses. He also said that was protocol at the company and that most of his decisions were conducted online, with a rare call to a nurse to ask for more details. That admission caught the attention of California Insurance Commissioner Dave Jones, who said he now will review every denial of coverage or preauthorization during Iinuma’s tenure.
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6 Ways Brokers Can Get More Out of the Enrollment Off-Season Get a head start on the busy open enrollment season by following this strategy. By Shea Treadway
pen enrollment and the couple of months leading up to it take up most of the average health insurance broker’s focus, and with good reason. But the off-season is a valuable opportunity to connect with your clients on issues you may be too busy to handle during that busy enrollment season. These strategies will help you get more out of the quieter part of the year.
1. Work ahead on contract reviews
Your clients should review their contracts every year to make sure their benefits still match their needs. But if they try to handle this review at the start of open enrollment, there may not be enough time to go over everything in detail. Decisions on 38
InsuranceNewsNet Magazine » April 2018
the medical plan tend to dominate most of their focus, and they will have limited attention for other benefits such as longterm disability (LTD). Clients may go on autopilot and renew the same contract, even if it no longer meets the company’s needs. For example, one client’s LTD package covered just base salary. They had recently launched a new sales division whose employees were paid by commission only — meaning those sales employees weren’t properly covered under their LTD plan. This had the potential to create issues at claim time and went unnoticed because the client couldn’t take the time to review the contract properly. Mistakes like these can stay in place for multiple years, even if a client changes insurance carriers. They submit a request for proposals for the same contract and there’s no guarantee the new carrier will catch underlying issues. The best way
to discover these problems is through a thorough contract review.
2. Schedule summer reviews
The quiet summer months are ideal for a focused contract review. You and your client can look over their package and really think about whether the benefits it offers are the right fit. Since they can update their contract at any point, there’s no need to rush a review during open enrollment. Save this discussion for the off-season when both of you can focus on these important reviews. When you reach out for a contract review, not only will clients appreciate that you made the effort to go over their benefits, but there’s also a good chance the meeting will lead to more business. During the process, the client might realize their situation has changed and they need to adjust their benefits by raising plan maximums, covering bonuses on
6 WAYS BROKERS CAN GET MORE OUT OF THE ENROLLMENT OFF-SEASON HEALTH/BENEFITS top of salaries and/or adding new benefits such as executive disability.
You can start your pre-communication with employees for open enrollment. Let them know what products will be available and when they can start signing up.
3. Prepare for the next open enrollment
The off-season is also an opportunity to start preparing for the next open enrollment so there’s less to do at the end of the year when you and your clients are slammed. Start by sitting down with clients and going over the results of last year’s open enrollment with them. What went well, and what could be improved for this year? You have time now to go through these mental exercises and adjust, whereas if you wait until open enrollment, it may be too late to make adjustments. Present your road map for the next open enrollment as well. Highlight what products will be available, when employees will start signing up and what steps you both can take to increase enrollment. If you’re comfortable bringing a carrier representative to this meeting, they can also provide their suggestions for improving open enrollment. Finally, you could discuss the client’s existing portfolio and whether it makes sense to fill any gaps. For example, the client may need to add a vision plan or executive disability coverage. Clients can consider these changes now but will likely be too busy to think about them during open enrollment.
4. Teach employees about benefits
Employees can absorb only so much information in one sitting. When you hold training classes during open enrollment, chances are the employees are more focused on signing up. The off-season may present a better opportunity to educate employees because they aren’t caught up in the complexity of enrollment. Some ways you can help employees include reviewing the rules for their existing benefits, walking them through the claims process or discussing the launch of a new product that will be available during the next open enrollment. Contact your carriers to see what training materials they offer and whether they can send someone to help with your presentation. You also can start your pre-communication with employees for open enrollment. Let them know what products will be available and when they can start
signing up. They will appreciate being able to prepare earlier. Finally, highlight the financial benefits of the existing program so employees better appreciate what they’re receiving. Workers might not realize how much their employers have invested in the program until you break it down for them.
5. Find the right technology connections
Different insurance carriers match better with different technology platforms for enrollment and administrative services. You should help your clients find the right fit to improve their experience through a smoother connection. First, figure out what they need. Think about the tech partners you and your clients like to use. Then think about which insurance carriers work well with each tech firm. From there, you can start proposing matches. For example, if you learn a major client has signed up with Tech Firm A during the summer, you can suggest the insurance carriers in your portfolio that work best with that platform.
6. Explore HR compliance concerns
Human resources departments are fighting to keep up with new regulations. If you offer to educate them about common compliance issues and identify trends, it’s an easy way to get an appointment and build relationships during the off-season. For example, paid family leave has become a hot topic over the past 12 months
as states and cities launch new legislation. Your clients are concerned about how to adjust their benefits to stay compliant with the latest rules. They also want to know which states and cities could be next to launch paid family leave so they can start preparing for upcoming changes. American with Disabilities Act (ADA) and Family Medical Leave Act (FMLA) compliance are two other common pain points and are great topics to suggest for a training seminar. Your carrier partners may offer materials to help you cover these topics and could be willing to send a representative along for the discussion if you want assistance. The sooner you can start working on these strategies, the more you’ll get out of this year’s off-season. By putting in this effort now, you’ll make life easier for the next open enrollment while expanding your business at the same time. Shea Treadway is Unum’s regional vice president of sales and client management for the Midwest region. Shea may be contacted at firstname.lastname@example.org.
