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October 2017



DOL RULE’S GOLD LINING Fee-Based Business Raises Agency Value

Agents and advisors who have adopted a recurring fee system are finding that their agency has greater sales value when it comes time to sell the business. PAGE 22

ALSO INSIDE Disrupt, Create, Grow with Pascal Finette PAGE 12

How Life Products Compare in Producing Retirement Inome PAGE 34

A Look Into the Annuity Sales Crystal Ball PAGE 44

Messaging Matters In HSA Enrollment PAGE 50

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more Tattoos, Honesty and Cutting-Edge Marketing

The peculiar duo responsible for the nation’s emerging ‘super-producers’ There’s an unusual trend quietly making the rounds. Pockets of wildly successful financial advisors are popping up from town to town. First in Des Moines. Then in Orlando, Phoenix and even small-town Amherst, NH. Before uttering a word, these mavens are viewed by prospects and advisors as authorities in all financial matters. Their calendars are consistently packed with appointments. Clients are locking in business by the second sit-down. And business is booming. One advisor — whose name is withheld for privacy — landed 23 new appointments in one month, with each annuity case averaging $300,000. Another is submitting $2,000,000 this quarter. And if you ask Mitchell Whitney, president of Whitney & Associates, the company behind it all – he’ll point out that this reported uptick of successful advisors is no surprise. It’s nothing random. It was orchestrated. The plan all started one morning in a hotel lobby… …When a stereotypical, clean-cut, good ol’ boy from Iowa found himself feverishly working up a video presentation to share with his business partner, Jared Weiss. In truth, the video started as a simple instructional piece to help agents and advisors get in front of more people and assist in providing solutions to clients’ retirement needs — something that the two advisors planned on

using themselves. But by the time their project was finished, what they had stumbled upon was far too valuable to keep to themselves. They discovered a system for successfully marketing and running the perfect workshop. And in doing so, they’ve solved advisors 2 biggest challenges: 1) Consistently getting in front of qualified people and 2) Eliminating your marketing costs! Everyone in the industry knows the windfall these events could produce. Sponsored

You have a room full of your ideal prospects — just one pitch, one presentation, and hopefully, if the numbers game is in your favor, you’ll have a few appointments later that week. Weather permitting… But until Jared and Mitch came along, the events were still peppered with risk and boredom… If you held one before then, you know the gut-wrenching feeling that accompanies spending up to $7,000 for an evening’s chance — with no guarantee


anyone will even show up, let alone book an appointment. All you could be sure of is that your attendees’ plates would be clean. As Jared put it years ago, “This industry needs something to shake it up! It needs some tattoos, honesty and cutting-edge marketing!” Whitney & Associates was about to deliver. Test after test, niche after niche, location after location, and pitch after pitch were a grand slam. Jared and Mitch could easily and reliably fill rooms anywhere, in any town, creating the most powerful sales process that educated and motivated prospects to take action. With the utmost confidence, they knew from a given location how many attendees they could expect, how many appointments they’d probably land, and how soon a prospect might buy. By the time they were ready to hit the streets, their final product had become a reliable, customizable, repeatable workshop marketing system for advisors. It was so easy, all anyone had to do was practice the pre-made presentation, show up, be nice to the audience, collect appointments, and go home. That was it. A brilliant blend of fun and professionalism from two very different personalities. While Mitch is an admitted genuine Iowan, looking, acting and matching your expectation of a clean-cut

Midwestern advisor and President of Whitney & Associates, Jared’s colorful exterior of tattoos and metal tees contrast with his deep understanding and experience in the insurance industry. It’s a real-life version of the grownup metal-head from California meeting the polished professional. A sitcom ABC would have bought the rights for in the ‘90s. But like oil and vinegar, the two found a way to complement each other’s strengths and give the financial industry something it’s needed for a very long time: a pulse, and with it, a rising crop of now extremely prolific financial advisors. It didn’t take long before the budding company started gaining intense traction, forcing it out of a 10’ X 10’ office, where the team had to use video game headsets for phones and stare at posters of the outdoors, instead of window views outside. These days, the tried and true workshop system is rapidly spreading to every corner of the U.S., and with rampant success. As Mitch said recently, “The beauty of these workshops is that they work anywhere, from the inside of a client’s home in Putnam, Texas, a chocolate factory in Illinois and even an art gallery in Phoenix.” But the success of these workshops isn’t the only thing that makes them special. Whitney & Associates pays for the whole thing. You might call it unbelievable. Whitney

& Associates calls it the “ultimate partnership.” Here’s how it works. YOU HAVE NO UPFRONT COSTS WE PAY FOR YOUR SEMINARS! When you partner with Whitney & Associates, they take care of — literally everything. They have skin-in-the-game! They’ll help you pick the venue. Then they’ll do all your marketing for you, fill the room for you, prep your presentation for you, coach you on your presentation and sales process — everything. And what do you have to do? Show up. Present. And collect appointments. It truly is that simple. It’s a company that firmly believes that it shouldn’t make money unless you do. So you can see why it’s in the company’s best interest to make sure advisors are prepared to write business day-one! That’s why it’s not uncommon for advisors working with Whitney & Associates to land eight, nine or 10 solid appointments from quality attendees in a single seminar. Whitney & Associates are selective with the advisors they work with. They’re looking for strategic partners who value their honesty and transparency. As Jared puts it, “We understand how difficult it can be for advisors to trust. There’s a lot of smoke and mirrors and empty promises in this industry.” For advisors, the level of success they’re seeing after working with Whitney & Associates is nothing short of addicting. And it has Whitney & Associates’ reputation deeply resonating across the country.

When you’re ready to take your book of business to the next level and inject some excitement into your presentations, visit


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» read it




22 DOL Rule’s Gold Lining By John Hilton

There is one bright spot amid the turmoil caused by the fiduciary rule. Those who moved to a fee-based system find their agency is worth more money when the time comes to value it for sale. INFRONT

HEALTH/BENEFITS 50 M  essaging Matters in HSA Enrollment

10 Tax Reform Eclipsing Health Care Reform as Issue Before Congress By John Hilton and Susan Rupe The congressional calendar has a limited number of days remaining this year. And it looks as though tax reform will be a more pressing issue than health care reform will be.

By Brian Tolbert It’s not what you say but how you say it, and that can make all the difference when encouraging workers to enroll in health savings accounts.


34 How Life Insurance Products Stack Up in Producing Income for Retirement By Ron Sussman Clients who are overfunding insurance contracts with the expectation of receiving specific benefits in the future may not understand all of the costs and mechanisms that the illustrations assume.


12 Disrupt, Create, Grow

An interview with Pascal Finette Is it really easier to 10X your business than it is to increase it 10 percent? Pascal Finette thinks so. This early Internet pioneer made a name for himself by riding disruptive change to even greater heights. He tells InsuranceNewsNet Publisher Paul Feldman how anyone can rocket their business to spectacular success.


42 A  nnuities Outperform CDs Even at the Same Rate By Brian O’Connell All interest rates are not created equal when it comes to savings vehicles.

44 T aking a Look Into the Annuity Sales Crystal Ball

InsuranceNewsNet Magazine » October 2017

By Cyril Tuohy Simpler annuity structures, more feebased annuities, and fewer riders and income guarantees in product rollouts could be in the future for annuity sales.

54 How to Keep Splitsville From Leading to Skid Row By Brian O’Connell Divorce can be emotionally troubling as well as financially draining. Here is how an advisor can prepare and protect a client.

56 When Your Client Is Forced Into Early Retirement By Brian O’Connell Early forced retirements have become more common since the Great Recession. Here is how you can help this unplanned exit from derailing your client’s financial plan.

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61 NAIFA: Be Aggressive When Pre-underwriting Your Client

Try these ultimate door openers to impress and entice prospects

By David E. Appel Clients must understand that everything makes a difference when it comes to applying for life insurance.

Bill L. Levinson


etting a prospect’s attention is tough. Getting them to hear your presentation is even harder. It can be daunting, discouraging, and downright frustrating. If you’re in this business for the right reasons, then you genuinely want to help your clients while they’re living AND secure the financial future of their loved ones when they pass. While it’s a noble profession, prospects often don’t want to give you their time. Considering the average person sees 5,000 ads a day, you need strong positioning and offers if you hope to distinguish yourself from the noise. At Levinson & Associates, our agents are equipped with an arsenal of tools, proven to elevate their status and appeal. We call them the Ultimate Door Openers. And they start with sprucing up your title… Put yourself in a prospect’s shoes for a moment and think about which title you trust more: “ABC Insurance agent Stewart Parker” or “Stewart Parker, Certified Financial Education Instructor, ABC Co.?” The choice is obvious. More than a title, certifications carry an inherent value and elevate your authority above your competition, before you speak a word. After gaining their attention, the next challenge is booking an appointment… another arena Levinson & Associates agents excel. One of the perks any prospect or client can expect after meeting with an agent is a free $500 scholarship — whether they purchase a policy or not. In other words, Levinson agents reward prospects just for meeting with them. And if they buy, once qualified, clients receive up to a 1 year free scholarship at 370+ colleges and universities across the country! If you’re ready to stand out and offer prospects more, consider switching to an IMO that works harder to get your foot in the door. • Bill L. Levinson is the managing partner of Levinson & Associates, a national life and annuity IMO since 1972 found online at

62 M  DRT: Trends Impacting Annuity Agents’ Best Practices


By Marc Silverman From changing regulations to digital innovations, market shifts force insurers to reinvent their strategies, services and processes in order to better meet consumer needs.

58 How to Run a Seminar Without It Ruining You By Lloyd Lofton Seminars are a great way to get in front of prospects. The proper planning can keep a seminar from destroying your reputation and your finances.


64 LIMRA: Online Sales: Panacea or Pipe Dream for Life Insurers? By Jennifer Douglas Motivating people to buy life insurance — regardless of the method — remains the industry’s greatest challenge.

60 THE AMERICAN COLLEGE: Help Women Raise Their Retirement Income Literacy By Jocelyn Wright How to close the gender gap and help women improve their retirement prospects.

EVERY ISSUE 8 Editor’s Letter 20 NewsWires

32 LifeWires 40 AnnuityWires

48 Health/Benefits Wires 52 AdvisorNews Wires


275 Grandview Avenue, Suite 100, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 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 AD COPYWRITER John Muscarello AD COPYWRITER James McAndrew CREATIVE DIRECTOR Jacob Haas SENIOR MULTIMEDIA DESIGNER Bernard Uhden GRAPHIC DESIGNER Shawn McMillion


Copyright 2017 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, send your letter to 275 Grandview Avenue, Suite 100, Camp Hill, PA 17011, fax 866-381-8630 or call 866707-6786. Reprints: Copyright permission can be obtained through InsuranceNewsNet at 866-707-6786, ext. 115, or Editorial Inquiries: You may e-mail or call 866-707-6786, ext. 117. Advertising Inquiries: To access InsuranceNewsNet Magazine’s online media kit, go to or call 866-707-6786, ext. 115, for a sales representative. Postmaster: Send address changes to InsuranceNewsNet Magazine, 275 Grandview Avenue, Suite 100, Camp Hill, PA 17011. Please allow four weeks for completion of changes.

Legal Disclaimer: This publication contains general financial information. It should not be relied upon as a substitute for professional financial or legal advice. We make every effort to offer accurate information, but errors may occur due to the nature of the subject matter and our interpretation of any laws and regulations involved. We provide this information as is, without warranties of any kind, either express or implied. InsuranceNewsNet shall not be liable regardless of the cause or duration for any errors, inaccuracies, omissions or other defects in, or untimeliness or inauthenticity of, the information published herein.

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Upward Passage


he last person I wanted to see was my mother. Here I was talking to a girl I liked in the stairwell of my middle school when I heard the outside door close. I looked down the flight of stairs to see Mom looking back up at me. She looked smartly conservative in her corporate suit, running late to the school play. “Hey,” I murmured, hoping not to get into why I was in the hall when I should have been backstage for my bit part. She took her time coming up the stairs, said “Hey” to me, smiled at the girl and walked down the hall to the auditorium. She must have heard the voice inside my head: “Don’t talk to me. Don’t talk to me. Don’t talk to me. Don’t talk to me.” Maybe she had seen the flicker of terror on my pimply 13-year-old face and had taken mercy. It was the first time I had seen her by chance out in the world when I was trying to be somebody other than the child she knew. I was in the midst of desperately letting go of childhood, but it was only decades later that I realized Mom’s quiet bravery to just walk on by and let go of her boy. She was a single mom and I was an only child, so that was a significant passage. Passages happened to be the name of the musical we were putting on. It was based on Gail Sheehy’s book of the same name, which focused on the disorienting middle-age transition for people about my mother’s age. I had no idea about the book, although Mom had read it. It’s probably Sheehy’s most famous book. But I was recently reminded of one of Sheehy’s later books, Pathfinders. In that book, Sheehy looked into the secret of how some people reached their goals in life despite crises when others failed. The work was the result of life history questionnaires that 60,000 people completed and interviews with hundreds of respondents. She found that these people not only could endure the crisis but used creativity to excel in their new circumstances. However, they were really expert in letting go of what was and grabbing hold of what can be. One of those people was Julia Walsh, a woman who became a widowed moth8

er of four at 33 in the 1950s. She then decided to become a full-time stockbroker in an era when women were rare in financial services. To help care for her four children, she invited her mother-in-law to live with her and keep house. Walsh kept her motherin-law invested, literally, by paying her 20 percent of her commissions. A few years later, she married a widower who also had children, bringing the grand total to 12 kids. Even with all that going on, at the age of 54, Walsh decided to leave her firm and start one of her own. By 1980, she was making $750,000 a year. She let go of security all along the way to success. Even though that story is more than 35 years old, it should resonate with agents and advisors today. This is certainly a time when insurance agents and financial advisors have to let go of what’s comfortable in order to succeed. Senior Editor John Hilton’s feature article this month offers a perspective on a couple of major transitions. One is succession planning, where agency owners would like to make some retirement cash on the businesses they invested in. The other is fee-based advising, which many agents and advisors are adopting. That is partly in response to growing pressure to help clients holistically and not be so product-centric. Of course, the Department of Labor’s fiduciary rule was a hard shove in that direction. Although the rule’s fate is now murky, its introduction had a significant effect on insurance and finance. As disruptive as the rule has been, it has had a surprising unintended consequence. It helped raise the value of agencies because of recurring fees. A long-standing problem for retiring insurance agency owners has been that the business’ value was in its operation and book of clients, but not much in revenue-generating assets. It isn’t easy to transition later in a career. But Walsh did a hard pivot at 54 and

InsuranceNewsNet Magazine » October 2017

started an agency, at an age when many advisors are starting to daydream about a retirement destination. How can mere mortals execute exponential change? Pascal Finette, an author and educator, told Publisher Paul Feldman how. In this month’s interview, the tech entrepreneur and venture capitalist said the key is not in incremental change, but in completely rethinking a business. Progress can’t happen when a person has one hand firmly latched onto the old way of doing things. Passages — rising from one stage to the next, not only willingly but enthusiastically is the way to a better future. Mom showed me how to accept change, probably before she was ready to. And that girl I was speaking with also helped me see things differently. “Who was that?” the girl asked. “Um, yeah, that’s my mom,” I admitted, wanting to slap my forehead. “She’s pretty.” That unexpected answer got me thinking about my mother as an actual human being in the world and letting go of the image of Mom. “Yeah, I guess she is.” Steven A. Morelli Editor-in-chief

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Tax Reform Eclipsing Health Care Reform as Issue Before Congress Tax reform is expected to overshadow health care reform as the major issue facing Congress.

By John Hilton and Susan Rupe


s the first dead leaves begin to fall, all eyes inside the Beltway are turned toward the impending tax reform storm — none more so than within financial services. The concerns are genuine and the potential fights are familiar. Once again, the estate tax, inside buildup and even contributions to 401(k)s could be in the crosshairs. “There does seem to be some appetite to at least explore those areas,” said Kevin Mayeux, chief executive officer of the National Association of Insurance and Financial Advisors. “Of course, we believe that inside buildup and death benefits are pretty much the Holy Grail.” Everyone knows what is at stake. Republicans know they are in charge of government, but have no legislative wins to campaign on to this point. Time is running out. 10

Democrats have gained strength from successful battles to preserve the Affordable Care Act and stave off President Donald J. Trump’s refugee ban. These fights over the estate tax and inside buildup have been fought and won in years past, enough to make some of these issues appear to be no more than bargaining chips. However, a 2014 tax reform paper written by a now ex-congressman carries just enough weight to keep the industry from getting complacent. Former House Ways and Means Committee Chairman Rep. Dave Camp, R-Mich., proposed levying as much as $583 billion in taxes and fees over the next 10 years from 50 proposals that have an impact on the insurance industry, a NAIFA legislative expert said at the time. It is the wrong time to be removing incentives for Americans to buy insurance, Mayeux said. Studies repeatedly show that Americans are carrying far less insurance than they need to survive an unexpected death in the family, as well as being woefully underfunded for retirement.

InsuranceNewsNet Magazine » October 2017

Potential Tax Cuts

While the White House and congressional leadership had released few details as of press deadline, the areas of tax reform agreement are well-known. House Speaker Paul Ryan, R-Wis., and Trump campaigned on similar tax-cut plans. Both would consolidate the number of individual income tax rates to three from the existing seven and slash the top income tax rate from 39.6 percent to 33 percent. Both would reduce taxes on corporations, in largely similar ways. Those things would seem to be viable in some form. From there it gets tricky. On the campaign trail, both Ryan and Trump supported elimination of the estate tax. But analysts note the estate tax applies to only two out of every 1,000 estates — in other words, the superrich. That includes the president, as well as several members of his cabinet. The implication here is it will not take much convincing to remove the estate tax from the chopping block. That leaves pretax contributions to insurance and

TAX REFORM ECLIPSING HEALTH CARE REFORM INFRONT retirement plans as an alluring target for tax reformers. But unlike the estate tax, these pretax contributions are extremely popular with Americans. So while administration officials such as Treasury Secretary Steven Mnuchin continue to claim these options are not being considered, whispers remain. “There is an appetite out there to try and move people into more of a Roth-type product,” Mayeux explained. “From our perspective, we think that providing Americans with a choice is good, but steering them into just being able to be in a Rothtype product is bad.”

