InsuranceNewsnet Magazine - April 2012

Life

Annuities

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April 2012

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APRIL 2012 • VOLUME 5, NUMBER 4

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CONTENTS

View and share articles from this month’s issue

34 ANNUITY 34 U nited States of Annuities

By Linda Koco The federal endorsement will increase opportunities for advisors—but they may also come to view their annuity bedfellow with a guarded eye.

20 INFRONT

20 T he Real Story Behind

8P rosecutor Admits She Did Not

Prove Neasham Knew of Dementia

By Steven A. Morelli In an exclusive interview, Glenn A. Neasham’s prosecutor says she couldn’t prove he knew the client had dementia at the time of the annuity sale.

Landing The Big Case

By Linda Koco Breaking into the ultra-wealthy market requires more than stories of past deals— see how top advisors really get there.

28

10

LIFE

10 F reedom to Launch An interview with Jon Goldman Jon Goldman reveals his “magic formula” that helps maintain balance between working in your business and working on your business.

InsuranceNewsNet Magazine

40 W hy ‘Funnel’ Away Business?

By Bryant Tutterow New media impacts online insurance sales—but if you add the fifth layer of referrals in social media, you can turn the AIDA sales funnel into a cycle.

44

FINANCIAL

FEATURES

2

HEALTH

April 2012

28 Occupy Opportunity

By Gonzalo Garcia and Liz Weber Tap into the 99 percent of opportunity that most advisors ignore, flocking solely to the 1 percent of well-heeded clients.

44 R esetting Unreasonable Expectations

By Craig L. Israelsen Managing your clients’ performance expectations can be challenging—but if they’re realistic about returns, they will be happier and more secure.

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CONTENTS

46

APRIL 2012 • VOLUME 5, NUMBER 4

VIEW ONLINE LEADS DIFFERENTLY

BUSINESS

46 T hree Must-Have Conversations With People You Know

By Bryce Sanders Talking finances with friends can be complicated— learn what to say in three unique scenarios.

PERSPECTIVES 48 I nsurance Industry Must Fight for Relevance An interview with Larry Barton, president of The American College Larry discusses what is concerning him about the industry and how independent insurance producers can thrive in today’s economy.

INSIGHTS 50 M DRT: Variable Annuities: Power “Clubs” That Score Hole-In-One Financial Plans

By Tom Henske For a hole-in-one financial plan, think of annuities as “clubs”—it doesn’t matter which kind you choose, it’s all about how you swing it.

52 L IMRA: Mid-Life (Insurance Industry) Crisis?

By Jennifer L. Douglas If the insurance industry is indeed going to enter a “change of life,” the ultimate goal must be to change more lives for the better.

EVERY ISSUE 6 Editor’s Letter 18 NewsWires 26 LifeWires

32 AnnuityWires 38 HealthWires 55 Advertiser Index

54 Ask the Sales Doctor 56 Off-the-Wall Sales Stories

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DISCOVER:

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12 INN 04.12

WELCOME | LETTER FROM THE EDITOR

Injustice Indignation

BY STEVEN A. MORELLI, EDITOR-IN-CHIEF

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Since we published American Injustice in the magazine and online in March, we have had an enormous response from readers. It seems the Glenn A. Neasham story resonated with a lot of producers.

Neasham was convicted of felony theft from an elder in a California court for selling an Allianz MasterDex 10 to an 83-year-old woman in 2008. The state allowed the product to be sold to clients up to 85. The prosecutor said the client had been diagnosed with dementia in 2004, but Neasham and his assistants said they did not see signs of dementia. Neasham, who has since lost his insurance license, is trying to appeal the conviction.

Steven A. Morelli Editor-in-Chief

ONLINE ARTICLE COMMENTS “Let us not forget that Glenn was convicted of theft! If this verdict is allowed to stand, the implications will be dire for every possible constituency; consumers, agents and home office personnel alike.”

“If Neasham said, ‘No, you are old and seem, to my untrained eye, to not be able to make a sound decision,’ he could have been held to violating a myriad of antidiscrimination laws. “

“That is the fallacy behind E&O coverage, most advisors think they are protected, but if criminal charges are involved, then you are on your own.”

“There is no consistency in the regulatory process with this product. Combining that with very restrictive surrender and payout contract stipulations, this is what you are left with.”