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Majority of Americans Want to Save More
More than half of American households report their top financial priority is saving more money, according to LIMRA. And what’s the driving force behind this desire to save? Retirement! Of those who said they wanted to save more money, 56 percent cited retirement as a top reason. Other household financial priorities include paying down debt, creating a longterm financial plan and building better spending habits. LIMRA also found 71 percent of American workers hold some type of non-mortgage debt — such as a car loan, student loan or credit card debt. Six in 10 workers said paying down this debt was hindering their efforts to save for retirement. Despite the desire to save more money, half of consumers surveyed stated they felt financially secure, and 60 percent even said they were optimistic about their financial future. Additionally, half of Americans said they are confident they will be able to live the retirement lifestyle they want.
IMPULSE PURCHASES EAT UP HOUSEHOLD BUDGETS
Why aren’t Americans saving more money? Maybe it’s because they’re throwing too much of their hard-earned cash into their grocery carts. A survey by Slickdeals.net showed that the average American consumer spends up to $5,400 on impulse buys each year — and groceries make up the biggest part of those unplanned purchases. Unplanned grocery buys eat up the budgets of about 71 percent of those surveyed. Other categories of purchases that consumers can’t say no to include clothing (53 percent), household items (33 percent), takeout food (29 percent) and shoes (28 percent).
People are living longer and are retired longer. But the market has struggled to find a way to extend the life of money as effectively. — Matt Fellowes, founder and CEO of United Income
BABY BOOMERS FUEL ROBO-ADVICE
The market for robo-advice continues to pick up steam, and the group that’s driving the robo machine may surprise you. Baby boomers are the fastest-growing demographic for robo-advice, according to T. Rowe Price. “The majority of our robo clients are baby boomers or the silent generation,” a recent company report stated.
Are roboadvisors real competition for advisors? See page 42
TAX REFUNDS — SAVE OR SPEND?
’Tis the season for receiving tax refunds, and more of that money will find its way into the bank. The IRS said it issued 111.9 million refunds in 2017, averaging $2,895 apiece. Of those who expect to receive this windfall, 43 percent said they will put the funds in a savings account, up from 41 percent last year, according to a report by GoBankingRates. Another one-third of Americans expecting a refund said they’ll use the extra money to pay down debt, down slightly from a year earlier. Just one in 10 said the cash would go toward a vacation, and only about 5 percent planned to splurge or make a major purchase.
Fintech companies are already tapping into burgeoning interest in robos from older investors. United Income, a digital investment services firm backed by Morningstar and eBay, is specifically targeting retirement-minded investors between the ages of 50 and 70. Those boomer clients gain access to concierge services like the management of retirement accounts, are automatically enrolled in Social Security and Medicare, are offered second-career options, and are steered toward volunteer work in retirement.
Total U.S. household consumer debt reached $13 trillion in 2017.
InsuranceNewsNet Magazine » April 2018
Source: Federal Reserve Bank
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Until Robo-Advisors Learn Empathy, They Are Not Real Competition The role of technology in financial services should be to enhance the client experience, not substitute for the empathy and advocacy that only a human advisor can provide. • Nick Richtsmeier
uch has been said about the rise of robo-advisors in the financial services industry. With tens of billions of dollars being invested in these online platforms, it is undeniable that consumers are craving the speed, efficiency and data that they can provide. While many of us agree that no computer can offer the one-onone relationship that a client-advisor relationship can, we would be remiss to ignore this growing trend. Some advisors react to the rise of these platforms by dismissing the trend and lamenting about the good old days when an account application could fit on a postcard. What they should be doing is exploring why robos are so appealing and what aspects of that technology could be incorporated into their practices. If advisors had kept up with technology over the years and provided the best-quality service possible to each and every client, maybe there wouldn’t be room for robos. 42 42
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But clearly there is demand for the digitization of the financial services industry, and we need to learn from it. Technology doesn’t have to be the competition for the everyday advisor. And it’s not something that’s going to render us obsolete … unless we let it. It can be a tool that gives advisors and their staff the freedom to do what they do best, without having to worry about the day-to-day tasks that can be handled just as well (or better) by technology.
The Human Touch
Instead of fielding beneficiary or account balance requests, advisors should be able to focus on the human aspect of the job. What are benefits of a human touch? 1. Conversation. Technology can provide a templated survey, but it can’t truly understand what clients are saying. Only a human can respond with the kind of questions that come from years of experience.