Health Care Reform

Tax reform is expected to overshadow health care reform as the major issue facing Congress — at least in the short term, some observers told InsuranceNewsNet. Compounding the situation is the fact that there are not many days left in the congressional calendar to take action this year. “In the short term, health care reform will be crowded out by other things Congress must do by Sept. 30 — the budget resolution to avoid a government shutdown and raising the debt ceiling,” said Michael Keegan, senior vice president with Health Agents for America. “Tax reform is a real

Historical U.S. Tax Rates

Individual Income Tax Rates Source: Tax Policy Center
















100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Corporate Tax Rates

*These are the tax rates proposed by President Trump.

Supporters of this idea argue that it just changes the tax treatment from the withdrawal period to the contribution period. In other words, the government gets its take up front. Still, there is expected to be wide pushback from many different groups who argue that the tax-free status is what motivates people to save for retirement in the first place. “We think they’ll save less and ultimately that’s going to wind up being a bad move for this country because we’ll have people less prepared for retirement,” Mayeux said. “But we do understand that this will be a conversation piece as the Congress and the administration go through this process.”

focus now, plus the infrastructure bill. And then on top of all that, you have disaster relief.” “Tax reform is the larger, more pressing issue. Health care reform is still being discussed but it does appear that tax reform is the bigger issue.” The Senate Health Committee scheduled two hearings in early September to obtain testimony on ideas to stabilize the individual health marketplace. “Something narrow could emerge from that,” Keegan said, but added that an all-out effort to revisit “repeal and replace” could be far into the future. When it comes to health care reform, “the big question is how you fit something as massive as that in there when you have

only 12 legislative days in September to get the government funded, get the flood insurance program funded, get the Children’s Health Insurance Program funded,” said Diane Boyle, NAIFA senior vice president of government relations. “After that, you’re looking at increasing the debt ceiling and tax reform as priorities, so I think it’s going to be incredibly tough to fit health care reform in there,” she added. The National Association of Health Underwriters said this summer that its priority is stabilizing the individual health insurance market, while maintaining a role for the agent and broker. NAHU’s National Legislative Council Chair Annette Bechtold said that the association believes market stabilization is the most pressing health care-related issue facing Congress now. “There is a bipartisan effort out there to stabilize the individual health insurance market, but the question is whether they will come up with solutions,” Bechtold said. The individual health insurance marketplace covers the smallest percentage of Americans, she noted, with the bulk of Americans covered through their employers or through Medicaid. But with the small group market and the individual market sharing the same risk pool, stabilizing the individual market is crucial. The Affordable Care Act was first introduced in 2009 and did not become law until the following year, so any repeal or replace effort could be years away from becoming reality. Could 2018 be the year that the ACA is relegated to the trash heap? Keegan said he believes Republicans will not want to take a chance of overturning a law that is still popular with a majority of the American public and then face re-election. 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. 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

October 2017 » InsuranceNewsNet Magazine


PASCAL FINETTE tells how exponential makes the impossible possible.


InsuranceNewsNet Magazine Âť October 2017



ou might be forgiven for thinking Pascal Finette is talking crazy, but he has built his reputation on a seemingly impossible notion: It is easier to 10X your business than it is to increase it 10 percent. On the surface, it seems implausible that you would have an easier time building a $1 million business into $10 million rather than bringing it to $1.1 million. How could that be possible? Because incremental change within the structure you have is hard. You have to be able to step outside your current structure and see a whole new way of doing things. And Pascal has made a career of riding disruptive change to ever greater heights. He was an early pioneer on the internet, before there was even a web browser. He founded a few tech startups, worked for eBay and led Mozilla’s Innovation Lab. He now works with entrepreneurs to get them accelerated on a 10X track as the head of the Startup Program at Singularity University, a Silicon Valley think tank and educational center that bills itself as a global community using exponential technologies to tackle the world’s biggest challenges. In this interview with Publisher Paul Feldman, Pascal tells how ordinary humans can strap exponential rockets to their business. FELDMAN: How does somebody think 10X? FINETTE: To be very frank, it was really hard for me for a really long time to wrap my head around the paradigm of 10X thinking. It was somewhat opaque to me how you actually practice this. Years ago, I cofounded a venture capital firm that was focused on ecommerce. We thought about the 10X concept quite a bit, and the hack we found is the following: When entrepreneurs pitch a company to a venture capitalist, they typically have a very clear understanding of how much money they need. So they come to you and they say, “We need a million dollars and we’ll use it for X, Y and Z.”

When we liked the entrepreneur and wanted to work with them, we would get back to them and say, “We think what you’re doing is great. We’ll give you $10 million. So it’s literally 10X. What will you do now?” And 99 percent of entrepreneurs just have no clue. They say, “We hire more people. We go into more countries. We build a new product,” or whatever, which really never is the real answer. The best entrepreneurs say, “That’s a really interesting question. Let me think

or 30-year vision. Take one of these exponential thinkers like Elon Musk, who had a very clear 30-year vision when he started with Tesla — to have every single car on the road electrified. Then the question becomes, how do you break this down to something you can do in the nearer term, and how do you break that down into something you can do today? And you’re absolutely right. The 10X expands into not just the financial means, but many other areas and processes as well.

It’s really about tricking your brain into using new boundary conditions ... to rethink whatever you’re doing in your business. about that.” And then a week later, they come back after rethinking their business with these new boundaries. So instead of thinking a million, they use the boundary of 10X, $10 million, to rethink their business. And this worked really well for us. Since then, we’ve used the same concept to work with others, such as corporations. When we look at their projects, I challenge the team behind that project to do whatever they do but with 10 times the limiting factor. That effectively creates a whole new set of boundary conditions for them. That seems to do the trick. It’s really about tricking your brain into using new boundary conditions, which are 10 times as wide, to rethink whatever you’re doing in your business, your project, whatever it is. FELDMAN: Dramatic 10X change can be many small changes that compound. It could even be a 1 percent improvement every day. FINETTE: Absolutely. At Singularity University, we’re talking a lot about exponentially accelerating rate of change and technology. This goes to figuring out your 10-, 20-

FELDMAN: That was Elon Musk’s vision, and we can all witness it unfolding. How did he do it? FINETTE: If you break the methodology, you need to have an exponentially accelerating technology trend supporting it. In Tesla’s case, batteries are getting better and cheaper on a truly exponential rate. Then you break it down and you say, “So what do we need to get there?” The answer is, “We need to have at least one vehicle being mass manufactured and affordable,” which is the Tesla Model III, which just came out.

Then you break that down and you say, “First, we need a learning vehicle.” So the answer was, you take a sports car vehicle, rip the engine out, put an electric engine in and sell it to people who’ve got the money for it. Then you take that and you build a luxury vehicle, which is the Model S, and build it in small volumes and sell it.

October 2017 » InsuranceNewsNet Magazine


INTERVIEW DISRUPT, CREATE, GROW And then you build a few more platforms, and then you eventually get to Model III. So it’s a really fascinating breakdown of a long-term goal into something tangible today.

in previous years still did the two-year planning or, like the Chinese, the famous five-year plan. That’s probably going away because it’s so murky and so fraught with error that it’s impossible to do.

FELDMAN: With the exponential, disruptive world that we’re living in, can you still do a five-, 10-, 20- or 30-year plan?

FELDMAN: What is exponential disruption, and how does that work?

FINETTE: I think you can. But it’s much murkier moving forward, with the margin of error much wider as you go forward. You can predict where technology will go in a particular time frame. Take computers, where we have Moore’s Law predicting computers get twice as fast every two years. If you project that out, I can tell you how much computing power you

FINETTE: It works in two ways. The first way involves things that happen in your line of sight. Let’s say you’re a car company. There’s a line of sight, which is the stuff that is clear to you. In a car, the line of sight includes the question of combustion engines versus electric engines; autonomous vehicles versus manually driven vehicles; car ownership versus shared car ownership. In the world of things you’re seeing,

you’re not very careful in scanning the landscape. I’ll give you a very simple example. I spoke to a large airport’s management, and they’re growing really fast, particularly in the space of commercial air flights, business flights. And they were working on this 20-year project. I asked, “OK, what will this airport look like over the next 20 years?” They expected that the business flights will continue to rise in volume. And that might be true, but what they haven’t seen and didn’t consider is technology such as virtual reality. Where today I’m getting on a plane and flying three hours across the country, I will probably do those meetings in virtual reality because it’s cheaper, quicker and easier and I don’t need to fly. That might have a pretty dramatic effect on the airport business, but it’s something they didn’t see. What they were seeing is planes getting more efficient, different types of planes coming, consumer behavior in an airport shifting more toward shopping behavior, so airports turn more into shopping malls, etc. But they didn’t see this VR thing happening. So that’s the disruptive innovation that is happening on the corollaries, on the sides of your field of vision.

I think there’s a lot that needs to be sorted out in the industry, and lots of opportunity. will have on your phone in 10 years and 20 years. You can do the math on it, and then you can work backwards in terms of what you can do with all that computing power. That creates the long-term vision. Then again, the art is to break that long-term vision down into concrete next steps. Mark Zuckerberg has this really wonderful quote in Facebook’s internal handbook, which they give to new employees. It says that we know exactly what our 30-year vision is, and we know precisely what we’re going to do for the next six months and everything else we need to figure out. I think the reality today is, you can have that North Star — where do you want to go in the long term — and you know what you need to do in the short term, but not in the middle term. You know companies 14

you also need to figure out which of those technology trends move on an exponentially accelerated curve, and what does it mean for you as a company in that space. The best example is Nokia being in the space of handheld mobile communication. They didn’t see, or they underestimated, the dramatic pace of Apple disrupting the industry, turning phones — which were phones, literally for voice and text communication with buttons — into minicomputers with a glass interface or a glass screen and a touch face interface. I believe most companies are getting much better at understanding this. The Nokia example worked pretty much as a wakeup call. Then there’s a second part to that, which is stuff that happens to the left and right of you. You typically don’t see it if

InsuranceNewsNet Magazine » October 2017

FELDMAN: The potential disrupter we’re seeing right now in our industry is robo-advising. Where do you see that going? FINETTE: A little while ago, I worked with a very large insurance group and I was invited to speak at their leadership forum. All the group leaders were together. And I talked about disruptive change and so on, and I asked the audience what they think their competitive advantage in the market is. Their main answer was to say, “We understand — we can assess risk probably better than most others based on the

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INTERVIEW DISRUPT, CREATE, GROW models we build, based on all the data we have, based on us hiring the best scientists and data scientists and risk-modeling people.” And I showed them a graph where you can predict with pretty high reliability that in year 2029, we will build computers that are computationally as smart as the human being. Then by 2050, 2060, you will have computers that are computationally as smart as every single human being on this planet. So compute power becomes abundant. It’s already pretty abundant, but it becomes truly abundant. Then you put artificial intelligence and machine learning and big data analytics on top of that, and I guarantee you that a computer will make better risk models than a human. So you might come into a world where the risk model you’re running on your phone in the form of a robo-advisor, for example, is better than any human. So your competitive advantage probably becomes that you have the best algorithm, but not the best humans anymore. Or your algorithm has the best access to data, so it becomes smarter than humans. I think it will become deeply disruptive. Just to be clear, I also believe that the role of humans will shift. The human advisor will care much more and spend much more time on really understanding the client’s needs, and then will have the computer figure out what the perfect portfolio looks like or what the perfect insurance plan looks like. FELDMAN: But I would guess there are people, particularly younger ones, who prefer the non-human service. FINETTE: I’ll give you an interesting example. This is minor, but was fascinating for me. I recently set up a new account with one of the large broker firms. I used one of their internet-based tools, and they actually called me. One of their advisors said, “Hey, we’re seeing that you are opening an account and we would love to offer you this free service,” which is great. But here’s the thing, I don’t want to talk to them. For me, I don’t like speaking on the phone. I asked the person, “Can I use chat with you, because that’s my normal way of interacting?” 16

And they said they don’t have chat, which was really fascinating. I thought, Wow, you’re cutting out a whole generation of people younger than I am who do everything with chat. And they didn’t offer this as a service at all, which just blew me away because it’s such a missed opportunity. It’s so easy for them to implement. It’s even cheaper for them to have chat than to call me. I think there’s a lot that needs to be sorted out in the industry, and lots of opportunity. There’s a massive amount of opportunity. FELDMAN: More broadly speaking, what is the future of humans in the workforce? FINETTE: Of course, this is currently a huge debate, the idea of technological unemployment. There are a lot of questions and very murky answers at the moment. But I think in very broad brushstrokes, at a very high level, what we will see is that machines, both artificial intelligence as well as robotics, will take over a lot of the more mechanical tasks when machines are better at doing them. And with mechanical tasks, I also mean stuff like picking a stock or picking an insurance portfolio, or when you go to a doctor, having a machine look at your X-ray and telling you if you have pneumonia based on machine learning algorithms. IBM has a working product that looks at X-rays and predicts cancers and things you can see on X-rays on behalf of doc-

InsuranceNewsNet Magazine » October 2017

tors. And it’s better than any human in detecting those. So we’re already in a world where, if your hospital or your doctor says, “Do you want to have an AI look at this, or do you want me to look at this?” you actually want to say, “Please have the computer look at this.” But that doesn’t mean that the role of the doctor goes away. I think the doctor then becomes much more what the doctor really should be, which is this human interface to me and working with me on my health and advising me and helping me. And I think the same is true for the insurance industry and the financial industry. FELDMAN: With all of this stuff happening, is there a way to future-proof yourself? FINETTE: Yes, absolutely. We’re already in an age where constant learning is the norm. So, this old idea, which is that you go to college and then you get your job and you work in your job for 20 years or longer —that’s over. I think it’s really about constantly learning and doing these micro-credentials, probably. You want to get credentialed and stay on top of stuff. What this does to you as a human is move you higher up in the service hierarchy. It’s a little bit like, if you remember, Maslow’s hierarchy or pyramid of needs. We’re moving higher and higher up. Take the financial advisor, for example. Understanding that role is probably less about knowing everything there is about


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INTERVIEW DISRUPT, CREATE, GROW a specific basket of financial products, because the machine will know that. It’s being much better at sitting down with clients and really understanding their interests and goals — where do they want to be in the world — so that you can finetune the machine to get the best result for your clients. It’s about moving up that stack to stay on top. There’s a lot of stuff humans are inherently better at, and it’s about empathy and creativity and connecting. And I think that will stay with us for a long time. FELDMAN: How does somebody spot change that’s going to be a disruptor or a real market shifter?

think like a startup. I have observed this now, and I’ve got this theory that when a business is a young fledgling business, it gets to a product market fit. Once it finds this magic moment where they’re producing something the market wants, what the business then does is start to protect that status quo, which is perfectly reasonable and the right thing for it to do. So once they find something

We’re already in a world where, if your hospital or your doctor says, “Do you want to have an AI look at this, or do you want me to look at this?” you actually want to say, “Please have the computer look at this.”

FINETTE: That’s tricky. It requires a few ingredients. First, you need to be open to seeing it. You need to have a mindset that even allows you to recognize and see it. With that mindset, you need to spend time regularly scanning the horizon to figure out what’s actually happening in the world. And luckily, because we’re living in such a connected world today and most of the information is free or very cheap, it’s actually fairly easy. In my case, I scan the horizon and I ingest a lot of data sources such as MIT Tech Review so I can know what’s happening and what’s in the ether. That requires some work and some dedication to it. I think it really becomes part of your job to say, “There’s half an hour a day or an hour a day I’m spending on scanning the horizon and figuring out what’s happening.” FELDMAN: So one thing that you do is work with a lot of startups. What are some characteristics of a good startup? FINETTE: It’s a good question. So, I think most people in Silicon Valley will agree on is that the two factors of a good startup are typically people and timing. There’s this age-old saying in venture capital, which is that good people can’t 18

fix a bad product. But a good product with bad people — well, with not particularly good entrepreneurs — just doesn’t fly. It doesn’t work. So you look at people who have the experience, who ideally have worked together before, because building a startup is super stressful and the more experience people have with each other over longer periods of time, the better it is.

A friend of mine said the magic ingredient is them being irrepressible. So there’s this burning fire in them. So that’s one factor. Timing is the other one. You need to figure out what the market timing is. There’s some science behind it, but it really has a lot of art in there. And then there’s a whole bunch of hygiene factors, where the product needs to make sense, the market needs to be big enough and they need to know how to build the product. But those factors are typically fixable if you have the first two ingredients. FELDMAN: Interesting. With all the disruption that’s happening in the world today, does an existing business need to think like a startup and always think like a startup, or do you get out of that mode? FINETTE: I think if you look at an existing business, part of that business needs to

InsuranceNewsNet Magazine » October 2017

that works and figure out the right pricing and the right product, and it starts to fly off the shelves, that business turns to protecting that status quo. They start to fight off competitors. They will flood the market with advertising, all this kind of stuff, and that’s great. The challenge with that is, the people who are doing status quo thinking are different from the people who are doing startup. I think what you need to do, as an established business, is both. The core of your business is protecting the status quo, and that’s great. But protecting the status quo makes you vulnerable to being disrupted. So at your core, you need to have this other part of your company that is constantly scanning the horizon, figuring out how do I disrupt myself? How do I create new product offerings in a world that is rapidly changing? The short answer is, if you turn an existing business purely into startup mode, they will lose their core business, which is their lifeblood. So that doesn’t work.