“My mother has dementia and most days you would never know when dealing with her on any issue. This poor agent was taken to the cleaners. Who is going to give him his reputation back?”

“To protect the company and agent, insurers will need to do a telephone interview similar to LTC, testing possible cognitive impairment for annuity clients.”

“Does Neasham have any objectivity? By his own statement, 80 percent of his sales are in the same product, which happens to be in a long surrender period, high commission product. Whose interest has he been serving?”

“If this guy was a securities agent and put the client into a managed account or mutual fund, the B/D, FINRA and the SEC would have went to bat for him.”

“There are too many lawyers out there that advertise: ‘Have you ever bought an annuity? If so contact me...’

This gives the whole industry a bad name. “ “And how many agents would have taken the entire amount from the old CD? He actually left a good portion at her local bank.”

“Why didn’t the insurer step up and offer to refund the whole contract?”

17 Year-Old National college Planning company

The article online had more than 27,000 hits as of mid-March and more than 110 comments. The comments amount to an intriguing conversation about the case and doing business with seniors. To read them, visit insurancenewsnet.com, and click on the “Glenn Neasham Case” link on our home page. We are featuring excepts of some of the comments here.

“People forget that the DA, DOI official may have their own political agenda.”

“The key is to know the product you sell, and if it is right for the client. I would not sell Allianz the Master Dex, two-tier product; you are required to annuitize which is not what a lot of clients understand.”

“Neasham was a little too anxious to make this sale.

Bottom line: Neasham was railroaded, but not completely clean.”

“This decision is one of many to come—states hate annuities because of the tax deferral option they lose revenue.”

“This case focuses on dementia, but should we now be concerned about other cognitive or psychological disorders that a client may or may not exhibit during the time spent with an agent?”

“She clearly knew the CD was due and there were taxes to pay unless she did something with it.”

“This is a joke. If I didn’t see it for myself (court documents) I’d say Neasham got ‘Punked,’ or better yet, Alan Funt would reappear from the dead and say, “Smile you’re on Candid Camera.’ ” “It is very hard for a jury to understand the complexities of indexed annuities. The prosecution used a bunch of rhetoric and confused the jury into thinking there was abuse.”

Join in the conversation! Visit our Neasham Case page at bit.ly/neashamcase

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Prosecutor Admits She Did Not Prove Neasham Knew of Dementia

T

he agent who was convicted of theft for selling an annuity to a woman with dementia was never proven to have known the client was impaired, according to the prosecutor in the case.

Dementia was a central element in the case that led to the felony theft from an elder conviction of Glenn A. Neasham, an annuity producer in northern California. He said he was not aware his 83-year-old client had dementia or Alzheimer’s when he sold her an Allianz MasterDex 10 indexed annuity in 2008.

Two of his assistants also testified that they did not see signs of dementia.

The prosecutor argued that the client, Fran Schuber, had been diagnosed with dementia in 2004 and was not capable of consenting to the purchase of the $175,000 annuity, which was approved in California to be sold to people up to the age of 85.

“There was sufficient evidence presented to show that Fran Schuber was not capable of consenting to the transaction in question and evidence showed that he [Neasham] knew that at the time of the evidence,” according to the prosecutor’s motion opposing Neasham’s request for a new trial.

But in an interview with InsuranceNewsNet, Lake County Deputy District Attorney Rachel Abelson said she was not able to show that in court.

“Not necessarily that he knew that she had Alzheimer’s or dementia, I couldn’t necessarily prove that,” Abelson said.

“The son told him, but we couldn’t really pinpoint the time. It might have been at the transaction. Of course, I think he denies that he ever knew that she had this diagnosis.”

Neasham, 52, Hidden Valley Lake, Calif., does still deny that he knew Schuber had dementia. He has also said that Schuber’s son, Ted, had told him 8

InsuranceNewsNet Magazine

April 2012

Glenn A. Neasham, left at table, and his attorney, Mitchell Hauptman, await the verdict on Oct. 21.

SOURCE: Jeremy Walsh, Lake County Publishing/MediaNews Group

that he was concerned about Fran’s health but was not specific.

“If he had mentioned that she had Alzheimer’s or dementia, I could have stopped it right there,” Neasham said.