The power of creating a safe relationship where clients can express their hopes, trepidations and fears without judgment is key to financial liberation. 2. Empathy. No computer can understand the struggle of whether to put a parent in an assisted living facility, the stress of being forced into early retirement or the pain of losing a house in a fire. Maybe we haven’t been in these situations before, but our ability to empathize allows us to understand the emotion behind every decision. 3. Interpretive wisdom. Advisors can get to know clients’ stories and how they inform today’s financial decisions. For example, why a past diagnosis makes comprehensive health insurance important or how moving every year as a child created a yearning for home ownership. Advisors can derive a meaning and provide a uniquely human perspective that take much more than data into account. 4. Advocacy. Advisors can advocate for clients like no computer can. Wanting the best for our clients is a uniquely human
UNTIL ROBO-ADVISORS LEARN EMPATHY, THEY ARE NOT REAL COMPETITION
Robo-advisors’ assets under management (AUM) in 2018 will nearly double this year, reaching $900 billion. AUM held by robo-advisors are expected to increase to $2.2 trillion by 2020. Source: KPMG experience, and it pushes us to do everything in our power to fight for our clients and help guide their decision-making over time. Aren’t these human aspects of the job what we’re trying to accomplish with the word fiduciary? Rather than something defined by lawyers or compliance departments, at its core, fiduciary means caring deeply about another person’s fears and aspirations. It means doing everything in your power to help clients achieve their goals and overcome challenges at every stage of their financial journey. While they are critically important, we should want even more for our clients than what the human aspects of the job can provide. Technology can provide a level of accuracy, immediacy, speed and predictive power that no human can. Most importantly, it can offer these four benefits for advisors, staff and clients: 1. Automation. Technology should systematize activities that easily can be handled digitally, such as providing basic account information and reporting. 2. Liability protection. Technology should help protect advisors from liability caused by human error and bad judgment calls.
Ideally, technology can seamlessly integrate into the way we communicate with and serve our clients during in-person meetings as well. A tablet can display the most up-to-date account data, enabling the advisor to explain the meaning behind the information and the strategy for moving forward. A television screen can display reports and run new ones based on client questions. Instead of trekking to an advisor’s office, maybe more clients will meet with advisors via videoconference with
screen-sharing capabilities to make the process more interactive. This type of technological innovation is necessary if advisors are not to end up obsolete. Integrating technology may seem overwhelming, but technology actually makes it easier than ever to do our jobs well. However, regardless of what type of technology is in the room, having one person hearing and empathizing with another person’s story is the most valuable thing a human being can experience. The technology may be able to listen in, but it will never be able to provide that human touch. Technology is simply a platform on which we stand. And that is how we rise. Nick Richtsmeier is executive vice president of business development at Trilogy Financial and chief operating officer of its independent Registered Investment Advisor Trilogy Capital, headquartered in Huntington Beach, Calif. Nick may be contacted at email@example.com.
Spectrem Group looked at the use of robo-advisors by wealthy investors — defined as those who have at least $100,000 in liquid net worth. Researchers found only 13 percent of those investors who work with a robo-advisor use the robo as their primary financial advisor. Eighteen percent of investors in that group work with a full-service broker and 13 percent use a discount broker. Accountants and independent financial planners each serve as the primary financial advisors for 10 percent of the wealthy clients who said they also use a robo. Those wealthy investors using robos said they — and not the robo — control 35 percent of their assets. The robo may help with other tasks, such as forming a general financial plan or obtaining access to a trading platform. Another 37 percent of those investors’ assets are invested through a robo-advisor. But 28 percent of their assets are invested with a human advisor.
3. Freedom. Technology should give advisors the freedom to focus on the human aspect of the job, while giving advisors the support they need to serve their clients. 4. Record keeping. Technology should make it easy to create and search records of client communications and activity.
April 2018 2018 »» InsuranceNewsNet InsuranceNewsNet Magazine Magazine April
Stock Market, DOL Rule Create Chance for 401(k) Re-evaluations Wall Street highs and lows present an opportunity for reviewing your client’s 401(k) plan. • Ric Lager
he Department of Labor fiduciary rule and the record-setting stock market have combined to provide the greatest client and prospect asset-gathering opportunity of your investment management career. Thanks to all the news surrounding the gradual enacting of the fiduciary rule, every individual investor in America now understands the importance of fiduciary investment advice. The record-setting U.S. stock and bond market investment returns also have gained the attention of individuals who participate in their employers’ 401(k) retirement plans. Instead of being happy about the market’s gains, those working clients and prospects are now scared to death of stock market corrections. And rising interest rates have them fearful as well. The combination of all-time stock market highs, dizzying drops and the new fiduciary climate reminds me of that old quote, “It’s not how much money you make but how much money you keep.” The timing is perfect to begin your first fiduciary investment advice prospecting efforts with your best clients. The best pool of client assets to make your new fiduciary case is their employers’ 401(k) retirement plan accounts. Among their other basic obligations, fiduciaries work to control the annual expenses involved in owning mutual fund investments. Fiduciaries also monitor annual investment performance of mutual fund investment options. The fiduciary level of annual cost and investment performance analysis is your marketing entry point into your client’s workplace 401(k) retirement plan accounts. I have provided investment advice to individual company 401(k) retirement plan participants since mid-1999. I don’t make that statement to impress. I want you to be aware of how many default company 44 44
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401(k) retirement plan menus I have reviewed. Add to that fact that I have reviewed hundreds of high-net-worth individual company 401(k) retirement plan account statements from every big-name company retirement plan provider. The likelihood that your client owns the lowest-cost and best-performing mutual fund options on their company 401(k) retirement plan menu is zero. A high-level fiduciary investment management act now would be to compare annual costs with investment returns for every one of your client’s current company 401(k) retirement plan mutual funds. The next step would be to calculate the amount of company 401(k) retirement plan principal that has been left on the table over the past few years by owning more expensive and worse-performing mutual funds.