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Elder Financial Fraud: $36B and Growing You may think Grandma and Grandpa are too smart to fall victim to a financial scam, but you could be wrong. A True Link Financial report estimated that older Americans lose $36.5 billion each year to financial scams and abuse. And the actual number of victims could be even more than those who admitted they had been scammed. Three in 10 state securities regulators said they have seen a rise in senior financial fraud cases over the past year, according to the North American Securities Administrators Association. Why are seniors a target? Thieves are following the money, said the association’s president, Mike Rothman. “This population that’s retiring is one of the wealthiest, if not the wealthiest generation, in terms of their retirement savings,” said Rothman, who is also the Minnesota commissioner of commerce. “Criminals know this as well.”


Janet Yellen may have given her last speech as chief of the Federal Reserve when she discussed the effectiveness of policy and reforms that followed the 2007-2009 financial crisis. In that speech, the Fed chief said any financial reform rollbacks should be modest. Her remarks came at the Fed’s annual monetary policy conference. Yellen noted that a decade ago, the U.S. financial system was “a dangerous place” — citing a peak in the price of housing and strains caused by the subprime mortgage market, which led to the deterioration of money markets and the imposition of new regulations on banks. Today, she said, things are much improved and more capable of holding off a similar crisis in the future. Yellen’s term ends in February, and President Donald Trump indicated he DID YOU




will not reappoint her.


More Americans report living paycheck to paycheck, and it’s not only the lower-income workers who are doing so. Seventy-eight percent of full-time workers said they live paycheck to paycheck, up from 75 percent last year, according to CareerBuilder. Even with a six-figure salary, workers are having a tough time making ends meet. Nearly one in 10 of those making $100,000


PAYCHECK TO PAYCHECK or more said they live paycheck to paycheck, and 59 percent of those in that salary range said they were in the red. Even worse, 71 percent of all U.S. workers said they’re now in debt, up from 68 percent a year ago. Of those who are in

The number of U.S. workers who worked partially or fully from home dropped to 22 percent in 2016 — down two Source: U.S. Bureau of Labor Statistics percentage points from 2015.

InsuranceNewsNet Magazine » October 2017

Only morons pay the estate tax. — Gary Cohn, chief White House economic advisor

debt, more than half — 56 percent — said they were in over their heads.


Two insurers are making big investments in next-generation initiatives. MassMutual is giving $500,000 to the University of Vermont to fund a pilot program focused on research at the intersection of human health and well-being, data science, and complex systems. MassMutual will support research on topics related to wellness, human behavior and networks. Nationwide has committed to investing more than $100 million of venture capital into solutions that help consumers live comfortably in retirement, meet their insurance and financial needs in new and digital ways, and protect their data and digital assets.


Stanley Fischer, vice chairman of the Federal Reserve, will step down this month for “personal reasons.” Fischer’s surprise resignation leaves four vacancies on the seven-member Fed governing board. Fischer, 73, is close with Chair Janet Yellen, whose own term ends in February. A well-respected economist who taught at MIT and led the Bank of Israel for eight years, Fischer adds further uncertainty to how President Donald J. Trump will wield his influence over the Federal Reserve. After criticizing Yellen’s low-interest-rate policies during the campaign, Trump has softened somewhat in recent months. A member of the board since 2014, Fischer said Oct. 13 will be his final day on the job.

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October 2017 » InsuranceNewsNet Magazine




DOL RULE’S GOLD LINING Fee-Based Business Raises Agency Value

Agents and advisors who have adopted a recurring fee system are finding that their agency has greater sales value when it comes time to sell the business.


InsuranceNewsNet Magazine Âť October 2017



reg Gagne’s Affinity Invest- ful for some advisors, the shift is yielding almost giving firms away,” Rybka said. “You ment Group is a storybook a perhaps unexpected return for advisors look at the transaction involving MetLife small-business success story. themselves. They have secured a better re- and MassMutual. They essentially gave Gagne recently celebrated tirement themselves by adding substantial them 8,000 reps for nothing.” the 20th anniversary of the purchase value to their agency. In a deal completed last summer, MetLife advisory business in Exeter, N.H. There ValMark Financial Group is a holistic sold its broker-dealer to MassMutual Fiis no shortage of concerns going forward investing firm consisting of five companies nancial Group for $300 million. More re— from tax rates to reguspanning the gamut of cently, Kestra Financial acquired H. Beck, lation and myriad potenfinancial planning. More an independent advisor and broker-dealer tial threats to the world than 100 member firms platform, from Securian Financial Group economy. working with the Val- in an August deal. One thing Gagne, 48, Mark broker-dealer give “If you read the articles, it looks like it doesn’t have to worry the company a unique was at a significant discount,” Rybka said. about is the future of his view on industry trends, business should somesaid Lawrence J. Rybka, ‘How Could I Re-engineer?’ thing happen to him. president and CEO of Gagne recognized the value limitations of He took care of his sucValMark. commission-based selling more than 20 cession planning a while Every year, “three or years ago. He finally converted his firm to ago. four member firms” are a fee-based advisory in 1997. At the time, “A lot of advisors basisold — either internally Affinity was 90 percent commission and cally leave the keys in the to partners or to other 10 percent fee. Today, it is 95 percent fees. Greg Gagne door on the day that they firms, Rybka said. “The peaks and valleys of being in a retire and their whole “Firms that have re- transaction-based business just didn’t fit career just kind of stops. And that didn’t curring fee revenue sell for a much higher well with me,” Gagne said. sit well with me,” Gagne said. “I had to get multiple than commission-based prod“It works great for some folks but it just rid of that situation and wanted to have an ucts,” he said. “You can look at every study didn’t work great for me. So I had to decide organization that would live longer than I and at transactions, and there’s no ques- if I wanted to stay in this industry, which would and continue to provide value to the tion — recurring fee-based revenue is a I really wanted to. I loved it. How could I clients that we served.” higher multiple than commission-based re-engineer the way I’m compensated so I Gagne put in place an Employee Stock and I think some of the uncertainty around could remove these peaks and valleys?” Ownership Plan (ESOP) that would en- DOL and what will happen has probably At the time, the move to fees was about able his five employees to buy the business depressed the value of commission-based immediate survival. But it ultimately addwhile providing for a five-year payout plan firms.” ed great value to the for his family. ESOPs provide tax advanThe DOL rule regbusiness that Gagne tages while transferring ownership to em- ulation has many in will pass on to his ployees (see sidebar). the industry facing colleagues. Affinity’s “So we now have an organization that an uncertain future. assets under manwill outlast me, which was a decision I Ironically, it puts agement doubled “six needed to make,” said Gagne, an 18-year many advisors and or seven times” to MDRT member. carrier executives in roughly $220 million. Succession planning is a crucial task on the shoes of their cli“That has just put the to-do list for many small-agency own- ents when it comes to me in a position ers like Gagne. retirement security. where my organizaBut agencies are already struggling A classic problem tion has enterprise with monumental shifts in the economy, for insurance agenvalue,” Gagne said. especially in the insurance and financial cies is the commis“There’s a value to my Lawrence J. Rybka realms. A key dynamic is the push toward sion sales model. It firm because there’s fee-based holistic advising and away from does little to build up recurring revenue commission-based product selling. intrinsic agency value that will accumu- that far exceeds my ability to produce a That momentum was accelerated by the late years into the future while providing transaction with a client. Department of Labor’s fiduciary rule. Al- a retirement nest egg for owners. According to a new Nationwide survey, though the implementation of the rule has That problematic lack of value revealed Gagne is in the minority. been delayed a few years and the rule itself itself in the high-profile sales of advisor Sixty-five percent of owners report that is likely to change substantially, the finan- forces over the past year. they believe it’s important to choose a succial and insurance industries have already “You don’t need to look much farther cessor for their business as recommended sailed in the fee-based direction. than the sale of some of the broker-deal- by the Small Business Association, but But even though the transition to ho- ers, not only at an advisor level but some only 37 percent actually have a business listic retirement planning has been pain- of the sales that have occurred recently are succession plan in place. October 2017 » InsuranceNewsNet Magazine




FEATURE DOL RULE’S GOLD LINING While many business owners are not prepared for the risks they face, the younger business owners seem to have a better grasp. Millennials are more likely than boomers or Gen-Xers to say it’s important to create a business succession plan (38 percent).

Commissions Still King

More common is the small agency owner wedded to a long-standing commission model that worked well for decades. For

Juli McNeely Juli McNeely, 48, it’s been a matter of don’t fix what ain’t broke. Her McNeely Financial Services agency in Spencer, Wis., was started and run by her father. Then he retired and moved to Arizona. McNeely Financial sells life insurance, disability, annuities, long-term care planning insurance, and has a small securities side as well. For 45 years, the business has been mostly commission-based in a small town of 1,925 residents. Establishing a firm valuation is hard when the book of business is all commission accounts, McNeely said, even for an agency with strong local name recognition. “People know where we are. They know what we do,” she said. “But it is really hard to get the value from the name and the reputation, especially if the person that created that name and reputation retires out.” In the independent world, you own a block of clients, but is there value there?, McNeely asked. “Not nearly as much as you might think. “Unless you can transition that to someone who’s going to continue to work that block of clients, continue to build those relationships that have already been estab24

lished, and continue to have repeat sales, then there’s value to that.” McNeely has no succession plan, but it’s high on her to-do list. Meanwhile, the company is transitioning clients to fee models. So far, it’s been surprisingly easy because of the long-standing relationship the McNeely agency has with most clients, she said. But many firms are having trouble with the process, said McNeely, former president of the National Association of Insurance and Financial Advisors. “A lot of it is just, to be truthful, I think a mental roadblock in the advisor’s mind that this is the way we’ve always done it,” she said. “And now we’ve got to shift over. I will tell you, our firm is really looking at things very differently now because we see the potential there to perhaps not have commissions anymore on anything.” The industry as a whole needs to take succession planning more seriously, she added.

Succession Planning a Brisk Business

To get her succession plan off the ground, McNeely hopes to touch base with FP Transitions. Founder David Grau authored the industry bible on the subject in 2014: Succession Planning for Financial Advisors: Building an Enduring Business.

InsuranceNewsNet Magazine » October 2017

FP Transitions, in Lake Oswego, Ore., is doing a brisk business, said Brad Bueermann, FP CEO and principal. Financial services practices listed on the open market are being sold in less than 80 days, he said. In fact, the entire industry is “super busy” with movement, Bueermann said. “We also will set a record this year in terms of number of succession plans that we’ve launched,” he said. “We continue to expand our firm.” The pressure to produce succession plans is not just due to regulations and changing industry dynamics, Bueermann explained. One result of that focus and publicity is a client base that is both more informed and alert to the details. “We’re constantly hearing back from people who say, ‘Hey, I need to get a succession plan in place,’ ” Bueermann said. “We say, ‘What’s driving this?’ and they go, ‘I’m just getting questioned constantly by clients saying, ‘What am I supposed to do when you retire?’” A transition plan is generally to prepare the company for an external sale or for an internal takeover. Passing the business on to family heirs, or employees, are examples of the internal transfer. Those internal transfers usually take longer and can be fraught with difficulties, Bueermann said. On the plus side, the young, would-be future business owners bring energy, ideas and enthusiasm. “But they seldom bring money,” Bueermann said. “And so because they don’t have money, how do we sell a firm that could very well be valued on the open market in the millions to a group of young professionals who are mid-career and they’re trying to get their kids through school and buy houses and buy their next car and doing other things?” The answer is by setting up a plan that allows them to buy into the business slowly and reinvest the cash flow they realize as owners toward completing that purchase. Brad Bueermann “Whether they ultimately turn



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FEATURE DOL RULE’S GOLD LINING that cash flow into the ability to take out a bank loan and complete the purchase, there has to be something that they’re buying into, and there’s the rub,” Bueermann said. It’s a difficult plan to craft in a commission-based practice. The “eat what you kill” model generally makes money for everyone in the form of commissions, incentives and other payouts, he explained. “The problem with that was there’s nothing to buy into,” Bueermann said. “So if you own 10 percent of the company, or 20 percent of the company, that typically would entitle you to 20 percent of the profits. But if there aren’t any profits, then we have a problem.”

A Checklist for Succession Planning Agency owners should think of succession planning as a five-year process to do right, said Chip Roame, managing director of Tiburon Strategic Advisors in Tiburon, Calif. It doesn’t have to be an intimidating process, either. There are ways to add value to your firm, Roame said, adding that most owners are focused on that area. “You might think about changing your price point, or you might want to change your services,” he said. “You might want to hire different people, or you might want to put in different technologies. All of those things can make one’s business more attractive to a potential buyer, but all of those things take a lot of time.”

A New Model

The first order of business in this example is to re-engineer the compensation systems in order to create a business that fits into traditional valuation models. So the progression to fees fits right in with what consultants like FP Transitions try to accomplish with succession planning. The movement to fees will likely have a domino effect, Bueermann said, with product manufacturers following along with the recurring revenue model. “That will make it easier to professionalize the compensation systems and supports more of an advisory type of practice than a sales-based practice,” he said. In fact, manufacturers are increasingly working with agents/advisors and providing feedback on new fee-based products. Consider the Index Protector 7 fixed indexed annuity developed by Great American Insurance Group in Cincinnati. Since Index Protector 7 was launched Aug. 22, 2016, more than 50 registered investment advisors (RIAs) — Raymond James, Commonwealth Financial and Brookstone Capital Management among others — have agreed to sell the annuity. But first, both sides worked together to iron out issues distributors had on the back end. For example, advisors wanted to be able to withdraw their fee from the annuity instead of from a separate account. It is common in the RIA channel for the advisor fee to come from the third-party money manager that is managing the client’s assets. Great American obliged and made that option available in their fee-based FIA, a company executive said. 26

Tiburon identified a checklist of the six steps to successful succession planning:

1. Identify appropriate financial advisor coaches who focus on succession planning. 2. Clarify objectives. 3. Obtain business valuation. 4. Consider alternatives. 5. Execute internal transition (if chosen). 6. Execute fallback business continuity plan. — John Hilton The industry reported an estimated $21 million in fee-based indexed sales in the second quarter, double the volume from the first quarter but still a fraction of overall indexed sales, according to LIMRA Secure Retirement Institute. Distributors like Commonwealth Financial Network, one of the nation’s largest broker-dealers/RIAs, say they’ll keep feebased products on their shelves as long as they show some sales life.

InsuranceNewsNet Magazine » October 2017

“If and when the DOL standards are applied and we were to switch over to all fee-based annuities with qualified money, that would really tell us how popular these are,” said Ethan Young, director of annuity research at Commonwealth. That transformation means a more traditional advisor force with company buyin. Instead of commission salespeople, Bueermann said, firms will be staffed by advisors being paid salaries and bonuses.

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As your clients’ personal situations change (e.g., marriage, birth of a child or job promotion), so will their life insurance needs. They should weigh any associated costs before making a purchase. Life insurance has fees and charges associated with it that include costs of insurance that vary with such characteristics of the insured as sex, health and age, and has additional charges for riders that customize a policy to ft their individual needs. Indexed universal life insurance policies are not stock market investments, do not directly participate in any stock or equity investments, and do not receive dividend or capital gains participation. Past index performance is no indication of future crediting rates. Also, be aware that interest-crediting fuctuations can lead to the need for additional premium in your policy. Protections and guarantees are subject to the claims-paying ability of the issuing insurance company. The Nationwide Indexed Interest Multiplier (Multiplier) is available on two of the six Nationwide indexed interest strategies in the Nationwide YourLife IUL Accumulator. The Multiplier increases the indexed interest rate by 15%; for example, 5.00% interest rate x 1.15 Multiplier = 5.75%. Indexed interest strategies with the Multiplier may have lower participation and/or cap rates than indexed interest strategies without it. The Nationwide YourLife IUL Accumulator also includes the Nationwide IUL Rewards Program conditional credit of 0.20% in policy year 16 and onward. To receive the Nationwide IUL Rewards Program beneft, premium payments must meet or exceed a test of the net accumulated premium (premium paid minus any amounts taken as loans or partial surrenders) at the start of policy year 16; earlier for issue ages 51 and older. The additional 0.20% interest is applied each year from then on as long as the policy is in force. The credit will be added to the fxed interest rate strategy’s accumulated value. Life insurance products are underwritten by Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company, Columbus, Ohio. Nationwide, the Nationwide N and Eagle, Nationwide YourLife, Nationwide IUL Rewards Program, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2017 Nationwide. NFV-1197AO (04/17) October 2017 » InsuranceNewsNet Magazine




FEATURE DOL RULE’S GOLD LINING As that evolution takes root, it all adds value to the business. And it places a greater emphasis on succession planning to ensure the growth and stability of the business. “The transformation is going to be super good for the industry,” Bueermann said. “The people that make the turn are going to make a ton of money, because it’s making their businesses more valuable, and I think that we’re going to deliver better services as an industry to the clients. But like all changes, it’s painful to some people.”

Continuity Planning

A succession plan is about the transfer of the business to new stewardship, often carried out over a number of months, or even years. Not enough financial services firms have a solid succession plan down on paper. Fewer still have what Bueermann calls a “continuity plan,” or an emergency plan. The plan that dictates a course of action should the firm president die unexpectedly tomorrow. Life insurance is often a big component of that plan. “Have you put a plan in place that allows the firm to continue to run and something also that protects the value of what you have built?” Bueermann asked. “A startlingly low number have any kind of plan. Less than 15 percent of the people that we survey or do valuations with have a continuity plan, and we would say when we review that, under 10 percent of those are executable.” A properly structured continuity plan that includes life insurance can provide the following safeguards, Pacific Life Insurance Company points out: » Continuity of management and control for the remaining owners. » A source of income for the decedent business owner’s family.