“But he didn’t. The only comment he said to me was he was concerned about his mom’s overall health. And I thought, ‘H’mm, I’m concerned about my mom’s overall health, too.’ He never said what the details were.”

When InsuranceNewsNet asked Ted Schuber why he did not tell Neasham about his mother’s dementia, Schuber hung up the phone.

Neasham had contacted Ted Schuber after his mother and boyfriend, Louis Jochim, made an unsolicited visit to Neasham’s office to talk about annuities to get a better return on a CD coming due. Neasham said he was concerned that Fran Schuber was naming Jochim as a beneficiary and Jochim’s daughter as contingent beneficiary. Neasham discovered that Fran and Ted Schuber were estranged and Jochim produced a document showing that he had been named the beneficiary on the CD since 2004.

Abelson said a key piece of evidence was the concern expressed by the manager of the bank branch where Schuber had the CD. “Basically, the bank employee told him [Neasham] not necessarily that she had dementia, but that she didn’t understand the transaction and basically that she was being influenced by the boyfriend,” Abelson said. “She didn’t understand what was going on. That would be my summary of what was said.”

Neasham agreed with that version of events on the day Fran Schuber and Jochim went to the Savings Bank of Mendocino to get money from the maturing CD for the annuity. He said when someone called him from the bank, he explained the details of the annuity to the manager, “but then she said, ‘we don’t have a problem with the annuity—we have a problem with Lou.’ ” After the conversation with the bank, Neasham said he asked Schuber if she understood the annuity she was buying.

“She said she did and gave me a check with a big smile on her face,” Neasham said. Schuber had never complained to

Do MEDICAL an official about buying the annuity.

The bank made a complaint to the county district attorney’s elder abuse unit, which investigated and did not charge anyone, but sent the case to the state Department of Insurance. The state’s investigation led to the theft charge against Neasham.

The sale was considered theft because Schuber was deprived “for an extended period of time [of] the major portion of the value or enjoyment of the property,” according to the prosecutor’s response to Neasham’s request for a new trial.

The MasterDex 10 had a five-year deferral and 10-year payout. After the five years, the owner can annuitize and get a guaranteed monthly income for 10 years. During the period, the owner can take out 10 percent annually or 20 percent if the owner is in a nursing home.

The owner starts with 87.5 percent of value and is credited 1.5 percent annually and would be able to “break even” after seven years if the owner surrendered the product.

When InsuranceNewsNet asked Abelson how insurance producers can know for certain that elderly clients have dementia, she said producers can ask questions to ascertain their clients’ mental state.

“They can do a mini mental exam like, ‘What year is it? Who’s the president?’ And make sure somebody actually knows what they’re doing. And sometimes there are things you can ask in just general conversation. I don’t know the best answer,” Abelson said. “Obviously insurance agents are in the business of selling, so they’re not in the business of doing mini mental exams.”

BUT WAIT, THERE’S MORE! Go to bit.ly/neashamcase to read the extended version of this article.

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@ insurancenewsnet.com.

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J

ON GOLDMAN IS OUT THERE. We don’t mean the hippy-dippy kind of out there—but out beyond the gravitational pull of all the things that bring a business down.

Goldman wants to help entrepreneurs break free from the day-to-day operations to rekindle what they loved about what they do. He wants to help insurance producers lift their gaze from their limitations and see themselves as much bigger than simply a salesperson. He wants everybody to learn to zig when everybody’s zagging.

the world’s largest, student-run public relations agency while in college. Then, he built his marketing agency, Goldman Promotions, to be the 27th largest promotional products company out of more than 20,000 in the United States—until he sold it because it wasn’t enough to be marketing.

He saw legions of entrepreneurs, dragging the weight of their businesses on their backs and wanted to make a difference in their lives. With his newest business, Brand Launcher, Goldman is helping entrepreneurs—such as independent insurance producers—become gurus themselves.

In some senses, Goldman does fit the Birkenstock He wants people to transform their businesses of hippyness. He lived in a Buddhist monastery, from a heavy burden holding them down to a fasted and meditated on top of a mountain for a foundation, lifting them up to their potential. week and did many other things to attain enlightenment. But be assured, Goldman is serious about In this interview with InsuranceNewsNet Publisher business and helping entrepreneurs succeed. He Paul Feldman, Goldman tells how ordinary peohas always been an over-achiever. For example, ple can become gurus and how burdensome busithis Harvard Business School graduate started nesses can become liberating.