Calculate for your client, in dollars, how large their current company 401(k) retirement plan account would be today if they had owned the lower-cost and better-performing mutual fund options found on their default company retirement plan menu over the recent stock market advance. A recent individual company 401(k) investment advice prospect I sat down with would have earned another $150,000 over the past five years if she had not selected a lagging mid-cap growth fund rather than a cheaper index mutual fund. I have named the investment performance gap found in individual company 401(k) retirement plan accounts “the cost of the problem.” This calculation has gathered tens of millions of investment advisory dollars for my firm over the past few years. The amount of money you find during your annual cost and investment performance analysis will very likely make your annual company 401(k) retirement plan
The best news about the DOL fiduciary rule is investment advisors can more easily begin to provide a fiduciary level of investment advice long before the company retirement plan rollover. Your best clients are absolutely giddy over their company 401(k) stock market and annual contribution genius over the past few years. Most investment advisors think it is very difficult to get a client’s attention after a long period of historic investment gains. With prospects, it is almost impossible. Balderdash! Change the emphasis of your client and prospect presentations in order to fit the new fiduciary environment.
investment advisory fees look small in comparison. A great client and prospect asset-gathering idea would not be complete without an acknowledgement of our good friends in compliance. Broker/dealer investment advisors will have to learn their rules and regulations regarding charging a flat fee or asset under management fee on client assets “held away” from the firm.
STOCK MARKET, DOL RULE CREATE CHANCE FOR 401(K) RE-EVALUATIONS
Investment advisor representatives of broker/dealer registered investment advisor firms have no roadblocks regarding flat fee or asset under management fees on client company 401(k) retirement plan assets. Do you have any clients who are currently employed? Great! What is the largest stock and bond investment asset they own? It is most likely their company 401(k) retirement plan account. Most households today contain two working adults. That means their household company 401(k) retirement plan balances can easily exceed $1 million. Going forward, investment advisors will have to prove that an individual retirement account rollover from a company retirement plan account is in the best interest of the client. Don’t panic about these new rules like the rest of the investment advice world. The best news about the DOL fiduciary rule is the fact that investment advisors can more easily begin to provide a fiduciary level of investment advice on client retirement plan assets long before the
company retirement plan rollover. Right now, start a marketing plan to establish yourself as a fiduciary investment advisor for your client’s existing company 401(k) retirement plan account. When the IRA rollover topic comes up, you will be covered. Unlike the rest of the local investment advisor types, you will not have to scramble for an IRA rollover account that you already manage for a fee. Use the chaos surrounding the gradual phase-in of the fiduciary rules as the client and prospect company retirement plan asset-gathering opportunity that it really can become. Don’t continue to provide “free advice” to existing clients on their company 401(k) retirement plan mutual funds menu. Free advice does not grow your assets under management or advisory fee revenue. Ask your best clients for a copy of their current company 401(k) retirement plan menu of options. Next ask them for a copy of their most recent quarterly statement for that same account. Then ask for the same information from their spouse or partner. Spend the rest of
2018 asking the same two questions of every person you come in contact with. Asking those two questions will provide you a pipeline to more client and prospect assets to manage than you ever dreamed of. I hope that you are overwhelmed. You likely will be if you take the time to ask the two company 401(k) retirement plan questions. The fiduciary rule may be one of the best things that ever happened in your investment advisory career. You just have to make a few presentation adjustments and include your client’s company 401(k) in the asset-gathering conversation. Ric Lager is founder and president of Lager & Co., a registered investment advisory firm based in Golden Valley, Minn. He was the co-creator of the “No More Pies” investment series for financial advisors and author of Forget the Pie: Recipe for a Healthier 401(k). Ric may be contacted at ric.lager@ innfeedback.com.