» A captive market for often nonmarketable business interests. » Liquidity to the decedent’s estate for estate taxes and administration costs. » A fair valuation of the business interest for federal estate tax purposes. » A fair return to the decedent’s estate for his or her business interest. To some degree, agency owners enjoy the clients and the business part a lot more than they enjoy the details of running the business, Bueermann said. That might explain the lack of a forward-thinking strategy. But there’s too much at stake not to have one, he added. And it’s irresponsible to leave clients in the lurch with no plan to smoothly service their accounts in the event of an emergency, Bueermann said. “Most of them will basically go along and say, ‘You know what? When Chip Roame I’m ready to retire, I guess I’ll just sell the damn thing,’” Bueermann said. “Well, maybe you will, if you have any people left. Or any clients left.”

Advisors Have a Role

Completing a succession plan is no overnight process, cautioned Chip Roame, managing partner of Tiburon Strategic Advisors in Tiburon, Calif. Advisors have work to do to take advantage of the value proposition offered by fee-based services. Tiburon views succession planning as a five-year process, Roame said during a recent research call. “It’s not something that you get done in three months,” he added. “If you want to think about making your business attractive to a buyer, you might think about changing your price point; you might want to change your services; you might want to hire different people. All of those things can make one’s business more attractive

InsuranceNewsNet Magazine » October 2017

to a potential buyer, but all of those things take a lot of time.” Tiburon offers a six-step process to succession planning (see sidebar). The one that gets the most attention, and causes the most angst is business valuation, Roame said. Most advisory firms are still doing valuations incorrectly, he said. Data shows that three-fourths of RIAs say the most logical valuation method is a revenue multiplier. “That is absolutely wrong,” he said. “That’s actually maybe one of the worst ways to value a firm. Basic business school 101 is you’re buying the future cash flows of the business. So the right way to value a business is the discounted cash flow method. That’s the only right way to do it.” The discounted cash method is a better way, Roame added. Ways to boost value are fairly standard, he said, by strengthening these four areas: revenue sources, institutionalization, benchmarking and client demographics. A firm’s client base can be a major variable. “No one wants to buy a client base that’s 80 years old on average,” Roame said. “They want to buy a younger client base. They want to buy fewer but wealthier clients as a general rule. You’d rather have fewer but wealthier clients than many less wealthy clients.”

The Future

The coming years are going to bring plenty of activity in succession planning, mergers and acquisitions, as well as outright firm sales, Roame predicted. The drivers are well-known and not going away: aging advisor force, regulation and a changing retirement investing market. Firm owners need to get better prepared, and fast, Roame added. “There’s some 40 percent of the people out there who have no succession plans. That’s a little scary,” he said. “I’d also question of the 60 percent who say they have a plan, how well that plan is written.” Tiburon expects succession planning activity to pick up substantially in the captive world, Roame said. “They’ve all had succession planning programs for a long time. But they’re kind of ignored,” he added. “They don’t get a lot of attention. I think you’ll see more attention there. They’re not going to want their advisors go independent.”

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Agency Owners Turn to ESOPs Employee Stock Ownership Plans (ESOPs) are a great way to cash out of your business and essentially turn it into a cooperative in the hands of valued longtime employees. ESOPs are defined contribution plans governed by the Employee Retirement Income Security Act (ERISA) and operate through a plan trust, according to the National Center for Employee Ownership (NCEO). “Generally, all full-time employees working for 1,000 hours or more per year become participants in the plans,” NCEO explained on its website. “They receive allocations of stock in their accounts from contributions made by the company and, very rarely, by their own purchases.” ESOPs are popular because employees are motivated to perform for a company into which they are buying an ownership stake. When the employee leaves the company, the shares are returned to the company for redistribution. An ESOP generally must include at least all full-time employees meeting certain age and service requirements. Employees do not actually buy shares in an ESOP. Instead, the company contributes its own shares to the plan, contributes cash to buy its own stock (often from an existing owner), or, most commonly, has the plan borrow money to buy stock, with the company repaying the loan. All of these uses have significant tax benefits for the company, the employees and the sellers. Allocations must be made on the basis of relative pay or some more equitable formula. Allocations are subject to vesting, and vested account balances are paid out following retirement, death, disability, termination or a diversification election open to certain plan participants. Almost all ESOPs are in successful closely held companies and are most commonly used to buy shares from one or more owners using tax-deductible corporate funds. About 40 percent of all ESOPs own or will own 100 percent of the company. ESOPs range in size from companies with 10 or 20 employees to companies with tens of thousands. As of 2014, the most recent year for which the NCEO has data, there were 6,717 ESOPs in the United States, holding total assets of more than $1.3 trillion. These plans cover more than 14 million participants, of whom 10.6 million are active participants ­— those currently employed and covered by an ESOP. — John Hilton


InsuranceNewsNet Magazine » October 2017

Likewise, Tiburon forecasts 700 merger-and-acquisition deals by 2019. In 2015, there were 366 such deals recorded. The general idea is that bigger firms can better absorb regulation costs and changing industry dynamics. General sales trends will veer toward increased professionalism, Roame said. More consultants like FP Transitions will emerge to add targeted services. “You know, a lot of advisory firm deals still happen without much industry savviness,” Roame said. “Two local advisors hire the local CPA firm and the guy doesn’t even know what an RIA firm is, or they hire some business broker who sold a car dealer last week and now he’s helping two insurance agents merge. “So that’s the old way, the haphazard way. I think you’ll see the sales processes get a lot more formalized.” The need for succession planning extends beyond the financial services industry, McNeely said. In fact, advisors have a role to play in helping clients through the process, all the more reason to get their own house in order first. McNeely, author of No Necktie Needed: A Woman’s Guide to Success in Financial Services, said her next book might be on this topic. A “significantly larger number” of her clients are engaged in the succession planning discussion, she said, no doubt a reflection of a larger trend. “It’s high time as advisors we start to get very real about succession and very practical, I think, because I think with the increased regulations that are out there, we’re going to see a lot of advisors retiring,” she said. “I think you’ll see a lot of practices sort of merge and be sold. I always say the more proactive and planned that you can be about that succession, the more successful it’s going to be.” InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@

Like this article or any other? Take advantage of our award-winning journalism, licensure and reprint options. Find out more at


October 2017 » InsuranceNewsNet Magazine



More Carriers Offer Automated Underwriting The length of time it takes to issue a life insurance policy continues to shrink as automated underwriting keeps gathering steam among life insurers, according to LIMRA. Half of life insurers have some type of automated underwriting solution in place and 41 percent of companies are in the process of planning one. Insurers said they are reducing their policy issue costs while they reduce the policy issuance time. But they told LIMRA that they still face challenges in trying to implement automated underwriting. The three most common of those challenges include, having adequate human resources, working with legacy systems, and the continual need to update the algorithms. Automated underwriting is possible because companies are able to gather enough information about the applicant through other data sources. LIMRA research finds almost all insurers (94 percent) use data from medical information bureau (MIB). Seven in 10 insurers access prescription drug databases and motor vehicle records. While only 2 percent of companies are using electronic medical records (EHRs), 39 percent say they plan to start using them.


Aflac is becoming a one-stop shop for benefits with the launch of group term life and whole life products to its group life insurance portfolio. The new additions come on the heels of the universal life product that Aflac began offering in 2016. Aflac’s group term life product has a flexible plan design that includes employer-paid, supplemental buy-up and voluntary plan options. The product has three AD&D levels and 19 additional benefits, so brokers can deliver options that align with employer benefits strategies. The plan also includes an accelerated death benefit, which allows the insured to receive cash advances if diagnosed with a terminal illness. The group whole life plan is a portable, permanent life option with a maximum death benefit of up to $300,000. It includes benefits to help with things like end-of-life expenses, medical costs, debts and more. Other features include a living benefit rider, more competitive rates, increased DID YOU




guaranteed-issue amounts that are tiered based on group size, and enhanced broker commissions.


San Francisco has the Transamerica Pyramid. Boston has the Prudential Tower. Chicago has the John Hancock Building. Now you can add the Tower and Commons to the list of landmarks bearing the names of insurance companies. Northwestern Mutual employees are moving into the company’s new headquarters in downtown Milwaukee – a 550-foot high, 1.1 million-square-foot building that has reshaped the city’s skyline. The ground-level Commons features a 40-foot-long gas fireplace, a coffee shop and a park. And employees can eat free in the dining room that has a view of Lake Michigan.

QUOTABLE Blockchain technology offers our members significant ways to immediately improve operations and efficiencies. — Robert Kerzner, LIMRA president and CEO

Meanwhile, Globe Life Insurance purchased the naming rights for the new stadium under construction for the Texas Rangers. Globe Life Field will be ready in time for the 2020 Major League Baseball season.


New life insurance products are hitting the marketplace in time for fall. Here are some details. New York Life introduced Asset Flex, a new way for consumers to plan for their financial needs later in life while protecting their retirement savings. Asset Flex is a universal life insurance policy that allows acceleration of life insurance for long-term care services as well as an additional pool of long-term care benefits, plus a money-back guarantee. A single premium Asset Flex buyer who is 60 years old will have immediate access to long-term care benefits worth close to five times the premium used to fund the policy, and to life insurance benefits worth more than one and a half times the premium used to fund the policy. Buyers older than 60 will receive slightly less benefits for the same premium while younger buyers will receive slightly more benefits for the same premium. Midland National Life released XL Heritage indexed universal life. Designed to provide a guaranteed death benefit with a single premium, XL Heritage includes features like liquidity and living benefits. XL Heritage is designed for clients ages 50-80 who have between $25,000 and $200,000 of liquid assets not needed for retirement or daily needs.

New York Life led membership in the Million Dollar Round Table in the U.S. for the 63rd consecutive year, with 2,522 members in 2017. Source: New York Life

InsuranceNewsNet Magazine » October 2017


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How Life Insurance Products Stack Up in Producing Income for Retirement Traditional life insurance policies have many benefits for solving income-based needs, if those products are responsibly managed and if the purchaser truly understands the risks. By Ron Sussman


he estate tax exemption recently was raised to a level that diminishes the necessity for life insurance to solve liquidity problems for most consumers. As a result, we have seen an increased focus on sales of whole life, variable life and indexed universal life (IUL) purporting to be the “retirement income” solution. Every insurance carrier illustrates some form of Life Insurance Retirement Plan (LIRP). I think there are many benefits to using traditional life insurance policies to solve income-based needs, if those products are responsibly managed and if the purchaser truly understands the risks. Lately, carriers have been very creative with product designs that require a Ph.D. to understand; they have rosy illustrations where interest rates are linear and dividends always meet expectations, and unicorns roam the forest. And I wonder, “How many of these policyowners will realize all of the benefits the illustration shows?” Will interest rates have a positive or a negative effect on the final outcome? Will IUL owners understand how the pattern of returns affects their income options? Will the owners of whole life be prepared to deal with the economic drag created by interest on loans? Will they understand how to change dividend options when necessary to achieve the best 34

results? Will they know they can’t lapse the policy without suffering adverse tax consequences? Because all these scenarios require decades of accumulating cash, your clients most likely will be dealing directly with the issuing carrier to manage the distribution phase of the plan. Regardless of your carrier affiliations, you must admit this is a scary thought. It can be frustrating to try to untangle contract language many decades after the sale. I bring this up because I think we need to look not only at the validity of the illustrations we use, but also the expectations we create in clients’ minds when selling these products for this purpose.

Clients Must Understand Costs, Risks

Clients who are overfunding insurance contracts with the expectation of receiving very specific benefits in the future may not understand all of the costs and mechanisms that the illustrations assume. With whole life, IUL and variable universal life (VUL), clients are assuming risks that they may not understand and will likely not be able to articulate to a carrier robot in the future. This is a real problem that must be addressed at the inception of any life insurance-based income sale. In our practice, the typical broker request for client illustrations includes using either the carrier’s highest allowable interest rate, a guess at market returns or the carrier’s current dividend scale to project cash values at the insured’s anticipated retirement, usually age 70. These illustrations show income coming from accumulated cash value that will last for a specified number of years. None of

InsuranceNewsNet Magazine » October 2017

these projections will be correct. Most will be different by orders of magnitude based on the type of policy, the level and pattern of premium contributions, interest rates, options pricing (by the carrier), market performance, and most importantly for IUL and VUL, the pattern of returns. Many of these products, specifically the participating carrier’s 10-pay whole life contracts, are sold as being essentially guaranteed. After all, the premium, base death benefit and the cash value of the base benefit are guaranteed. That leaves dividends and variable loan interest rates as wild cards. And, while I have a lot of faith in the ability of the major mutual carriers’ ability to deliver dividends, the dividends are not guaranteed and will vary over time. The same can be said about IUL and VUL. Both products are market-driven, with substantially more moving parts than whole life contains. Cash values projected at retirement are subject to the volatility of the markets, nonguaranteed mortality costs, the decisions of carriers’ pricing actuaries (who determine the option pricing, caps, participation rates and bonus interest where applicable) and, again, the pattern of returns. From a planning perspective, are your clients helping or hurting themselves by contributing significant dollars into products like these? Are these products really the best companion to the more traditional retirement accumulation strategies?


How GUL Can Help

In a previous article, I described a guaranteed universal life (GUL) product that offers three key riders: 1. Return of premium. 2. Chronic illness/long-term care. 3. Ten-year income guarantee (based on death benefit) starting at age 85. Most pertinent to this discussion of retirement income is the income rider that pays out the death benefit in 10 equal installments commencing at age 85. Recently, we were asked to compare the benefits of this product to a 10-pay whole life product offered by a mutual carrier, and the results surprised us. The prospect, a 50-year-old physician (non-smoker preferred) had been sold on the idea of using the whole life policy for retirement income. The policy would be a supplement to the already significant amount of money he was setting aside in qualified plans, and he anticipated starting the income stream from the policy at age 70. No discussion of this type of supplemental retirement planning would be

valid without a full analysis of the client’s needs, risk profile and retirement plans. But, as is so often the case, the agent asked us for a simple comparison of policy results in a vacuum. In this instance, the results were overwhelmingly in favor of the GUL with the riders I have described. In this instance, the rider delivered the highest income with the least economic or administrative friction. It’s too easy to conclude from this result that, in all situations, clients should favor this specific GUL product over whole life when considering their retirement income needs. But an agent in this situation needs to consider whether or not this is an anomaly or a legitimate planning opportunity to be broadly applied. We decided to research the results using a more robust set of data. We started by asking ourselves the following questions: 1. How would the use of any life insurance product enhance or detract from a client’s opportunity to receive maximum income at retirement?

2. Given the choice, which of the most popular policy solutions has the highest probability of success? 3. When a client decides to access retirement income, which of their assets should they use first, and why? 4. What are the benefits of each potential product recommendation? 5. Which life insurance products produce the best income potential, and why? 6. What are the advantages of one income stream over another? There is a plethora of carrier-designed sales materials that espouse the use of permanent life insurance products to balance the effects of volatile markets on a long-term investment/income portfolio. Most seem to make the argument that insurance policies are uncorrelated to the markets and therefore should act as a balance against the effects of a down market. Or, in the case of IUL, that the interest rate floor protects the policyowner from loss. In essence, the argument for these sales scenarios is to take income from the

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LIFE HOW LIFE INSURANCE PRODUCTS STACK UP IN PRODUCING INCOME FOR RETIREMENT policy when markets are down and use other assets when markets are up. While this idea may seem logical, I would suggest that even with the use of whole life, promoters of this idea intentionally inflate the positive aspects of this strategy while ignoring several key risks. For example, the age at which a client first begins to take income, actual dividend crediting, the client’s risk tolerance and the ultimate age to which that income will be required are all factors that can influence whether a life insurance policy adds real value to the income derived from the overall plan. Clearly, over time, accumulating cash in a tax-deferred vehicle has economic advantages over taxable investments. But this is true only if the internal rate of return on cash (on a tax-adjusted basis) is equal to or greater than that of more traditional stock and bond portfolios. And life insurance in its most typical form has lots of economic drag. Some of that drag is dependent on age and ratings, and some is in the form of options pricing (which determine caps and participation rates), carrier administrative fees, fund-related management fees, and loan interest types and costs.

All life insurance products aren’t equal when it comes to creating retirement income. Here is a comparison of various types of coverage and the projected income for a man age 50, preferred nonsmoker, paying $20,000 premium for 10 years.

Projected Income: Age 71 to 85

Projected Income: Age 86 to 95

Whole Life (Cur Dividend)

Whole Life (Cur Dividend)


1. Changes to the death benefit options from B to A at specific points in the contract.

Switch at Basis, Cur Loan Rate Switch at Basis, 2.5% Loan Increase

Loans Only, Cur Loan Rate Loans Only, 2.5% Loan Increase

Universal Life (Cur Interest)






Opt 2 for 10 Years, Loans Opt 2 ALL Years, Loans

Loans Only, Cur Loan Rate Loans Only, 2.5% Loan Increase



Opt 2 for 10 Years, Switch at Basis Loans Only, 2.5% Loan Increase

Variable Life (6% Gross)


Switch at Basis, Cur Loan Rate Switch at Basis, 2.5% Loan Increase


Universal Life (Cur Interest)



Opt 2 for 10 Years, Loans Opt 2 ALL Years, Loans


Opt 2 for 10 Years, Switch at Basis Loans Only, 2.5% Loan Increase

Variable Life (6% Gross)


$95,140 $5,393

2. Changes in variable loan interest rates and/or the choice to make a change to participating versus traditional loans. 3. Market volatility in an IUL or VUL contract.