10

InsuranceNewsNet Magazine

April 2012

FREEDOM TO LAUNCH | FEATURE

April 2012

InsuranceNewsNet Magazine

11

FELDMAN: It’s easy to get your life out of balance when you’re a business owner or producer. How does a successful salesperson or agency owner grow business without working around the clock?

GOLDMAN: The solution is to simplify, codify, multiply—and you have to have what we call the “magic formula” that helps maintain balance between working in the business and working on the business.

Start by asking yourself: what matters the most? You find a huge disparity between what people say matters most and how they actually spend their time.

Look, I know you have to make an income for your family, but you have to learn how to work smarter so when you’re working, you are actually producing and when you’re off, you are actually rejuvenating.

The secret behind the whole thing is to simplify your process, codify it and then multiply it as well as build a freedom team and systems.

FELDMAN: For our readers who might not be familiar with the codifying process, can you explain that?

GOLDMAN: Sure. Most agents who have great agencies have a certain way of doing stuff and they become CEOs/Salesmen.

They’re really great at selling and so they sell, but every great light has a great shadow. I can’t stress that enough—the greater the light, the greater the shadow.

So if you’re great at selling, you’re generally lousy at the other part, which is actually running the business and building the system. So what happens with the CEO/ Salesman is that he’s got this great life of sell, sell, sell—but he doesn’t have any clue how to build a system. He’s got a shadow there. And their business is a total reflection of who they are.

They need to play to their strengths and compensate for their weaknesses. Let’s say we have an agency and the agent is really good at prospecting, the sales process, picking the product and servicing. So, he simplifies that so other people can do it as well. Then he codifies it and puts it into a series of manuals, processes and standard operating procedures (SOPs)—a glorified checklist.

12

InsuranceNewsNet Magazine

April 2012

There is the art and the science of it.

The agent knows how to listen, knows how to react if someone gives an objection and is good at the subtleties in relationships. That’s the art of it. The science is the “here’s what you do first; here’s what you do second.”

FELDMAN: Is the individual’s goal to get out of his job and into a compelling business?

GOLDMAN: The goal of a business is to build an asset that pays you residual passive revenue streams and gives you freedom. Let’s define freedom. It is freedom from and freedom to.

It is freedom from the parts of the business that you stink at and that you don’t like doing and freedom from the day-today part of the business so it’s actually not dependent on you.

It’s freedom to do the parts of business that you rock at, that you love. And also freedom to do the parts of your life that matter most. For many people, that’s their family, hobbies or something that’s a higher calling.

The problem is that most people have a glorified job. They own a job and the job owns them. That means they don’t have the freedom of time or the freedom of money.

If you are ultra-successful but your life is totally out of balance, what are you doing it for? You got a glorified job. You’re like a golden handcuffed slave.

People need to change the frame of reference for their business from a glorified job to an asset and the way that you do that is you need to build a compelling company.

A compelling company has three elements to it. No.1 is compelling to you— the owner and the shareholder. No.2, it’s compelling to the team, your own team of people. They want to work there because they’re aligned. And No. 3, it’s compelling to your customers and your community.

Most people have two out of three, so if it’s only compelling to you as the owner and to your customers but not to the employees, you haven’t built an asset because there’s nothing long-lasting.

If it’s just compelling to the employees and it’s great to work there and it’s

compelling to the customers because they’re really happy—but to you it’s a job because you don’t have any freedom. So then it’s out of whack because you’re the entrepreneur. You’re the one who took all the risks. So you end up with something that’s not an asset to pass along and you’re not going to grow.

FELDMAN: A lot of people are struggling because they know they need to create a system but they don’t want to take the time to make one. It’s taking away from making the sale. How do you change that mindset?

GOLDMAN: Here’s a big rub: it’s going to get worse before it gets better. Nobody wants to hear that, but a person has to understand that you have to slow down in order to speed up. You have to take the time to simplify, codify and multiply. If you’re willing to stick it out, then you start to see some real growth.