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April 2018 2018 »» InsuranceNewsNet InsuranceNewsNet Magazine Magazine April
How to Study for a Licensing Test Your school days may be long behind you, but facing a licensing or designation exam can remind you that you need to brush up on your studying and test-taking skills. By Brad F. Charles
recently passed the most difficult test of my career, the CFP exam. I knew it would be the hardest test I had ever taken, but I wasn’t nervous because I had done everything in my power to prepare for the exam. As a securities and insurance test-preparation instructor, I help many students along the licensing exam journey. Here are some strategies I recommend to them. When I teach a test-prep class, I often have a student ask me, “Do I really need to read the study material, or is taking the class enough to pass?” My response is “How can you expect to pass a test when you haven’t read the material you will be tested on?” To study for a test, I recommend you read the material for a course unit and highlight important facts for future review. Each unit will have a practice test at the end that you will need to complete. Doing practice questions immediately after reading a unit will seal the information in your mind. For any exam that requires a 70 percent passing score, you need to do more questions on any unit test where you score below 80 percent. Most study programs have a website that offers additional practice questions on each unit. If you have this technology, I recommend taking all the available practice questions on the website for all of your sub-80-percent units. If you do this, you will increase your proficiency on those units to around 75 percent. If 75 percent is your worst unit, you will easily pass a test that requires only a 70 percent score.
Four Words That Can Trip You
In a four-answer multiple-choice test such as the CFP exam and many others, there are four words that will lower your score dramatically if you aren’t conscious of them — except, not, false and least. Here is how these four words can trip you up. 46
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You spend all your time studying the correct answers, so your mind naturally gravitates toward them. But with questions that include the words except, not and false, you are looking for the wrong answer. Here are some examples.
service is the interest payments and principal payment of a bond. A general obligation bond uses taxes or fees assessed by a municipality to pay interest and principal. Revenue bonds use user fees from a facility, like tolls from a bridge or tollway, to pay debt service.
1. For a general obligation bond, all of the following revenue sources could be used for debt service except:
2. Which of the following is not a typical characteristic of a closed-end fund?
A. Sales taxes. B. Property taxes. C. Tolls of a tollway. D. License fees. The correct answer is C. Tolls of a tollway. With an except question, you are looking for the wrong answer. Debt
A. They can issue debt securities. B. Investors redeem their shares directly with the company. C. Their shares are bought and sold in the secondary market. D. They are classified as a management company. The correct answer is B. Investors
HOW TO STUDY FOR A LICENSING TEST BUSINESS redeem their shares directly with the company. With a not question, you also are looking for the wrong answer. Closed-end funds trade like a stock in the secondary market. In order to redeem your shares, you use a broker-dealer to help you find a buyer for them. Mutual funds are a type of open-end fund. Their shares are redeemed by investors directly with the company. 3. Which of the following statements regarding Treasury receipts are false? I. They pay annual interest payments. II. Interest is taxed annually. III. They pay interest at maturity. IV. Interest is taxed at maturity. A. I and II B. I and III C. II and III D. I and IV The correct answer is D. I and IV. False questions usually have Roman numeral answers where two are true and two are false. You are looking for the false answers.
4. In a partial call bond issue, a corporation would be least likely to call which of the following bonds first? A. 8 1/2%, callable at 100. B. 8 1/2%, callable at 102. C. 6 3/4%, callable at 101. D. 6 3/4%, callable at 100. The correct answer is C. 6 3/4%, callable at 101. With a least question, you have to read it upside down. The most likely bond a corporation would call is the one that is costing them the highest annual interest with the lowest call price to retire it, which is letter A. Therefore, the least likely one they would call is the bond with the lowest annual interest rate and the highest call price. I begin and end each class I teach by pointing out these four tricky words, and I instruct my students to look for them very carefully. These words often can be the difference between passing and failing a test. To guard against missing these words, I recommend going back and looking for them after you have finished your first pass
I recommend taking your exam seven to 10 days after a review class. If you take the test too soon after the review class, you won’t be able to assimilate all of the information offered in the class. Treasury receipts are zero coupon debt instruments created by broker/dealers that are written against the individual payments of Treasury notes and Treasury bonds. They are sometimes called government zeroes. Zeroes are purchased at a deep discount below the par value and pay all of their interest on the maturity date. It is the difference between the purchase price and the redeemed principal. Investors are taxed on interest annually, as it is earned, not received. It is called imputed or “phantom” interest. Therefore, the principal payment at maturity is tax-free. The word least turns a question upside down. For example, instead of looking for the most likely investment you would recommend to a client, you are looking for the least likely one. Here’s a sample of a least type of question.
through the test. You will be amazed how many of them you did not catch the first time. Questions with more than one correct or false answer are particularly difficult. They are the ones with four Roman numeral answers that are often longer than the question! Each answer is simply a true-or-false statement. I recommend you write down the numerals, and as you read the available answers, write T for true and F for false next to each one. On a four-answer test question, there are usually two that are true and two that are false, but not always. The good news is that this true/false technique works no matter what combination you encounter. For the Roman numeral except questions, the false answers will be the correct ones. They are especially frustrating and
will undoubtedly be the questions you most likely correct when you go back and look for the word except after you complete the test.
How Soon Is Too Soon?