$85,757 $23,700 $12,605

Illustration Noncompliance

All of these factors are important to the outcome, but one other item may be more important than all of them combined: the client’s ability to manage the changes the illustrations reflect. By that I mean:


Opt 2 for 10 Years, Loans Opt 2 ALL Years, Loans



Opt 2 for 10 Years, Switch at Basis Opt 2 ALL Years, Switch at Basis

$16,012 Opt 2 for 10 Years, Loans Opt 2 ALL Years, Loans

Index Life

Index Life




Opt 2 for 10 Years, Switch at Basis Opt 2 ALL Years, Switch at Basis

4. The decision to make withdrawals to basis and then loans. 5. The decision to take only loans and no withdrawals. 6. Dropping or retaining term riders. 7. Making sure the contract does not become a modified endowment by virtue of a change to any of the aforementioned factors.


InsuranceNewsNet Magazine » October 2017



$24,352 $2,400 Max Illus Rate, Opt 2 10 Years, Switch Max Illus Rate, Opt 2 ALL Years, Loans

6% S&P, Opt 2 10 Years, Switch 6% S&P, Opt 2 ALL Years, Loans


Max Illus Rate, Opt 2 10 Years, Switch Max Illus Rate, Opt 2 ALL Years, Loans


6% S&P, Opt 2 10 Years, Switch 6% S&P, Opt 2 ALL Years, Loans

And it’s competitive to boot. Securian’s SecureCare Universal Life offers: • Simplicity: Indemnity-style long-term care (LTC) benefits and a guaranteed death benefit1 • Flexibility: Home modification and caregiver training benefits during the elimination period2 • Freedom: Access to entire LTC benefit pool for care received outside the U.S.3 Call Securian’s Life Sales Support Team to learn about SecureCare’s advantages, and even more ways it can help protect your clients: 1-888-413-7860, option 1


Upon the insured’s meeting the policy’s eligibility requirements.


Home modification benefit allows the insured to pay for modifications to his/her home, enabling the insured to remain in his/her home longer. This benefit can be triggered prior to the elimination period. The maximum benefit is $5,000. The caregiver training benefit can be used to pay for training of a friend or family member to provide care to the insured. This benefit can be triggered prior to the elimination period. The maximum benefit is $1,000.


Benefits outside the United States, its territories or possessions allow the insured to receive 50% of his/her maximum monthly benefit. The insured must be certified as being chronically ill by a U.S. licensed health care professional, all medical records are received in English, and the insured must receive care in a facility. If the insured returns to the United States, the non-United States monthly benefit limit will no longer apply.

Insurance policy guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company. Please keep in mind that the primary reason to purchase a life insurance product is the death benefit. Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. SecureCare may not be available in all states. Product features, including limitations and exclusions, may vary by state. SecureCare is a single premium universal life policy with tax qualified long-term care benefits that cover care such as nursing care, home and community based care, and informal care as defined in this policy. This policy provides for the payment of a monthly benefit for qualified long-term care services. This policy also provides an accelerated death benefit for terminal illness. This policy is intended to provide tax qualified long-term care insurance benefits under Section 7702B and tax-free accelerated death benefits for terminal illness under Section 101(g) of the Internal Revenue Code, as amended. However, due to uncertainty in the tax law, benefits paid under this policy may be taxable. Please ensure that your clients consult a tax advisor regarding long-term care benefit payments, terminal illness benefit payments, or when taking a loan or withdrawal from a life insurance contract. These materials are for informational and educational purposes and are not designed, or intended, to be applicable to any person’s individual circumstances. It should not be considered as investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action. Securian Financial Group, and its affiliates, have a financial interest in the sale of their products. POLICY FORM NUMBERS ICC16-20047, ICC16-20047U; Extension of Long-Term Care Benefits Agreement ICC16-20048, ICC16-20048U; Long-Term Care Inflation Protection Agreement ICC16-20049

Insurance products issued by: Minnesota Life Insurance Company Securian Financial Group, Inc. Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Minnesota Life is not an authorized New York insurer and does not do insurance business in New York. Both companies are headquartered in St. Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues. 400 Robert Street North, St. Paul, MN 55101-2098 ©2017 Securian Financial Group, Inc. All rights reserved. F87549-16 8-2017 DOFU 8-2017 ICC17-199158

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

LIFE HOW LIFE INSURANCE PRODUCTS STACK UP IN PRODUCING INCOME FOR RETIREMENT To measure the effects of what I refer to as illustration noncompliance, we constructed a chart showing variations in income results that could be expected based on a variety of potential outcomes, some of which (such as switching to a nonparticipating loan) must be determined by the policyowner. Keep in mind, these are the best possible scenarios based on the way illustrations operate today. That means that the results could be better or worse depending on actual policy performance accounting for fluctuating dividends, gap-toothed patterned interest credits, market volatility, actual fees and expenses, and actual versus projected net amount at risk. The products we used in our analysis are some of the industry’s best in their respective categories and fairly represent other similar contracts from the top-selling carriers. What should you take away from the data in this chart? First and foremost: whole life, IUL and VUL are complicated products and policyowner compliance with the illustrations will have a significant impact on the end result. If, for example, you or your client forgets to change the death benefit option from B (increasing) to A (level) in year 10, the resultant income flows at retirement would be very negatively impacted. Same goes for loans versus withdrawals. Making the wrong decision could result in either negative tax consequences, lower income or both. Second, although IUL illustrations project the highest income opportunities, even a small misstep, like forgetting to change the death benefit option from B to A, can cause that potential income to drop (in our example) from around $248,195 to $98,527, a 60.3 percent variance. And these numbers do not accurately reflect the pattern of returns, which could easily cause that number to be zero! Third, with the exception of the GUL with the lifetime income rider, all of the other income amounts are projections and the actual results are not determinable in advance. That means you and your client must be vigilant and the carrier must be capable of making the changes required to stay on track as markets fluctuate. To me, this is a practical matter of utmost importance. Do you place your clients on the Good Ship Lollipop, push 38

them off from shore and hope they arrive safely with all of their assets intact? Or do you encourage them to purchase the more conservative policy that guarantees everything, assuring them safe passage regardless of the waves and headwinds? There are as many product solutions as there are clients to buy them. It is certainly possible that well-managed IUL and VUL products will meet or beat the assumptions made here. It is also possible that whole life products will outperform today’s assumptions. The real wild card is whether or not carriers will be able to make the illustrations a reality by building better tools to manage them.

Value and Future Income

Based on the data we’ve been accumulating about this specific use of life insurance for retirement income purposes, two things have become quite clear: IUL accumulation products illustrate greater income than any other product, with arguably the most moving parts and the greatest potential for losing that income due to illustration noncompliance. And the guaranteed rider to pay the death benefit in 10 equal installments offered by the GUL product I have described provides the best guarantee of future income. Whole life and VUL are outliers in my mind because they have too much economic friction in the form of fees and/ or expenses, or they require too high an interest rate to succeed (a direct result of the fees and expenses). In addition, they both require entirely too much engagement with the insurance carriers where the cost of illustration noncompliance far outweighs the potential benefits. As is the case with all financial products, the key to success is active management and client engagement. For clients who are active asset managers with a deep understanding of options and market performance, a well-constructed IUL product may deliver the best long-term value. For everyone else, for whom the task of constant policy management is unreasonable, and who look to insurance as a simple way to protect against risk or as a guaranteed backstop for their other retirement income planning, I am inclined to recommend the GUL with a guaranteed income rider, or maybe a combination of GUL and IUL. With the GUL/lifetime income rider, I

InsuranceNewsNet Magazine » October 2017

know that it will do exactly what is illustrated and there is very little required of clients to achieve that result. This is the type of anchor that all retirement plans need, and it does not introduce other elements of risk into the overall plan. More importantly, it requires only one contact with the insurance carrier to turn on the income, and it’s smooth sailing from there on. Another key takeaway from this data is that your clients would be better off waiting until age 85 to take the income from a life insurance policy. This is based on the idea that the policy is a retirement backstop, not the cornerstone of the plan. The extra 15 years of accumulation produces significant cash benefits and increases the probability that the client never runs out of income. I have focused on the practical aspects of policy management. I believe the results are compelling in and of themselves. However, I haven’t addressed some of the more detailed and thorny issues of standardizing the returns between VUL and IUL and the probability of those returns actually happening. What the IUL and VUL numbers in our charts represent is a linear return, which overestimates the real returns and, in the case of IUL, allows the carriers to illustrate rates that are significantly above the advertised AG49 maximums. To do that, we need much more sophisticated software than the industry currently makes available. It doesn’t take a rocket scientist to understand that if the internal rate of return on cash is greater than or equal to the maximum illustrated AG49 rate, the carrier has essentially charged zero for mortality and expenses, or they are making some very aggressive assumptions that they are not disclosing. I’m not an actuary, but I am pretty sure insurance carriers do not survive and thrive by giving anything away. Sy Syms famously coined the phrase, “An educated consumer is our best customer.” I could not agree more. Ron Sussman is founder and chief executive officer of and CPI Companies. He counsels high-net-worth individuals through risk management analysis and life insurance planning strategies. Ron may be contacted at

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October 2017 » InsuranceNewsNet Magazine



Half-Year Annuity Sales Reach 16-Year Lows



Total annuity sales continue to slump, with sales in the first half of this year reaching their lowest first-half point since 2001, according to LIMRA. -10% This marked the fifth consecutive quarter of decline in overall annuity sales. It is also the sixth straight quarter in which fixed annuity sales have outperformed variable annuity sales, and that hasn’t happened in almost 25 years. Sales of fee-based VAs increased in the second quarter to $570 million, representing 2.3 percent of the total VA 1H 2017 market. While this is a small portion of the overall VA mar- 1H 2016 ket, these products have seen continued growth over last year. Structured variable annuities also experienced growth. Although structured VAs represent only 7 percent of the VA market, second-quarter sales of these products increased 36 percent. Fixed annuity sales also declined in the second quarter. Sales were down 7 percent to $29.2 billion. All fixed product lines sales, except structured settlements, had declines. In the first half of 2017, fixed sales fell 11 percent to $56.7 billion.


But all is not doom and gloom on the annuity sales front. Second-quarter indexed annuity sales were up by double digits over the previous quarter, according to Wink’s Sales & Market Report. Indexed annuity total sales for the second quarter were just over $14.6 billion, up more than 13.3 percent when compared to the previous quarter. But they were still down nearly 6 percent when compared with the same period last year. Allianz Life kept its top ranking in indexed annuities, with a market share of 15 percent. Athene USA took the secondranked position. Rounding out the top five carriers in the market were Nationwide, American Equity Companies and Great American Insurance Group, respectively. Allianz Life’s Allianz 222 Annuity was the top-selling indexed annuity for all channels combined, for the 12th consecutive quarter. Jackson National was the top carrier in fixed annuities in the second quarter, with a market share of 14.4 percent. It was folDID YOU




lowed by Modern Woodmen of America, Great American, Global Atlantic Financial Group and Reliance Standard. Forethought Life’s ForeCare Fixed Annuity was the top-selling fixed annuity for the quarter, for all channels combined.


Brighthouse Financial, the newest major life and annuity distributor in the United States, officially spun off from MetLife and moved quickly to expand its product line. Almost overnight, Brighthouse became one of the largest annuity distributors in the country following its separation from MetLife. The new company is backed by $219 billion in assets and is the owner of 2.7 million insurance policies and annuity contracts. Soon after its spinoff, Brighthouse began launching new products. The company announced the debut of a pair of new index-linked, or buffered, annuities

Genworth has extended the deadline for its planned sale to China Oceanwide to Nov. 30 while the U.S. government reviews the Source: Charlottesville (Va.) Daily Progress proposed deal.

InsuranceNewsNet Magazine » October 2017


There are 11 companies offering The [fiduciary] rule is on hold, QLAC (qualifying longevity annuity and my response to that is game contract) on for FIAproducts. sales. While this is a small and new part of the DIA —market, Sheryl J. Moore, president to andsee an uptick we expect CEO of Moore Market Intelligence and Wink 2016. in sales called Shield Level Select. This is a singlepremium deferred annuity with no annual fee. The buffered annuity products, a hybrid of a variable annuity and a traditional fixed indexed annuity, include a death benefit but don’t come with income riders. Brighthouse also launched a new feebased version of the index-linked annuity cousin – Shield Level Select Access Annuity. This product gives financial advisors the option of selling a fee-based version of the Shield Level Select family.


CNO Financial Group’s fixed indexed annuity with a lifetime income rider has squarely hit its mark with middle-market consumers — helping CNO deliver better-than-expected second-quarter results, the company reported. Second-quarter annuity sales saw new annuity premium rising 28 percent to $264.5 million. CNO’s success with its singlepremium Guaranteed Lifetime Income Annuity is also likely to blaze a new product trail for income protection and longevity for the company, Gary C. Bhojwani, CNO president, told analysts. Many baby boomers want guaranteed income in the face of declining defined benefit pensions, analysts say. Boomers also want to protect assets from losing value in a declining market from which people in their 70s have less time to recover. Speaking specifically to CNO’s second-quarter annuity sales, “I think we’ve tapped into something here, if we look at what this middle-market consumer needs,” Bhojwani said. The “vast majority” of annuity sales growth in the quarter came from the new product, he added.

October 2017 Âť InsuranceNewsNet Magazine



Annuities Outperform CDs Even at the Same Rate Tax deferral laws make annuities a great option for clients planning for retirement. But what should advisors be looking for in crafting an effective plan to take advantage of annuities? By Brian O’Connell


caling retirement can be akin to climbing a mountain with several crests. Just when you think you’ve reached the final cliff, another one appears on the horizon, mocking you for believing you had reached the summit. So it goes with retirement savings, where even an abundant amount of assets in IRAs and 401(k)s may not actually be enough for retirement. In fact, “tax-qualified contributions alone will probably not give you what you’ll need for retirement,” said Ken Nuss, CEO of AnnuityAdvantage in Medford, Ore. Nuss advocates a combo platter of sorts in retirement, with an accent on tax deferral. After all, tax deferral is a powerful tool in saving enough to meet your retirement goals. That’s why tax laws encourage people to use both retirement accounts and annuities. “Retirement accounts are great, but they have strict annual contribution limits,” Nuss said. “Because nonqualified annuities don’t, they can play a key role in achieving your retirement goals.” Consider a fixed annuity paying 3 percent — a rate that’s readily available today — versus a certificate of deposit paying the same rate. “Assume the buyer’s combined federal/state income tax rate is 25 percent, a typical figure,” Nuss said. “After 10 years, a $100,000 premium payment made to a tax-deferred annuity will grow to $134,392. But the CD will grow only to $124,920, assuming income taxes are withdrawn and paid each year.” That is a $9,472 advantage for the annuity owner when compared to the bank CD. After 20 years, the annuity advantage 42

increases to $24,560, Nuss noted.

Delayed Tax Bills

But it’s really in the tax deferral component of annuities where retirement savings benefits kick in. “The CD owner pays taxes on the interest annually,” Nuss said. “The annuity owner will owe tax on accumulated interest when it’s withdrawn.

reason consumers are purchasing annuity contracts, but there are several others as well,” said Adam Hyers, an independent annuity broker with Ohio-based Hyers and Associates. “Many of my clients are simply looking for reasonable threeto-five-year returns with no risk to their principal.” Even with three Federal Reserve rate hikes in the past eight months, banks are

How does a fixed annuity stack up against a CD? All interest rates are not created equal when it comes to savings vehicles. How much money will a fixed annuity paying 3 percent yield compared to a CD paying 3 percent?



A $100,000 premium payment made to a taxdeferred annuity will grow to $134,392 after 10 years.

A $100,000 CD will grow to $124,920, assuming the buyer’s federal/state tax rate is 25 percent and income taxes are withdrawn and paid each year.

Total advantage to the buyer = $9,472 for the annuity owner after 10 years; $24,560 after 20 years. “Withdrawals, however, can be put off until the owner needs the money and may be in a lower tax bracket. There’s also the option of eventually annuitizing the money, which spreads out the tax burden over one’s lifetime.” Is Nuss on the mark with his assessment, and can tax deferral play a bigger role than advisors might think in retirement planning? Some retirement experts think so, but as always, there are caveats. “I think tax deferral is a primary

InsuranceNewsNet Magazine » October 2017

offering very low rates on money market accounts and CDs. So a five-year annuity yielding 3 percent or above looks very attractive to conservative-minded investors, Hyers said. “In some cases, my clients are withdrawing their monthly interest for living expenses and are not concerned about the tax deferral aspect at all,” he said. Others say there are many different accumulation tactics available today from annuity providers.

ANNUITIES OUTPERFORM CDS EVEN AT THE SAME RATE ANNUITY “In order to identify if tax deferral is a value, you need to understand how the annuity is built and what the overall fees amount to,” said Mitchell McCann, managing director at McCann Wathen Retirement Strategies in Bloomfield Hills, Mich. Retirement savers and their advisors should check out variable annuity and fixed annuity returns since interest rates bottomed out, starting in 2012. “I think you’ll find almost no good answer to tax deferral as a sales point when fees eat up more than 30 percent of the gross potential return,” he said. “That’s assuming investors invest properly, which is a difficult thing to expect.”