The first thing is you have to start to move the needle, so that’s all about KPIs—key performance indicators. Any company that doesn’t run on KPIs is not a company that’s ever going to be a saleable asset or ever going to give you residual passive revenue streams.

There are two types of KPIs: activity KPIs and results KPIs. Let’s say you want to have a personal income of $250,000 a year. So, in order to do that, you have to have this much premium. In order to do that, you’ve got to do so many proposals.

In order to do that, you have to have so many seminars or so much direct mail or emails. Those are the activity KPIs that drive you. If people have only the gigantic results-only KPI, they’ll get frozen in their tracks.

You want to be able to prioritize the opportunities with your capabilities and you want to prioritize based on a couple of key things. No.1 is difficulty, No.2 is payoff, No.3 is speed.

If you look for something that is above a six on a difficulty scale of one to 10, that’s not the place where you want to start because the whole goal is getting some momentum and actually move the needle. Most people try to push seven balls up the hill at any given time and that is a total disaster. Instead, you make money

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Advanced Markets In response to the growing need of our agents looking to expand their practice, GamePlan formed an advanced markets department with specialists who can help our agents find answers to clients’ most complex questions. The advanced markets team is here to help agents with estate planning strategies, both qualified and non-qualified plans, distribution planning strategies, charitable giving, business succession strategies, life insurance and fixed index annuities, as well as IRAs, SEPs and more.

866-255-8064 We Are An Allianz PreferredSM FMO Visit our website to learn more!

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* Ranking based on Allianz Life Insurance Company of North America sales © GamePlan Financial Marketing, LLC. GamePlan, the GamePlan logo, and the diamond device are all trademarks of GamePlan Financial Marketing, LLC. Only GamePlan agents in good standing are eligible to participate in GamePlan programs or incentive offers.

Please note that in order to provide a recommendation to a client about the liquidation of a securities product, including those within an IRA, 401(k) or other retirement plan, to purchase a fixed or variable annuity or for other similar purposes, you must hold the proper securities registration and be currently affiliated with a broker/dealer or registered as an investment adviser. If you are unsure whether or not the information you are providing to a client represents general guidance or a specific recommendation to liquidate a security, please contact the individual state securities department in the state(s) in which you conduct business.

Please note that GamePlan Financial Marketing, LLC, and its representatives do not give legal or tax advice. Always encourage your clients to consult their tax advisor or attorney.

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For financial professional use only – not for use with the general public.

by pushing one ball across the finish line.

Focus, focus, focus.

FELDMAN: What do you mean when you say that—in order for something to live, something else must die?

GOLDMAN: The problem is that if everything is important, then nothing is important. You can do it all, but not all at the same time. Once we prioritize, then we can feel really good and then the next step is implementation. That’s what we call the GID phase (Get it Done).

But people take that new opportunity and keep using the word “and” instead of “or.” You can’t always have—and, and, and, and, and. Because then you start to break your word. You don’t mean to, but you keep taking on more and more— you’re ambitious and you’re hungry.

FELDMAN: We have discussed a lot about personal and organizational change, but not about one of your strongest attributes and that’s marketing. To cut to the chase, what is the most important thing one should do when it comes to marketing?

GOLDMAN: What I’m going to share with you is a counterintuitive way to approach this whole thing. The idea here is that you switch from being a vendor to an expert, and most insurance agents are total vendors. The idea is to become known as an expert—and everyone wants to be a trusted expert, but how do we do that?

There are a couple of different elements.

So if that’s our goal, why? Because who would you rather do business with, the guy who wrote the book on it or the guy that’s selling you something? We all know and trust the experts. Anyone who’s been published or has been on CNN or your local TV or radio station—those are the people who, for some reason, we trust.

We call this the guru-ship approach.

That does not mean you’re just spouting off, but you’re actually a guru who helps change people’s lives.

FELDMAN: How can an insurance producer become a guru?

GOLDMAN: First you ask yourself: are you an expert or not? If you’re not, then what 14

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April 2012

“The goal of a business is to build an asset that pays you residual passive revenue streams and gives you freedom.”

are you doing in insurance? Clients expect their agents to be an expert, that’s why they seek advice and assistance. If you’re not an expert then you have to read InsuranceNewsNet and you have to attend seminars and learn how to do your job better.

But if you are an expert, then you should now claim this position and status of being an expert.