A review class is extremely important because it can dramatically increase your score if you use a test-prep company. I recommend taking your exam seven to 10 days after a review class. If you take the test too soon after the review class, you won’t be able to assimilate all of the information offered in the class. If you take the exam too late after the review class, you will forget much of the class material. After you have taken your review class, I highly recommend you highlight terms in your study material glossary that are unfamiliar to you and become familiar with them. In a test question, if you see a word you do not recognize, you will be hardpressed to answer the question correctly, because you probably will be asked for the specific meaning of that word. Or the exam will give you a definition of a word and give you four glossary terms to choose from. Now, you will have to know the meaning of all four words to find the right one. Knowing glossary terms will turn these questions into what I call gimmes. You have to be careful with last-minute preparation. Reading study manuals and doing practice questions the night before a test will overwhelm you. The only two things you want to do right before an exam are studying your review notes and reviewing the terms you highlighted in the glossary. I also recommend you get a good night’s sleep the night before an exam, because a lack of sleep will diminish your decision-making skills during the test. So many students have crammed themselves into failing an exam. You want to have all of the pertinent test information at the front of your mind, but you don’t want to give yourself TMI (too much information). Brad F. Charles, MBA, CFP, has been in the financial services industry for 19 years, including 17 years with MetLife. He currently teaches prelicensing for Series 7, Series 6, Series 63, Life and Health, and Property and Casualty for Kaplan University, Milwaukee. Brad may be contacted at brad. firstname.lastname@example.org.
April 2018 » InsuranceNewsNet Magazine
The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.
Importance of a Holistic Plan When Working With Clients Make sure your clients have a full picture of all their potential risks so they can fill in their coverage gaps. By Elizabeth Dipp Metzger
omprehensive and holistic financial planning is a crucial skill for financial advisors. Many practitioners serve only one segment of a client’s financial plan, which can result in gaps in their plan and protection. While there may be some limits to the solutions an advisor can provide to a client, it is important to understand the risks so that clients are properly protected in situations that can wreak havoc on even the most well-laid plans.
than they think, and if not covered, they can overwhelm and devastate a family. Many clients equate long-term care with long-term disability insurance; however, even disability payments may not cover the costs of a long-term care event. It’s never too early to start the education and planning conversations about longterm care. Even if clients are not ready to
Address and Plan Against Risk Factors
» Life insurance. Virtually all clients — especially those with debt or families — should carefully consider life insurance. The loss of an underinsured family member can be financially devastating. Planning software or online calculators can help clients understand their life insurance gap and identify how much coverage is needed. A blended approach to combine term and permanent life insurance coverage may be a strong approach for most clients and can be adapted based on clients’ unique needs. Whole life insurance has asset value and growth, and is a useful tool for estate planning. Term life insurance policies can cover the life insurance gap, which is often too expensive to cover solely through permanent policies. » Long-term care. Long-term care insurance is an important part of the plan that is often overlooked because it’s hard for clients to understand the need. Educate your clients to let them know the medical and nonmedical expenses required for a long-term illness can be more expensive 48
InsuranceNewsNet Magazine » April 2018
purchase, you can discuss the risks and potential needs during initial planning sessions. Clients may consider purchasing coverage for their parents, whom they may plan to care for later in life. » Disability insurance. Help clients understand the risk of both long-term and shortterm disability by conducting a disability analysis. Clients often receive some form of disability insurance through their employer, but they need context to understand how much coverage they need. As part of their holistic plan, help clients understand their need for disability insurance as well as the importance of being properly insured.
With regard to the financial planning process, clients are generally most interested
in their accumulation plan to fund longterm and retirement goals. To them, these end goals are part of a lifelong dream and are more exciting and important than protection. Holistic planning takes these future plans into account and addresses them alongside probable risk factors to protect and shape the future. Retirement is typically a client’s top concern and most important priority. With conservative assumptions and detailed cash flow analysis, we are able to provide a good representation of where clients will stand during retirement. They will be more likely to take the necessary steps to achieve goals with a clearer understanding of the gaps in their plan. Keep other financial goals unrelated to retirement in mind during plan development. If clients aim to finance education costs for themselves or children or wish to leave an inheritance for family members, these can be incorporated in the accumulation planning process and provide tangible milestones and steps. Holistic planning is an art form that strikes a delicate balance to assess, analyze, and address a client’s risks and goals and to develop a plan that accounts for all factors. It is crucial to understand a client’s interests and what’s most important to them. Although holistic planning requires a greater time commitment, in the end, it deepens the relationship between an advisor and a client. With so many different options available to them, clients are looking for trusted advisors they can go to for their comprehensive planning needs. Elizabeth Dipp Metzger, MSFS, CFP, is president of Crown Wealth Strategies, a financial firm in El Paso, Texas. She is a seven-year MDRT member with five Court of the Table and four Top of the Table honors.
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.