Not Convinced

Still other money managers aren’t convinced that annuities offer the best taxdeferral outcomes, but that doesn’t mean they aren’t useful for retirement savers. “Although annuities do not necessarily offer more tax-deferral benefits than other tax-deferral products, such as traditional IRAs and 401(k)s, retirees find

Banks are offering very low rates on money market accounts and CDs. So a five-year annuity yielding 3 percent or above looks very attractive to conservativeminded investors. other features and benefits of annuities attractive,” said Jack Shinn, president of J Shinn & Associates in Glen Rock, N.J. “Some of these features would be the guarantee of premiums against market loss, certain riders such as living benefit riders, and in the case of index annuities, the use of a zero floor whereby accounts stop losing value at zero.” These are benefits not found in other retirement tax-deferral products, Shinn said. “In spite of the fact that in many cases, annuities have more internal costs

than IRAs or 401(k)s, clients still use them because of these other benefits,” he added. Brian O’Connell is a former Wall Street bond trader, and author of the best-selling books, The 401(k) Millionaire and CNBC’s Guide to Creating Wealth. He’s a regular contributor to major media business platforms, including CBS News, The and Bloomberg. Brian may be contacted at brian.oconnell@


Fixed Indexed Annuity

A new single premium fixed indexed annuity with an optional Lifetime Withdrawal Rider. It allows clients to: » Accumulate funds » Benefit from tax-deferral » Maintain a simplified allocation

Protecting your clients in retirement. To learn more about the Highlander Fixed Indexed Annuity, call (855) 782-8039 or visit This material is for informational or educational purposes only, and is not a recommendation to buy, sell, hold or rollover any asset. It does not take into account the specific financial circumstances, investment objectives, risk tolerance, or needs of any specific person. You should work with your agent to discuss your specific situation. In providing this information, Guggenheim Life and Annuity (d/b/a Guggenheim Life and Annuity Insurance Company in California) (“Guggenheim Life”) is not acting as your fiduciary as defined by the Department of Labor. Guggenheim Life, whose office is located at 401 Pennsylvania Parkway, Suite 300, Indianapolis, Indiana, issues the Highlander Fixed Indexed Annuity on form number GLA-INDEX-01 or a variation of such. The Highlander Fixed Indexed Annuity and/or certain features may not be available in all states. Guggenheim Life is not licensed in New York. This material is intended for insurance agent use only and is not intended for use with the public. © 2016 Guggenheim Life and Annuity Company. All rights reserved. HFIA041705

October 2017 » InsuranceNewsNet Magazine



Taking a Look Into the Annuity Sales Crystal Ball New fee-based annuities, bringing products to market faster and more transparency in how agents are paid are just some of the main developments in play within the annuity sales industry. By Cyril Tuohy


ver the next three years, retail life and annuity agents and financial advisors can expect simpler annuity structures, more fee-based annuities and fewer riders and income guarantees in product rollouts, a consultant said. The days when annuities giants pumped out an “overwhelming volume of complex, tough-to-understand annuity 44

products are gone,” said Chris Eberly, vice president of research and consulting with Novarica, an insurance IT consultancy. Insurers instead have focused on “a few key blocks of business and simplifying products within those blocks.” These days, insurers are guided by low interest rates, new regulation and targeting retail clients based on income needs rather than what companies can sell. “It’s the end of the shotgun approach” to sales, Eberly said. The latest intelligence comes after several weeks of interviews with IT departments responsible for product development within insurers. Eberly’s research appears in an “Emerging Trends in Annuities” report published

InsuranceNewsNet Magazine » October 2017

with a colleague, senior associate Harry Huberty. It details new developments that include the introduction of fee-based annuities, bringing products to market faster, increasing transparency in how agents are paid and improving efficiencies around the administration of annuities. Changes will affect products in the industry’s variable and fixed annuity segments, both of which saw declines in the second quarter. Second-quarter variable annuity sales dropped 8 percent to $24.7 billion from the year-ago period, while fixed annuity sales dropped 7 percent to $29.2 billion over the same period, according to LIMRA Secure Retirement Institute.


Imagine being able to provide a true wealth solution that will not only set you apart, but allow you to maintain your book no matter what happens with future regulations. Now is the time for new solutions in a new era of advising. It’s time to innovate — to break away from the same old offerings and investments — to diversify your portfolio and your practice. IMAGINE OFFERING YOUR CLIENTS SOMETHING MORE: • A structured product that works like a safety net in a down market • A way to transition underperforming assets and achieve market-like double digit gains • Eliminate taxes on retirement income • Place new AUM and retain 100% of existing clients • Use an asset class that was made to thrive under volatility

THE LEDGER TELLS THE STORY See a ledger of historical returns from this new asset class against all other traditional investments. If you don’t investigate this and start offering it to your client, another advisor will!

To see a shocking ledger of ACTUAL returns, visit

ANNUITY TAKING A LOOK INTO THE ANNUITY SALES CRYSTAL BALL Despite these figures, the increasing number of baby boomers at or nearing retirement — along with an increasing number of millennials who are beginning to save — gives annuity carriers “good reason to be optimistic that demand for annuities will rebound,” the Novarica report said. “While carriers should adapt to the new environment, those who approach with more focus, simplified product sets, and the technological capabilities to support online sales and a connected, flexible distribution can position themselves for success.”

Distributors to Narrow Focus

Agents should also expect insurers to favor some distributors over others as companies decide which channels suit them best, Eberly said. By and large, insurers are prioritizing based on what has traditionally been their

indexed annuities, Index Protector 7, an FIA launched from scratch last year by Great American Insurance Group in Cincinnati, has found 50 RIA distributors so far. Since Index Protector 7 was launched Aug. 22, 2016, more than 50 registered investment advisors — Raymond James, Commonwealth Financial and Brookstone Capital Management, among others — have agreed to sell the annuity. The journey of Index Protector 7, one of the first fee-based FIAs in the market, offers a glimpse into the dialogue that unfolded between product manufacturers and distributors in the independent channel, which is responsible for 50 to 60 percent of all FIA sales. By the standards of the company that created Index Protector 7, 12 months is quick, given the traditional reluctance on the part of RIAs to sell FIAs. Index Protector 7 flew out of the gate after a campaign to educate and explain to RIAs why it had a seven-year surrender charge period, said Tony Compton, vice president of broker/ dealer and RIA sales at Great American. With no surrender charges on comparable fee-based variable annuities, RIAs questioned the need for such a charge on Index Protector 7, a feebased asset. Seven-year surrender charges penalize annuitants for turning in their annuities during the first seven years they own the contract. Insurers use those charges to recoup the costs of their investment loss and for marketing expenses. Fee-based variable annuities and feebased FIAs are two different products, Great American managers told RIAs. Surrender charges are necessary on fee-based FIAs because of the guarantees associated with fixed annuity contracts. RIAs wanted to be able to withdraw their fee out of the annuity instead of out of a separate account. It is common in the RIA channel for the advisor fee to come from the third-party money manager that is managing

These days, insurers are guided by low interest rates, new regulation and targeting retail clients based on income needs. “strongest (distribution) suit,” he said. Some insurers have “doubled down” on their career channel — Northwestern Mutual, MassMutual Financial and New York Life, for example, he added. Other insurers seem intent on bank and broker/dealer channels. Still other insurers are expanding their relationships with registered investment advisors (RIAs). Insurers are attracted to RIAs because they are growing rapidly and are more profitable and capturing more assets faster than other channels.

Finding Middle Ground on FeeBased Annuities

In one example of how RIAs and insurers have found middle ground on fee-based 46

InsuranceNewsNet Magazine » October 2017

the client’s assets. Great American obliged and made that option available in their fee-based FIA, Compton said. But RIAs persisted with their questions: for example, on how to handle billing and reporting. An RIA normally uses a software platform that creates consolidated reporting for clients, but historically that reporting software has not displayed FIA values. Based on technology already in use at Great American, along with new RIA agreements, annuity account values appear on several major reporting platforms, Compton said. A fee-based FIA is a great option for RIAs concerned about their bond and bond fund portfolios, Compton added. The conversations had to break down the advantages and the drawbacks of FIAs, and outline where they fit in a client’s portfolio in today’s investing environment.

Cultivating the Independent Channel

With the continuing growth in retirement savings, insurers cultivating the independent channel are doing so because they don’t have a large captive distribution network, or because they know their captive agents are not getting any younger and are looking to retire, Novarica’s Eberly said. “I’ve not come across a carrier saying ‘We’re dumping our captive and going RIA,’ but I have come across carriers saying, ‘We have a captive but we want to grow our RIA,’” he said. Insurers have realized that RIAs are the ones capturing the assets, “so they are saying, ‘Let’s use that as a market channel for us,’” he said. InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at

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Anthem Takes Harder Line on ER Visits Anthem is frustrated that its customers continue to show up at the emergency room with problems that aren’t life-threatening. So it is pushing this message: Save the ER for emergencies, or you’ll be responsible for the cost. Nonemergencies such as bruises, rashes, Aetna offers a video on when to visit the ER vs. urgent care. minor burns, ear infections and athlete’s foot should be treated in a doctor’s office or an urgent-care facility, Anthem said. The insurer warned it could deny claims for these nonemergency diagnosis codes if customers seek help for them in the ER. Nationally, nearly three-quarters of ER visits are for nonemergencies, Anthem said. An emergency room is the most expensive place to see a doctor — about $1,200 for a typical visit, compared with just $85 at a pharmacy walk-in clinic, $125 in a doctor’s office, or $190 in an urgent-care center.


Paulding County may not be known to too many folks outside of its state of Ohio, but the Affordable Care Act put the rural outpost on the map. Paulding County was the nation’s last “bare” county – one with no health insurer offering coverage on its insurance exchange. But all that changed when CareSource stepped in to provide coverage for 2018. Earlier this year, more than 40 mostly rural counties faced the prospect of having no options for their exchanges next year, but insurers gradually came forward to fill the gaps. Insurers have been pulling back from the exchanges for a few years now, after getting stung by heavy losses and struggling to attract enough young, healthy customers to balance all the claims they get from people who use their coverage. DID YOU





Aetna’s 23 million health insurance customers could be offered exclusive deals on Apple Watches next year. The two companies have discussed bringing the health and fitness smartwatches to Aetna’s network. But it’s not clear whether Aetna customers would get free watches or just discounts to purchase them. Aetna began offering the Apple Watch to its own employees as part of the insurer’s wellness reimbursement program. Aetna isn’t the only health insurer to jump in on the fitness tracking trend. UnitedHealthcare has a similar program, called Motion, in which employees with Fitbit


They’ve been growing slowly and steadily since the day they were introduced in 2004. — Paul Fronstin, health research director for the nonprofit Employee Benefit Research Institute, on the popularity of highdeductible health plans

trackers can earn up to $1,500 per year by meeting certain goals for daily activities. Fitbit has also partnered with other health and insurance companies in the past.


David Wichmann was one of Steve Hemsley’s first hires at UnitedHealth Group. Now he is succeeding Hemsley as the company’s CEO. UnitedHealth Group is the nation’s largest health insurer and Minnesota’s largest publicly traded company. Hemsley will take the new job of executive chairman of the board of directors. During Hemsley’s tenure, UnitedHealth’s workforce grew from David Wichmann 58,000 to more than 260,000. Revenue grew from $71.5 billion to an estimated $200 billion this year. As of June 30, more than 49 million people had health insurance coverage from UnitedHealth Group. During its most recent quarter, UnitedHealth Group, for the first time ever, broke the $50 billion barrier. Wichmann, 54, joined UnitedHealth Group in 1998 and served as chief financial officer from 2011 until mid-2016. Most recently, he has been president of UnitedHealth Group and led the UnitedHealthcare business.

Lifetime health care costs for someone with dementia are an estimated $184,500 more than Source: Brown University for someone without dementia, with 86 percent of costs incurred by families.

InsuranceNewsNet Magazine » October 2017

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Messaging Matters In HSA Enrollment Employees may not understand a health savings account, or fear they are downgrading their coverage by choosing one. Here is how your explanation of an HSA can make the difference. By Brian Tolbert


lmost a quarter of employers offer a health savings account (HSA)-eligible plan option. That’s a jump of more than 20 percent since 2012, according to United Benefit Advisors. But enrollment in these plans lags behind their prevalence, with only 17 percent of employees selecting them. Many employers are unknowingly undercutting their own enrollment rate with a poor communication strategy. This isn’t surprising — communication tends to be one of the biggest open enrollment challenges for employers, regardless of plan design. But if your employer clients are looking to maximize savings through increased HSA plan enrollment, an ef50

fective communication strategy will be particularly crucial to your success. These plans usually are implemented with the hope of cost containment — consulting firm Mercer found HSA plans typically cost employers 22 percent less than traditional health insurance plans. But a low enrollment rate constricts these savings and frustrates employers. Boosting employee enrollment in the HSA-eligible plan option doesn’t have to be an insurmountable challenge. In fact, a few small changes in the way brokers and employers explain the HSA option to workers can make a huge difference and increase plan adoption. Calling the plan “HSA-eligible,” adjusting the cost, and using concrete examples to explain the plan design can result in significant improvement to enrollment and savings. In other words, messaging matters. Let’s look at each tip for improving HSA messaging and boosting enrollment.

1. Whatever You Do, Don’t Call It A High-Deductible Health Plan

InsuranceNewsNet Magazine » October 2017

You might have noticed this is the first — and last — mention of HDHPs in this article. That’s on purpose. Nothing reduces enrollment faster than calling this type of coverage a “high deductible health plan.” Employees naturally think, “Well, what’s the alternative? A low-deductible plan? That sounds better — I am going with that!” Cut that line of thinking off at the pass and refer to the plan as “HSA-eligible,” and the traditional plan as the “copay plan.” This pushes the emphasis away from the deductible. Don’t worry — you will fully explain to your client’s employees how the plan works and what they can expect regarding their deductible. But you want to explain it in the right way. Leading with the words “high-deductible” will put the employees on the defensive and make them fear they are downgrading their coverage. This simple change can make a big difference, but most advisors and employers never realize that the way they refer to the plan can hinder enrollment.

2. Charge the Same for the HSAEligible Plan — But Explain Why

This is the opposite of what most employers and benefit advisors want to do. Most think that by charging less for the HSA-eligible plan, they are targeting their cost-sensitive employees and boosting enrollment. However, this actually is hurting their


strategy, not helping it. Employees are cost-sensitive when it comes to their health plans; but remember, they don’t want to downgrade their coverage either. When employees see the new plan option is cheaper, they automatically will assume it’s worse coverage, and they will be reluctant to choose it. Two things help prevent that assumption: Charging the same amount for the plan, and having the same network for the copay plan and the HSA-eligible plan. When open enrollment comes around, address everyone’s concerns right away by saying, “We have a new plan option this year. It will cost the same to employees as our previous plan, and it has the same network. The only difference is in plan design.” Then, share any HSA savings with employees by contributing to their HSAs. More than 36 percent of employers contribute to employee HSAs, and this percentage is expected to increase, according to the Society for Human Resource Management. After you tell employees they will compare their health plans on design, you must effectively communicate the differences.

3. Develop Concrete Examples For Using the Plan

Your goal for explaining plan designs is to make understanding the designs as simple as possible. Avoid complex jargon and use concrete examples of how employees will

use their plans. Use real-world scenarios and address what they can expect to pay, based on various levels of need. You can point out that employees who are low users of the health plan will see a benefit right away. Under the copay plan, they had peace of mind over their coverage, but there was no associated financial benefit, because they weren’t using the plan. Through the HSA contributions, they now have a monetary benefit from their health plan. Be sure to point out that these funds roll over every year and can even be invested. To the higher users, you can illustrate how the plan will work under various circumstances, including prescriptions and chronic condition treatment. You will want to explain how employees can think about surgeries or emergency care too. Remember to point out — probably more than once — that employees who have more expenses will have additional funds to put toward their out-of-pocket costs, via the HSA contributions. Ideally, you will want the out-of-pocket maximum to be the same as the deductible in the HSA-eligible plan. This way, you can explain to employees, “OK, you have a $5,000 deductible, but the employer contributes $800 toward that, and after you meet your deductible, everything is covered.” Designing the plan in this way really contributes to employees’ ease of under-

standing. When you begin to explain the far more complicated copay plan design, all but your highest users naturally will gravitate toward the simpler HSA-eligible plan.

Support Employees Down the Road

Finally, you will want to think ahead about your support strategy to give employees further peace of mind. Under an HSA-eligible plan, employees will be subject to more cost variation, and the more assistance you can provide them, the better. What does this mean? Providing access to price comparison tools and insurance or health care advisors can be immensely useful in helping your clients’ employees minimize their out-of-pocket expenses. When you announce the new plan option, mention these services as well. Then plan to release more information later about how employees can use them effectively. Seeing the cost-reduction benefits of an HSA plan requires a little more than simply offering it. Ultimately, employers and brokers must develop a strategy to maximize enrollment and employee satisfaction. These goals can be accomplished with an improved message and a few basic support services. Brian Tolbert leads Bernard Health’s employee benefits practice. Brian may be contacted at

October 2017 » InsuranceNewsNet Magazine



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State Pension Plans Worse Than Thought About 19.5 million workers will rely on a state or local government pension for their retirement. And they are facing some tough news – a new study shows that state pension plans are in much worse shape than their plan administrators will admit. A North Carolina State University analysis of state pension plans found that these pensions already were troubled. The situation may be even worse “because many pension managers are making their plan’s financial condition look better by perpetually putting off payments,” said the study’s author, Jeff Diebold, an assistant professor of public policy. Diebold likened the accounting practices exercised by pension managers to a heavily-mortgaged homeowner who needs to cook the books to keep their home. “Imagine having a 30-year mortgage and each year, instead of making your mortgage payments and having 29 years of payments left, you simply reamortize the remaining liability over another 30-year period,” Diebold said. How much are state pensions underfunded? According to recent data from the Urban Institute, the number could be as low as $800 billion or as high as $4 trillion. comment letter to the DOL, which has asked for more information on the fiduciary rule in accordance with a February directive issued by President Donald J. Trump. Industry groups opposed to the rule have warned that the rule would curtail access to investment help as advisors drop smaller, less-profitable accounts.