So how do we claim this position?

You need to publish or perish—POP. How do you publish? I’ll give you three different headlines: 1. “The 10 Secrets of…” 2. “The Seven Myths of...”and 3.

“Insider Tips Which You Must Know Before You…” So you might have, “The 10 Secrets of Financial Stability,” “The Seven Myths of Insurance,” and “The Seven Things You Must Know Before You Speak to Another Financial Planner or Insurance Agent.”

FELDMAN: How does one who has never written before or doesn’t feel comfortable writing go about creating a book or reports?

GOLDMAN: First, we want to do a brain dump. Ask yourself 10 question and you just start talking into a recorder. Get an hour’s worth of recording done (it’s OK if it’s choppy) and then you have it transcribed. Once it’s transcribed, you simply get it cleaned up, organized and written.

Basically, you either you learn to write or write a check. Being published (in any form) is almost a requirement today for being a ‘trusted’ expert.

Once you have assembled this information, repurpose it into an e-book, PDF, or publish a physical book that you can give to all of your clients and prospects. We want lead generation, lead development and lead conversion. For lead generation, we want to offer free information—so you have your free e-book. Some people are auditory, so you also want to have a free audio, which you can put it into an mp3 player. Responders get a free mp3 player.

I’ve seen a website increase its sales more than 30 percent by simply taking their information—hypnosis for losing

weight—and used a picture of a cheap mp3 player and said they would send the information on this player So you take your free e-book and create a cover, which is maybe a hundred bucks or so. You can put it all over your business cards and put it on every ad with a CTA—a call to action for everything. You put it in your direct mail and you drive them online for quid pro quo. I give you something; you give me something. Most insurance reps have a glorified brochure.

Instead, the idea is to get prospects to raise their hands and ask for free information.

Once you get that name and contact information, you can start lead development. You can use an auto responder, which is a series of anywhere from four to 14 follow-up emails, spread out over a period of time. You have one message that’s going to be emailed to them immediately and then another one that they’re going to get the following day—one a day for four days. Eventually, you spread it out over every three days, four days and then once a week and then you’ll have them covered for the next two months. And then you’ll touch them forever, for the rest of your life, a minimum of once a month and it could be as much as once a week.

FELDMAN: So once you have your information product (book or report), how do you market it?

GOLDMAN: Let’s talk about some of the different elements of developing an irresistible message. If you’re not persuasive, it doesn’t matter whatever else you’re doing.

Most insurance marketing is terrible. You cannot bore a person into buying no matter how hard you try—and man, I’ve seen how hard they try in the insurance business.

Step one is the “hungry fish”—the who.

You are not in the business of insurance— you’re in the business of selling insurance.

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...a different experience

The best way to sell insurance is be clear about your who, which is all about hungry fish.

Now the whole goal of that outbound activity is to get hungry fish to raise their hands. Let’s go through the type of messaging, so we need a person to raise their hands. Actually, you need hungry fish and “irresistible bait” (step two). So, for lead generation, we want to get a person to raise their hand, and the irresistible bait for those hungry fish is to get a person to say I want more information.

See the old way was buy or good-bye.

The new way is just to say maybe. The old way was here’s what we do. The new way is here’s how to do. The old way was either buy or good-bye. The new way today, people want to keep you at arm’s length and so they just want to say maybe. They just want to check you out.

Step three is the “big zig.” In today’s markets, the way that you’re going to have your big zig is by having a compelling story. If everyone else is zagging, how are you zigging? By becoming an expert and having some personality becomes part of your big zig.

Your big zig must have a 10 on the wow factor. Most insurance is really boring. But you can still provide a story and be interesting without violating any of the federal regulations. So, for example, Steve from Steve’s Uptown Restaurant was bald and so he said that bald men can eat for free on Tuesday nights (the slowest night of the week). If you’re 25 percent bald you get 25 percent off. If you’re 50 percent bald, you get 50 percent off. If you’re 100 percent bald, you get 100 percent off.

So what happened is that he showed his warts. He shared his vulnerability. In the world of insurance, you want to show your warts a little bit and show your vulnerability. Don’t be like Mr. Braggadocio, Mr. Oh-I’m-So-Great.