The Tax Cuts and Jobs Act: What It Means for Advisors By Diane Boyle
ate last year, President Donald Trump signed into law a sweeping tax bill that cuts corporate, business and individual tax rates as well as eliminates many deductions. The new law does not impose new taxes on life or health insurance, annuities, retirement savings, or employer-provided benefits. It creates a new deduction for qualified income from pass-through entities, which may benefit some advisors and/ or their small-business clients. Some revisions are permanent, while others expire at some point in the future. The current funding of retirement savings is preserved. When the tax-reform bill was being written and negotiated in Congress last year, NAIFA advocacy went into high gear. The association emphasized the fact that public policy must continue to encourage Americans to plan ahead, protect their families’ financial security and adequately save for retirement. Well-prepared families, the association pointed out, will have sufficient retirement savings accounts, life insurance, medical insurance and guaranteed income annuities to supplement their Social Security benefits. Although measures were proposed that could have made it more difficult or more expensive for families to plan for their long-term financial needs, none of these are included in the final act, thanks to the efforts of NAIFA and its industry partners. Some significant provisions that would have directly impacted agents, advisors and their clients were not included in the act. Here is a rundown of what was not included. » Limits on pre-tax retirement funding in favor of after-tax “Rothification” funding were not included.
President Donald Trump speaks during a meeting with American workers regarding the Tax Cuts and Jobs Act in the Oval Office
» There are no changes to how life insurance and annuity products are taxed. » The bill does not limit the amount of pretax contributions to retirement plans or individual retirement accounts (IRAs). » If you work with long-term care clients and prospects or those with large health expenditures, the bill does not repeal the medical expense deduction, and it lowers the threshold for two years from 10 percent of adjusted gross income (AGI) to 7.5 percent of AGI. » If you help employers who offer workplace benefits, the bill does not limit the tax treatment of employer-sponsored benefits. » If you offer other employee benefits, the bill does not change current tax rules for nonqualified deferred compensation or company-owned life insurance (COLI). » If you advise high-net-worth individuals, the estate tax is not repealed (although the exemption amount is doubled), charitable donations deductions are unchanged and the top individual rate is lowered from 39.6 percent to 37 percent. » If you offer securities, the bill does not include the first-in, first-out (FIFO rule) proposed change.
Oliver Contreras/Sipa USA/Newscom
This piece of legislation is the most significant overhaul of the U.S. tax code in more than 30 years.
from current law but preserve deductions for losses if a disaster is declared by the president. Other adverse tax proposals that NAIFA has successfully stymied — often at an early, not-yet-public stage of the legislative process — include taxing loans from life insurance policies, eliminating the deduction for interest paid on COLI loans, limits on the size of life insurance policies that can offer tax-free accumulation of cash values and restrictions on the use of life insurance by businesses. NAIFA will bring together hundreds of advisors to Washington for its annual Congressional Conference May 22-23. Participants will network with their peers, benefit from main-stage presentations by NAIFA’s advocacy experts, and meet with representatives, senators and staff from every congressional office. Don’t miss out on this opportunity to show your dedication to the industry. Register for the Congressional Conference today at www.naifa.org and join NAIFA in preserving a favorable environment for you and the clients you serve. Diane Boyle is senior vice president of NAIFA’s government relations department. Diane may be contacted at diane.boyle@ innfeedback.com.
» If you offer casualty insurance products, the final bill limitations are different April 2018 » InsuranceNewsNet Magazine
THE AMERICAN COLLEGE INSIGHTS
With over 90 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.
Designations Demonstrate Career Commitment Professional designations can be useful in distinguishing yourself as a subject matter expert in a particular area or enhancing your ability to serve a niche market. By Jocelyn Wright
n November, I had the honor of representing The American College on stage as a faculty member at the 2017 Knowledge Summit. The culmination of the three-day biannual event was the conferring of degrees to students of our two masters programs, Master of Science in Management (MSM) and Master of Science in Financial Services (MSFS), and for the first time, our Ph.D. in Financial and Retirement Planning. In addition, hundreds of students were recognized for the successful completion of various professional designations, from Chartered Leadership Fellow (CLF) to Retirement Income Certified Professional (RICP). I cannot think of a better way to exemplify the mission of The College — to raise the level of professionalism in financial services by promoting ongoing education, ethical practices and the pursuit of new knowledge for the benefit of society. As an advocate of lifelong learning, I am reminded of a quote by Albert Einstein that states, “Once you stop learning, you start dying.” In our line of work, few things are truer. I encourage advisors to pursue professional designations for a number of
reasons. It demonstrates a commitment to your career. It’s a way for you to stay current on changes and trends in the field. By expanding your body of knowledge, you differentiate yourself from other advisors. In addition, you earn a massive amount of continuing education credits in the process. Many times, advisors may not know where to begin when it comes to selecting a designation. In fact, the Financial Industry Regulatory Authority lists nearly 180 professional designations in their database. It is like the menu at The Cheesecake Factory — an overload of choices! Keep in mind that appearing in the database is not an approval or endorsement by the organization. It is merely a resource to help decode the alphabet soup of designations on the professional landscape. Professional designations can be useful for distinguishing yourself as a subject matter expert in a particular area or enhancing your ability to serve a niche market. For example, if your focus is on retirement planning, you may consider the RICP, or, if you work with clients going through divorce, the Certified Divorce Financial Analyst (CDFA) is an option.