More than 155,000 clients have been dumped due to the Department of Labor’s fiduciary rule, according to the Insured Retirement Institute. IRI based its claim on a survey of customers as part of evidence that the fiduciary rule has harmed investors since the first part of its implementation began in June. The IRI survey of its distributor members found that “approximately 155,000 of their clients have already been orphaned, with far more accounts expected to be impacted as implementation of the rule proceeds.” The findings were included in the IRI’s DID YOU




STUDENT LOAN BORROWERS: OLDER, DEEPER IN DEBT People are taking on more student debt later in life, and they are having a tougher time paying it back. That’s the word from the Consumer Finance Protection Bureau on the nation’s ballooning student debt situation.

40% of borrowers owe $20K or more when they leave school

THE AVERAGE RETURN ON AN INITIAL PUBLIC OFFERING was 20 percent Of the 44 million Americans who currently hold down a second job, this year. The average increase in the first day (or “pop”) is 13 percent.

36 percent bring home more than $500 a month from that job.

Source: Renaissance Capital Source: Bankrate

InsuranceNewsNet Magazine » October 2017

Source: LIMRA

It's easier to try to exploit a senior citizen with cognitive or other impairments who is alone, in financial issues, than it is to rob a bank. So they are the targets. — Mike Rothman, president, North American Securities Administrators Association

The CFPB found that more than 40 percent of borrowers leave school owing $20,000 or more, double the percentage from 2002, and the share of borrowers owing $50,000 or more has more than doubled. In addition, half of student loan borrowers are over 34 when they start to repay their loans, twice the percentage since 2003. Sixty percent of borrowers who haven't paid down their balances five years into repayment are delinquent on their loans.

13% of workers used a Roth 401(k) in 2016, up from 8% in 2011

13% OF WORKERS ARE SAVING IN A ROTH 401(K) A Roth 401(k) may not be the household word that its cousin the Roth IRA is. But it is gaining in popularity, according to an Alight Solutions report. In 2016, 13 percent of workers had a Roth 401(k), up from 8 percent in 2011. The Roth 401(k) seems to be a hit with 20-something workers, with 19 percent of that age group having one. Roth 401(k) ownership decreases as you move up the age ladder, with 15 percent of those in their 30s having one and 7 percent of those 60 and older having one. People making more money tend to own Roth 401(k)s, with 16 percent of those earning $60,000 to $99,000 having one. Among various industries, 22 percent of those in the computer services or software industry own a Roth 401(k). Roth 401(k) owners contribute an average of 5.8 percent of their salary.

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How to Keep Splitsville From Leading to Skid Row Divorce takes an emotional toll on a client, but the effect on their finances can be just as bad. The right advice can help soften the financial blow. Some experts share tips for preparing and protecting a client headed for splitsville. • Brian O’Connell


ivorce is an emotionally draining experience for many married men and women. Likewise, it can be a financially troubling time as well. And that is where a good advisor can make a big difference. More than 813,000 Americans get divorced every year, according to the National Center for Health Statistics. The average cost of getting divorced — including lawyers, mediators and court costs — is prohibitive enough at $20,000. But the real financial pain comes from the ensuing years after divorce, especially for the spouse who pays out alimony and child support. “A cost most spouses do not see is the total financial burden over a lifetime,” noted the website in an online tutorial. “This includes child support until the age of 18 or the age of majority is reached and spousal support up to the age of retirement. “For example, let’s say you were married at age 20 and divorced at age 31,” the report stated. “You are now considered a long-term marriage (more than 10 years). Let’s also say your spouse does not remarry. This means you could be faced with paying support for another 34 years. If the support amount were $1,000 per month, your overall payment would be $408,000.” That’s a ton of cash on the table. Advisors are on the front lines in protecting clients, as best they can, from the high costs of divorce. Make no mistake, that responsibility starts from day one, and smart advisors will know which divorce action items to prioritize first. “The first step a financial advisor should take after learning a client is divorcing is to refer the client to a divorce attorney,” said Angela McIlveen, partner attorney at McIlveen Family Law Firm in Gastonia, N.C. 54 54

‘The Best Advice’

It’s important that clients receive legal advice prior to making financial decisions that could impact the outcome of their case. “It’s preferable that the client talks with an attorney before moving out or even telling the spouse that divorce is imminent,” McIlveen said. “The attorney and the financial advisor working together can give

InsuranceNewsNet Magazine Magazine »» October October 2017 2017 InsuranceNewsNet

the client the best advice about how to move forward financially and legally.” Establishing some broad guidelines is also on the table for advisors and divorcing clients. “This issue has come up more than a few times for me,” said Karen Lee, a financial planner and founder of Karen Lee and Associates in Atlanta. “The first thing I do when one member of a couple announces to me that they are divorcing is to set up some new rules. Primarily those rules are around confidentiality.” After first hearing of a client divorce, an advisor can no longer divulge client




-21% change 30

+14% 24 18


+109% 10 5







Source: Pew Research Center analysis of the 2015 American Community Survey and 1990 Vital Statistics following the methodology in Brown and Lin’s “The Gray Divorce Revolution: Rising Divorce Among Middle-Aged and Older Adults, 1990-2010.”


information to the client’s spouse. “To clarify, on accounts in an individual’s name, I am supposed to talk only to that person, so this mainly applies to jointly held accounts and personal information,” Lee said. “However, those lines tend to get fuzzy in a solid marriage, so I need to be clear that I must now keep things separate.” The next step is to focus on the settlement and how each person is now going to be living on their own and having to support themselves. “It’s crucial to consider how a non-working spouse will be able to survive after a divorce, and I highly encourage life insurance as a means to make sure the agreed-upon support will continue in the event of a death,” Lee said. Another critical step — advisors should draw up a checklist to track and complete upon news of an impending divorce. “Gather all your financial information. Create lists of all assets and debts in your name, and calculate your net worth,” said

Going from two to one may sound more affordable, but a divorce can bring with it a host of unexpected costs, particularly if you have children. Fred Schebesta, chief executive officer at New York City-based “Be completely honest and transparent, as trying to hide anything will only draw the process out further (at great cost) and hurt you in future negotiations.”

Freeze the Spending

In the early stages of a divorce scenario, advisors should encourage clients to hold off on making any financial decisions. “Divorce proceedings are not the time to be making any money decisions,” said

DIVORCE IS PLAYING HAVOC WITH AMERICANS’ RETIREMENT •T  he poverty rate for married Americans over age 62 who never divorced is 3.4 percent. •Meanwhile, 16 percent of single people divorced before age 50 are poor, and 19 percent of single people divorced after 50 are poor. •T  he poverty rate for single men divorced after age 50 is 11.4 percent, while almost 27 percent of women divorced after 50 are poor. Source: National Center for Family & Marriage Research

Schebesta, who is divorced. “It creates complexities that will only confuse the situation.” It’s also good for divorcing clients to establish their own financial identities. “If you only had joint accounts, open an account that is solely in your name,” he added. “That’s because you can pay for everyday expenses while joint assets, including savings accounts, are being divided.” Next, advisors should urge clients to keep diligent records, including the all-important “date of separation.” “Some states require you to be separated for six months or more before you can pursue a divorce, so you want to ensure you track how long it has been,” Schebesta said. Finally, divorcing clients should determine a budget and set financial goals. “Going from two to one may sound more affordable, but a divorce can bring with it a host of unexpected costs, particularly if you have children,” he said. “Write down your complete financial obligations, including rent, utility bills, credit card and loan repayments, bank account balances, investments, retirement accounts, insurance policies and tax records and set out a budget for managing your new single life.” Note that these are only critical first steps after clients inform their advisor they are getting divorced, and there’s much more work to do for both parties. But if you get the first steps right, those later steps become much easier to execute. Brian O’Connell is a former Wall Street bond trader, and author of the best-selling books, The 401(k) Millionaire and CNBC’s Guide to Creating Wealth. He’s a regular contributor to major media business platforms, including CBS News, The and Bloomberg. Brian may be contacted at brian.oconnell@

October 2017 2017 »» InsuranceNewsNet InsuranceNewsNet Magazine Magazine October

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When Your Client Is Forced Into Early Retirement

I only 12 more yhad ears...

For those clients who are forced into an early retirement, financial advisors have to navigate both the emotional and financial fallout, and readjust that client’s retirement plan on the fly. Here are some tips to do that. • Brian O’Connell


etiring early is a dream for millions of Americans looking to drop the briefcase and pick up the golf clubs — for good. But that dream can become a nightmare for career professionals who lose their jobs in their late 50s or 60s, and can’t find a new one with a comparable salary, thus leading to an early career exit. Such “forced” retirements have become more commonplace in the years following the Great Recession. As a result, financial advisors have had to navigate both the emotional and financial fallout, and readjust that client’s retirement plan on the fly. Studies show the difficulties presented when older workers lose their jobs. According to a recent report by the Urban Institute, although older workers are less likely to be laid off than their younger counterparts, “those who lose their jobs take substantially longer to become reemployed.” The study stated that workers age 50 to 61 who lost their jobs between mid-2008 and the end of 2009 “were a third less likely than those age 25 to 34 to find work within 12 months, and those age 62 or older were only half as likely.”

Tough to Find Work

The likelihood of finding a job within a year was only 36 percent at age 25 to 34. That probability dropped to 24 percent at age 50 to 61, and 18 percent at age 62 and older, the Urban Institute reports. Difficulty in finding a new job often leads to a forced early retirement. “Data from the Employee Benefit Research Institute says that about 50 percent 56 56

of retirees are forced to retire earlier than planned,” said Frederick Saide, managing director at MoneyMattersUSA Advisory in Scotch Plains, N.J. “And only about 25 percent retire early because they can afford to do so.” Individuals who are forced to contemplate an early retirement, on a “ready-ornot” basis, should examine all options, and rule nothing out, experts say. “Getting fired is traumatic; but like any setback, one can view it as an opportunity to reshape oneself and one’s future or to seek an opportunity that extended one’s present career,” said Mitchell Langbert, a human resource management professor at the Brooklyn College Koppelman School of Business, a branch of the City University of New York. “Hopefully, if the person is in his or her 50s, they have enough savings to spend some time reassessing their future.” Retirement would surely be a part of that reflection, and that’s where some good, objective professional financial

InsuranceNewsNet Magazine Magazine »» October October 2017 2017 InsuranceNewsNet

advice would come in handy. “A forced retirement challenges people in two ways,” Saide said. “The obvious challenge is financial; the less obvious challenge is mental. Both tests may be met with sufficient foresight and dedication.”

Take These Steps

Saide recommended taking the following financial steps for individuals (and the financial professionals advising them) who face an early, forced retirement. Take stock of your financial situation. If you have a pension, you may be able to begin collecting funds at age 62, Saide said. “It’s the same for Social Security,” he said. “If you’re married, claiming your retirement income benefit from Social Security is a poor idea because it leaves the surviving spouse with a reduced income. Determining a strategy is essential, unless Social Security’s merely icing on the cake.” Stress test your retirement portfolio. The early retiree’s 401(k) needs to be


stress-tested along with their entire retirement income strategy. “Assume you and your spouse will live 25, 30, even 40 years into retirement,” Saide said. “Will your nest egg last as long as you do? Portfolio stress-testing will help you see what your probability of success is in different portfolio selections as well as allocations. What changes needed to be made on an ongoing basis? Set a budget. “Decide on the amount of money you’ll need and set up a budget and see if you can live on it,” Saide added. “Don’t forget to include all of your expenses, including federal income tax and local property tax.” Make moving an option. “Decide if you want to remain in your current home or apartment or relocate to areas with a lower cost of living,” Saide said. Take the cost of health care into account. Don’t examine merely the cost of insurance, Saide advised. Include the cost of medical care not covered by Medicare, too. “Take long-term care expenses into consideration,” he said. “Both medical and

“A forced retirement challenges people in two ways. The obvious challenge is financial; the less obvious challenge is mental.” long-term care expenses must be built into capital expenses. The latest research tells us that at age 64, there is a 50 percent chance that one spouse will require long-term care expenses and a 75 percent chance that one spouse will eventually be in an institutional setting.” Getting creative can also set an early retiree onto a solid financial path going forward, especially if they’re being pushed into retirement. “It’s often helpful to withdraw a portion of retirement savings to live on for a year, and place a portion into a personal pension with a growing guaranteed income rider attached,” said William Stack, own-

er of St. Louis-based Stack Financial Services. “This will take some of the immediate financial pressure off, while you look for other opportunities, and ensure that your future income is also growing while you look.” Brian O’Connell is a former Wall Street bond trader, and author of the best-selling books, The 401(k) Millionaire and CNBC’s Guide to Creating Wealth. He’s a regular contributor to major media business platforms, including CBS News, The and Bloomberg. Brian may be contacted at

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How to Run a Seminar Without It Ruining You Seminars can be an ideal marketing tool, but they can be a disaster without the right preparation. By Lloyd Lofton


eminars enable you to create an environment where you are positioned as an expert. It’s a way to prove yourself worthy of your attendees’ trust and eventually their business. Doing the right work before and after the seminar ensures it won’t ruin your reputation or your finances.


You must be organized, thorough and creative. And you must be all these things before, during and after your seminar. Focus on answering three questions: » Who is my target audience? » Which of their concerns could I effectively solve? » What products would I actually use to solve their problems? Your attendees should include a mix of current clients, referrals and total strangers. By blending current and prospective clients, you allow your current customers’ positive comments to build the confidence of prospects who have never benefited from your services. Current clients also can be a valuable source of additional prospects, because they might ask interested friends to join them. Over time, this can provide you a pool of prequalified prospects you might otherwise have overlooked. Once you have determined your audience, you are ready to plan the specifics.

Schedule and Location

You should allow about six weeks between the day you determine your audience and the date your seminar will be held. Don’t schedule it immediately before or after a holiday. It will cut into your attendance and make follow-up appointments difficult to plan. An important step in planning your 58

seminar is determining its location. Select a venue that is centrally located for your audience and has plenty of free parking. You should also determine the seminar length. The presentation itself will take about an hour. Allow time for mixing after engaging in questions and answers.

Preparing Materials

Once you have secured your location, take a moment to visualize how the seminar will actually come off. Put yourself in the attendee’s shoes and ask yourself the following: » What will your first impression be? » What path will you take to the room? » Will there be signs? » Where will you hang your coat? » Are there name tags? Do guests fill them out or does the presenter? Are the name tags on a table at the doorway, or are they inside the room? » How will you be greeted? » What will be at your place when you sit down? Will there be a printed workbook, a pencil, a beverage? Now turn the tables and imagine yourself as presenter. Ask yourself the following: » Are you standing behind a podium? » Is there a screen behind you? Is it directly behind you or to the side? Is the material on the screen easy to read? Does the room have to be darkened for maximum legibility? How do you turn off the lights? » Do you have a pointer? » Is there a microphone stand or clip-on mic? Where are the amplifier and sound controls? » What materials are at your fingertips? Can you reach them quickly and smoothly? Try to think of everything you will need to make your guests comfortable

! #*&

and effectively present the material. Then think of everything that could go wrong and plan a backup.

Confirming Attendance

After the invitations are sent, handle all incoming telephone confirmations personally. Suggest to callers that they are free to bring a friend. Ask whether they have any suggestions on a possible topic you should cover. After each attendee confirms, mail or email a brief follow-up. Type a short master letter or email, be sure to confirm the reservation and reiterate the location. Close this letter by saying you are anxious to see the attendee, and are confident they will find the information valuable. About three days before the seminar, call every respondent a second time. Briefly remind them of the seminar, and tell them you’re looking forward to seeing them. Make certain they know how to find the location.

The Seminar

Most successful seminars actually begin the evening before their scheduled start. This is when you go over your checklist and make sure every item has been addressed. It’s also a good time to take a quiet moment to walk through everything in your mind. As you do your mental walk-through, every detail you visualize should be accounted for and in place. If you think of any loose ends, resolve them now. Another item to address the day before is how you will open and close your presentation. Tailor your remarks to your specific audience. If you will rely on an icebreaker or a humorous anecdote to get started, write it down word for word. Then get a good night’s sleep.

Your attendees should include a mix of current clients, referrals and total strangers.

InsuranceNewsNet Magazine » October 2017

HOW TO RUN A SEMINAR WITHOUT IT RUINING YOU BUSINESS If you have any appointments on the day of your seminar, make certain they can be wrapped up well before it begins. You should make sure you arrive at the site at least an hour before your scheduled start time. Before you leave for the seminar, do two things. First, take another look at your final checklist and be sure everything you need is either at the site or in your trunk. Second, make sure an associate is available to field any last-minute calls from attendees. If possible, have a second associate come with you. They can help greet guests and can serve as backup to help everything go smoothly. Be sure everything in the room is set up at least 30 minutes in advance. If you are using directional signs, make sure they are in place. Check the microphone, sound levels, room lighting and projector. Arriving early will also give you a chance to relax and to greet any guests who arrive early.