Consumers Care About Credentials
For the most part, consumers are unaware of the significance of various designations. Consumers may be surprised to learn that practically anyone can put up a shingle and claim to be a financial advisor or consultant. However, if a prospective client were to search how to select a financial advisor, one of the top questions to ask is, “What credentials or other certifications do you have?” According to the CFP Board’s “Ten Questions to Ask Your Financial Advisor,” qualifications is No. 2 on the list. They state it is important to “ask about credentials your planner holds, and learn how they stay up to date with current changes and
“Once you stop learning, you start dying.” — Albert Einstein
InsuranceNewsNet Magazine » April 2018
developments in the financial planning field.” As you know, individuals with professional designations are required to complete mandatory continuing education in order to maintain those credentials. Having a professional designation is not only a way to distinguish oneself from other advisors, but also it is a way that we can begin to elevate our practice to the level of other professionals like lawyers and physicians. There are no “practice police” going around issuing cease-and-desist warnings to so-called pop-up planners. Finally, here are a few things to consider before beginning work toward a designation.
 Know exactly what you are getting into, including how long you have to complete the required coursework.  Create a study plan. Schedule study time on your calendar. Otherwise, time will get away from you and you will have to scramble to study at the last minute. Ask me how I know.  Find study partners. You can hold each other accountable throughout the process.  Check with your broker/dealer to see whether they recognize your designation. Just because it is listed in FINRA’s database does not mean your B/D will allow you to use it on things such as business cards and other stationery. Of course, this may or may not be a deal breaker, because you will still increase your knowledge base, but it is good to know so you will not be surprised.  Enjoy the process. Happy learning! Jocelyn Wright is the chair of The State Farm Center for Women and Financial Services at The American College. Jocelyn may be contacted at email@example.com.
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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.
Shaping Expectations for Customer Experience Research shows that when a consumer has a particular experience with a company, that experience influences the consumer’s view of other companies. By Todd A. Silverhart
any of us regularly hear the premise that customers’ experiences in any product category shape their expectations for interactions with all other types of companies. Think back to the last time you visited a website that offered little to no information. Pretty frustrating experience, right? Now think back to the last time, or anytime, you searched for something on Apple’s website. How did that experience compare? Judging by its reputation, Apple’s website most likely offered a considerably more satisfying experience than that of the one that left you frantically trying to close the window before you lost your cool. Even if a company is not a tech giant, visitors to its website are likely to expect a comparable experience to what they get with Apple. While looking to understand more about these changing expectations and their potential implications for financial services companies, I learned there actually is a term, coined by Accenture, for these expectations. “Liquid expectations” represent the idea that customer experiences seep or filter from one industry to totally different industries. Accenture suggests that this drastically changes the competitive landscape. They contend that companies’ direct competitors, those that offer similar products and services, are only one consideration when formulating competitive strategy. In addition, today’s companies need to attend to experiential competitors (those offering experiences that effectively replace theirs) and perceptual competitors (those providing experiences that shape expectations for all product categories). The model of customer experience, 52
InsuranceNewsNet Magazine » April 2018
developed by LIMRA to address nuances of managing customers’ experiences associated with life insurance, identifies expectations as an important driver of experiences. In the current environment, consumer expectations have changed in myriad ways. For example, people expect to be able to transact business quickly, when they want (24/7 access), how they want (omnichannel), in a personalized and transparent manner. For financial services companies, this “raising of the bar” certainly has created some considerable challenges.
What Pizza Has in Common With Life Insurance
Consumers’ expectations for transparency provide an interesting example of how liquid expectations are touching our industry. The question: What might a pizza company (Domino’s) and a life carrier have in common? In recent years, Domino’s has reinvented itself — transitioning from the target of bad-food jokes (with a stock price of less than $9 per share in 2010) to the second-largest pizza chain in the world (with a current share price of more than $200). One key component of this success is staying closely in tune with customers. One franchisee, in response to realizing a significant percentage of customers were calling his shop to confirm the status of their online order, developed the Domino’s Tracker. With the tracker, customers can log into an app and follow the status of their pizza at every step (order placed, prepped, baked, boxed and delivered). Needless to say, the pizza tracker has been hugely popular — largely because it makes the process of ordering pizza more transparent by taking out the mystery. What does any of this have to do with a life insurance policy? Executives at Protective Life actually drew an analogy between the process of making a pizza and the process of issuing a life policy. It’s no secret that a perpetual challenge for the life
industry is keeping applicants informed of their status. As a result of this thinking and an interest in optimizing the customer experience, the company introduced the Protective Application Tracker, which, much like the pizza tracker, takes the guesswork out of where the customer’s application is in the process. I have no doubt that customer expectations will continue to evolve and continue to raise the bar for all companies. As insurance carriers strive to provide contemporary and positive experiences, they must remember to monitor those perceptual competitors across all industries. They are likely to play a major role in shaping the future for all of us. Todd A. Silverhart, Ph.D., is corporate vice president and director, insurance research, LIMRA. Todd may be contacted at todd.silverhart@ innfeedback.com.
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