The Presentation

Here are some suggestions to help assure your presentation goes off without a hitch. » Be cordial. Many attendees may be afraid they’ll be a captive audience for a 60-minute sales pitch. Put their fears to rest. Today, you’re in the information business. Your mission is to demonstrate your ability to solve their problems, period. » Warm up. About 10 minutes before your presentation’s scheduled start, begin nurturing a warm, friendly environment. Casually ask your attendees one-on-one about their families, etc. Make sure everyone has all the materials they will need for the next hour. » Have your associate take attendance. You’ll want a record of who attended. The attendees also can record their names on questionnaires. You can collect them at the end. » Start on time. End on time. Get the ball rolling by referring to the diversity of your audience. Contrast that with their common problems — the ones you will address. Tell them you will show how others have confronted and resolved these problems with your professional guidance. Tell your audience you hope they will similarly rely on you as future clients. Then launch into your presentation. » Refer to your handouts. Your support materials should emphasize and expand on the points you will drive home

hirp Chirp-chirp Chirp-c Don’t ask your audience, Chirp-chirp . “Does anyone have any quesChirp...

tions?” Those five words will bring the momentum you’ve built to a screeching halt. in your presentation. Be sure to mention them during your presentation so your audience realizes how valuable they are. » State your conclusion unequivocally. You’ve identified problems and concerns shared by the attendees. You’ve given actionable solutions to those concerns. Remind your audience that their individual problems and concerns are unique. You are confident you have demonstrated that you can be counted on for creative solutions to your audience’s individual challenges. Make sure your guests receive a questionnaire and a request for additional information. At the end, ask them to take a moment and fill it out. Let them know you will review all the questionnaires immediately afterward and promise to call each participant within 48 hours. Don’t ask your audience, “Does anyone have any questions?” Those five words will bring the momentum you’ve built to a screeching halt. The time for individual questions will occur as you mingle after the presentation. Your associate should give you a cue to let you know your scheduled time is ending. This will allow you to keep focused on your guests, not your watch. When you reach the end, thank your guests. Let them know they can remain to ask questions or call you tomorrow. Then immediately move to a position from which you can shake each attendee’s hand and thank them as they leave the room. If you promised each guest a gift, hand it to them individually. When the last guest has left, stand at the podium and imagine the room as it had been a few minutes earlier. Recall the faces and names of your guests, and jot down or record anything you can remember about them, including specific concerns they might have voiced.

Follow Up

During your seminar, you worked hard to establish a relationship with your guests.

Maintain that feeling of trust by calling them personally to set their appointment times. Be sure to make all follow-up calls within the time frame promised, usually 48 hours. The day after you set up an appointment, send each client a brief written confirmation. Create an agenda for your follow-up appointments that suits your presentation skills and each client’s temperament. A typical meeting might go something like this: :00-05 — The meeting begins on time. :05-35 — Spend time listening. Review the information the client furnished on the questionnaire. Let the client fully explain their specific concerns or questions. :35-55 — Review the solutions you have available. Don’t overwhelm the client with product specifics or dazzle them with charts and illustrations. Suggest that the client’s concerns are solvable and that you can think of a number of ways to solve them. Cite specifics as part of a framework of general ways you can serve their big-picture strategy. This way, if a client balks at a specific recommendation, you can retreat and regroup with another plan. :55-60 — If you feel comfortable, do a trial close. Otherwise, conclude the meeting by promising to get in touch with hard numbers and concrete suggestions within the next 48 hours. This will give clients the breathing room they may need to consider your plan and accept your suggestions. Good luck and good selling. Lloyd Lofton is managing partner of 7 Figure Sales Tools, Marietta, Ga. Lloyd may be contacted at

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October 2017 » InsuranceNewsNet Magazine



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Help Women Raise Their Retirement Income Literacy The results of a recent study show a gender gap when it comes to retirement income literacy. How can you close the gap and help women improve their retirement prospects? By Jocelyn Wright


t one point or another, we financial professionals all have used the phrase: “If you fail to plan, you plan to fail.” This is especially true when it comes to retirement planning, as it is one area of life where failure is not an option. We only get one shot and there are no retakes. The American College Center for Retirement Income recently released the results from its 2017 RICP® Retirement Income Literacy Gender Differences Report. Although the results were not entirely unexpected, there were several factors that should be addressed. The report was “designed to assess retirement literacy among individuals who are nearing or already in retirement. More specifically, the goal was to determine whether retirees and pre-retirees have the knowledge they need to successfully plan for a financially secure retirement.” The study included the responses of more than 1,200 men and women, ages 60-75 years old, with at least $100,000 of assets, not including their homes. The results revealed clear differences in retirement literacy rates based not only on gender but also on wealth and education. Both men and women had passing rates that would make any teacher cringe. Only 17 percent of the women passed the quiz compared with 35 percent of the men. Here are a few of the gender differences highlighted in the report: » Women show ed lower levels of self-perceived knowledge than men did. » Women were far more concerned about retirement risks than men were, especially about cuts to Social Security. » There were low levels of literacy 60

impacting decision-making by women, which could be impacting their retirement security negatively. Respondents with assets between $100,000 and $299,000 had a pass rate of merely 13 percent versus a 49 percent pass rate among those with assets of $1 million or more. Only 9 percent of participants without a college degree achieved a passing score compared with 40 percent who had a graduate degree or higher. All this may lead one to believe that a successful retirement is only attainable for a wealthy, educated man. And as advisors, we know nothing can be further from the truth.

Women Should Be More Aggressive Investors

When asked about the impact of low literacy rates, Jamie Hopkins, co-director of the Center for Retirement Income, said, “All people, regardless of gender, should be equipped with the knowledge that could better prepare them for retirement. However, women face a number of challenges that the average man does not face in retirement, including greater longevity. So in some ways, women should be more aggressive investors and have better retirement income literacy rates as they need to make their money last even longer in retirement. “Unfortunately, our research demonstrates that women nearing retirement are lacking the literacy rates they need to do proper planning. Our research also shows the need for women to be more heavily involved in the household financial decisions. Too many men believe they are the sole financial decision makers in the household. This could be impacting the long-term security of women in those households.” Two additional findings of the report may be a surprise to some but not to others. Sixty-five percent of respondents indicated that they had a relationship with a financial advisor. However, only 34 percent said they had a comprehensive financial plan.

InsuranceNewsNet Magazine » October 2017

Retirement planning is an integral part of a comprehensive financial plan. It also provides a level of comfort and motivation for clients in knowing whether they are on track to meet their retirement objectives. Female clients look to their advisors to educate them on topics that are important. They are more likely to see their advisor-client relationship in terms of “do it with me” or “do it for me” versus male clients who are more likely “do it yourself.” The sooner we begin these conversations, the better. Everyone should have a retirement plan and understand what is needed to achieve their goals. Here are a few tips on how we can increase retirement income literacy rates.

[1] Host education seminars or workshops. Invite experts to address subjects relating to retirement income planning. Be sure to emphasize the particular needs and concerns of women. [2] Share relevant information on important topics. This can be via a newsletter, a website or articles of interest. [3] Be intentional about creating an environment where clients feel comfortable asking questions. We may not always have the answers but we can provide the resources. We are facing a retirement income crisis. Feel free to share your thoughts and ideas on what we can do to increase the retirement literacy rates among all consumers, especially women. Because a financially literate community is a strong community. Jocelyn Wright is the chair of the State Farm Center for Women and Financial Services at The American College. Jocelyn may be contacted at


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

Be Aggressive When Pre-underwriting Your Client

Do you go skydiving, rock climbing, anything like that?

Don’t take underwriting for granted. Clients don’t like surprises and neither should you. By David E. Appel


hat’s involved in securing new life insurance? What kind of personal information do I need to provide? What’s the medical exam like? Is it invasive? Do I really need to disclose everything — even stuff I did in college? These are just a few of the questions clients will most likely ask their advisor when trying to obtain new life insurance. Obtaining life insurance today is one of the most invasive processes someone can go through — medically, financially and lifestyle-wise. Carriers leave no stone unturned when considering a prospect for a life insurance policy. If a doctor recommended the client have a medical procedure and that request is still open, the test must be completed. If the procedure or issue is not “closed out” and complete, the client

Today, there also seems to be an abundance of unnecessary testing done in hospitals, by primary care doctors, and by concierge doctors to be “safe.” In addition, we frequently see notes in a physician’s files that tend to be elusive, unclear or downright wrong. This is where a letter of clarification from the doctor comes into the process and must be requested. This is when the agent, along with the client, must request the doctor to provide further explanation of why certain tests were completed, along with a description of the results. We also must conduct our due diligence and not take results at face value. Question the client on any information found in their records that doesn’t make sense. After 25 years in this business, I can’t even tell you the number of times incorrect bloodwork or procedures were found in our clients’ medical records.

Addressing the Issue

What’s the initial message here? Successful agents take full control of the situation. Clients don’t like surprises and neither should you. Start by having an aggressive pre-underwriting program. Before surprises pop up on you or your client unexpectedly, look for red flags in your client’s history. These red flags include medical issues as well as problems related to their motor vehicle report, in addition to any hazardous activities, use of controlled or uncontrolled substances, drugs prescribed for mental health conditions such as anxiety, or lifestyle decisions. Without some probing or asking detailed questions, these issues tend to be placed in the “I forgot that” part of the memory bank or in the “we don’t need to disclose that now” category. Clients may think these shouldn’t make a difference on

After 25 years in this business, I can’t even tell you the number of times incorrect bloodwork or procedures were found in our clients’ medical records. needs a detailed explanation from the physician of why the procedure is delayed or is no longer necessary. Clients also must understand that insurance-carrier physicians will look at their medical history differently than their primary care doctors do. My client’s doctor is making sure the client continues to live a long and healthy life, while the carrier doctor is making sure there isn’t anything in the records that could throw a curve ball into that plan.

a life insurance application. But they need to understand that everything makes a difference when it comes to applying for life insurance. Even though technology has come a long way, getting an application underwritten properly and approved is still an arduous process. Once we start the informal tentative underwriting process or we submit a full formal application for approval, we like to make sure we present our client in the best possible light to the various insurers. We want to present the client as a human being, not just a stack of papers in a file. In some cases, we include detailed cover letters that include a client’s background and community work, as well as a “possible underwriting issue” we recognize, such as a recent driving under the influence charge or any other pertinent information that we believe an underwriter could use to consider our client as positively as they can. The reason we bring up the “possible issue” is because we do not want the underwriter to discover it on their own. If we know an issue exists, let’s get it out on the table for discussion and be up front about it. The amount of data you have, the clarity of that particular data, and how well it’s organized and presented can be the difference between a client getting a favorable decision from an insurer or being poorly rated, or — worst-case scenario — having their application postponed or declined. We don’t ever want to take that chance. Our clients, their families and/or their businesses are too important to them and to us to take life insurance underwriting for granted. Take control, take charge, and make it happen! David E. Appel, CLU, ChFC, AEP, is with Appel Insurance Advisors in Newton, Mass. David may be contacted at

October 2017 » InsuranceNewsNet Magazine



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

Trends Impacting Annuity Agents’ Best Practices From robo-advisors to the fiduciary rule, a look at the best practices that annuity agents and the industry must adopt to serve their customers in a changing environment. By Marc Silverman


n the post-recession era, annuities exist in a relatively less turbulent environment, even though the financial market is experiencing radical changes that are shifting its business operations. From changing regulations to digital innovations, market shifts force insurers to reinvent their strategies, services and processes in order to better meet consumer needs. As a result, the industry is moving toward a greater integration of best practices.


The Department of Labor (DOL) fiduciary rule stands to completely reshape the industry and the way advisors operate. The new rule has been described as the most

annuity company’s need to comply with new regulation is expected to increase budget allocations toward adopting technology. The impact of the fiduciary rule won’t be known until much later, but it’s undeniable that life/annuity firms must evolve their advice models and daily operations.


Millennials and mass-affluent consumers are purchasing more life insurance products, driving the need for digital tools and automated, algorithm-based financial advice. In addition, consumers expect greater digital access in their lives. This means that financial services companies must reframe the delivery of their services to integrate technology further. Robo-advisors appeal to young investors but pose a challenge to annuity practices that follow traditional business models. The 2015 Elite RIA Study found that eight percent of top advisory firms offered robo-advice, with another 20 percent expected to do so by the end of this year. Although robo-advisors are able to manage portfolios at a reduced cost and deliver better performance, they never will replace traditional investment and financial planning. More complex areas, such as long-term tax planning and business investing, require an in-depth review to create a financial plan that truly meets the needs of each individual investor. Practice managers can leverage advanced analytics to re-engineer frontand back-office operations with cloud and on-demand technologies. Insurers will continue to seek strategic partnerships and acquisitions in order to provide more support and innovation. However, it should be noted that digital innovation carries greater risks, making insurers more vulnerable to privacy breaches as they gain wider access to sensitive financial and health information.

Insurers must focus on the preferences and demands of the emerging millennial workforce... significant annuity industry development since tax reform in the early 1980s. Under previous rules, most advisors operated on commission. When the DOL fiduciary rule comes into effect, insurance and annuity businesses involving retirement plans and individual retirement accounts might need to adopt a fee-based model. Although the rule contains several concessions, advisors will face legal consequences if they can’t prove their retirement advice prioritized the client’s needs. Under this rule, specific high-commission products may become more difficult to recommend. This would create a ripple effect on retirement sales and advice. The interplay between the government’s need to raise the compliance cost and an 62

InsuranceNewsNet Magazine » October 2017


The prevalence of digital technology also inspires new competition in the industry. Digital startups and operators who capitalize on the shift toward innovative digital offerings will meet the needs and expectations of those most interested in technology-based solutions. Insurers must focus on the preferences and demands of the emerging millennial workforce if they are to survive in the shifting insurance landscape. Insurers must redefine their customer relationships, products and services to address new market dynamics. At the same time, insurers must integrate emerging technologies without disrupting traditional distribution.

Cyber Risks

As financial companies focus on technologically innovative solutions that require collecting and storing customers’ data, they are open to cyber risks such as fraud and data theft. This sensitive data also can motivate politically driven attacks aimed to disrupt the organization. Financial professionals will want to monitor the growing digital connections between their systems and outside parties to ensure protection against serious financial and legal fallout. In a climate conducive to change for insurance professionals, it’s important to adjust business practices and plans to keep pace with that change. Advisors should monitor regulations, technology and cyber risks, and should note how their competition is adapting to suit the market. Marc Silverman, CFP, ChFC, formed Silverman Financial in 1989. He is a 32year MDRT member with five Court of the Table and 23 Top of the Table honors. He is the MDRT Foundation president, past chair of Top of the Table, and is a past president and board member of the Miami Chapter of the Society of Financial Service Professionals. Marc may be contacted at marc.silverman@





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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.


Online Sales: Panacea or Pipe Dream for Life Insurers? The decision to buy life insurance at all, let alone deciding how to do it, remains the biggest hurdle for consumers. By Jennifer Douglas


rganizations across all industries are leveraging direct-to-consumer (D2C) strategies. Although the financial services industry has always had a “stake in the ground” with D2C distribution, they have accelerated their efforts with more “customer-centric” D2C experiences — particularly online. The advent of the internet as a potential sales channel has life insurance companies — as well as other organizations — encouraged by the possibilities. The greatest possibility is in reaching the sought-after, untapped markets. When asked in a 2016 survey why people in those underserved market segments don’t own life insurance, 36 percent of nonowners noted they had never been contacted by a life insurance agent. Given that consumers regularly choose the internet for their retail shopping experiences, it’s perfectly reasonable for the industry to expect that the same could be true for life insurance, providing another channel to reach consumers directly. But will it? Will the internet prove to be a panacea or a pipe dream for life insurers? LIMRA research suggests that the truth is probably somewhere in between. But taking things online isn’t as simple as it sounds. Something as straightforward as the messaging of a marketing initiative for purchasing life insurance online could do more harm than good. LIMRA research has shown that common industry messaging, which touts the “convenience of buying life insurance online,” does little to motivate consumers, and might even elicit negative opinions about the product. It’s not that consumers don’t value the convenience of buying online. They expect it. In fact, convenience is one of the few areas where 64

consumers imagine online would be better than in person when buying life insurance. However, this belief doesn’t appear to be a differentiator when it comes to buying. On the other hand, the graphic shows that people who are much more likely to buy online are those who believe online is better for their ability to learn about the product and options. The same is true for: » The level of customer service they would receive. » Their understanding of what they have bought. » Getting the right type of coverage for their needs. LIMRA recently set out to improve upon the standard convenience message or find an alternative online message that does a better job of motivating consumers to buy. Among other selling points, our approach included test messages that touted the attributes noted in the graphic. In the end, we were hard-pressed to find a winning message. No test message did a better job of motivating people to buy. Instead, it became clear that who the consumers are and how they feel about life insurance and the internet are more important than what we say to them about the benefits of buying online. It appears that the people who are most receptive to buying online are those who will buy life insurance anyway. LIMRA calls these consumers “online enthusiasts.”

InsuranceNewsNet Magazine » October 2017

They make up 11 percent of the consumer base. In addition, they are primed for the life insurance purchase and they prefer buying online to buying in person. They are comfortable with life insurance products. Two-thirds of this group is male. This group’s median age is 34, and they are more likely to be wealthy, college-educated, employed full time, and have a financial professional. In essence, they are consumers whose attention the industry already has. Even for online enthusiasts, how they buy (online or in person) is an afterthought. The role of the internet is different for buying life insurance than for most retail or packaged goods, which lend themselves to an online purchase. People’s comfort level with the topic of life insurance and the trust that they’ll get this important purchase right is much more meaningful than the convenience or ease of buying. What is more, the decision to buy life insurance at all, let alone deciding to do so online, remains the biggest hurdle for consumers. Motivating people to buy life insurance — regardless of the method — remains the industry’s greatest challenge. Jennifer Douglas is director of developmental research at LIMRA. Jennifer may be contacted at jennifer.douglas@

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InsuranceNewsNet Magazine - October 2017  

The DOL Rule's Gold Lining

InsuranceNewsNet Magazine - October 2017  

The DOL Rule's Gold Lining