No—it needs to be more like Avis, “we’re No.2, we try harder.” L’Oreal, “we’re more expensive but we’re worth it.”

I’m a guy just like you and so by showing your warts you can start to tell a fun story. If you’re a guy who loves home brewing, go after people who are home brewing. If you’re a guy who does volunteer fire department work, approach volunteer firefighters across the country.

16

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April 2012

You’ve become an expert and having some personality becomes part of your big zig.

FELDMAN: How do you become memorable in a world full of competitive noise?

While your competition may have higher price, quality and service, you can differentiate your product by offering a simpler solution for customers. While others zag, you can offer a Big Zig.

GOLDMAN: Have stories and emotions. Here’s a quick story. A guy weighing 425lbs. was attending Indiana University.

He was a mess. His family told him unless he did something he was going to have a heart attack, so he decided he was going to start taking the stairs and walking to class.

He even used to pick his class on whether he could fit in the bloody seat!

Remember, we all run from pain or run to pleasure. He got to a point where he knew he had to do something, so he decided to only have two sandwiches a day, a 12-inch and a 6-inch. He lost 50 pounds, another 50 pounds and then another 50 pounds.

His roommate was so inspired by him that he did a story in the school paper and then an editor from Men’s Health magazine picked up the story. What is the name of the franchise? Subway. What’s the name of the guy? Jared.

So, Subway had a campaign—seven sandwiches with less than six grams of fat. That’s cool, but it’s not so interesting. So then they ran a picture of Jared holding his old pants. Their lawyer was worried about liability, so they said this worked for Jared but you should check with your doctor. Their sales took off 22 percent and the next day they get a call from the Los Angeles Times, Oprah and David Letterman.

Their phones lit up and let’s look at why.

No.1, they had a promise of overt benefits.

Are seven sandwiches with less than six grams of fat a promise of an overt benefit? No. Eat that food and lose weight?

Ah, that’s the promise of an overt benefit and it’s simple. And it’s surprising. Were seven sandwiches with less than six grams of fat surprising? No. McDonald’s got harpooned by Subway.

Most people in insurance like to tell you

the different types of annuities and types of programs that are available, but they’re not telling you what is surprising. They haven’t pressed that curiosity button.

People need a reason to believe. As we do our messaging, people want a proof of concept. What’s a proof of concept? It is something that has to pass through the sniff test. What you saw is Jared Fogle.

He looked just like me and you. Here’s a guy who’s not some beautiful model, just a regular guy.

So when you’re selling insurance, you want to have something that people can say, “Oh, I can see myself in that.” There are three ways to have people believe you.

No.1 is testimonials; No.2 is research; and No.3 is demonstration.

When you have testimonials, you can use the legal disclaimer that this is not necessarily standard performance. If you have research, then simply tell them about it.

And say that you can’t necessarily guarantee that you’ll have these results as well, but the research clearly indicates it. Then, No.3, is to demonstrate how the process works.

In Jared’s case, he had these big, fat pants and he demonstrated the big zig, which was believable because he looks just like me and you. And those pants, you can’t buy them because they were all faded and all worn. So by having that before and after story, we hit the emotional hot button. Before and after is totally what it’s about. By telling stories and having a reason to believe—you can have a big zig in the market.

To find out more about Jon Goldman and Brand Launcher, visit www.brandlauncher.com or email Editor@innfeedback.com

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[ NEWS WIRES] Prudential Leaves LTCi Market Prudential Financial is the latest carrier to exit the individual long term care insurance (LTCi) business. It made the announcement in March, citing “challenging economics” in that line of business but that it will continue selling group LTCi where it sees the “greatest opportunity.”

Several other carriers have made a similar exit in recent years. Ten of the top20 individual writers five years ago have since announced their exit, according to LIMRA. Some of the other departing carriers include MetLife, Berkshire Life and Allianz Life, A.M. Best reports. In addition, Best says that in February 2012, Unum Group said it would discontinue new group sales.

Prudential’s departure is notable because it has been a leading seller in the individual LTCi marketplace. In fact, LIMRA says the carrier was one of the top five sellers of individual LTCi in 2011. The other four top sellers last year were, in alphabetical order, Genworth Financial, John Hancock Financial, Mutual of Omaha and Northwestern Long Term Care.

Do all the exits mean that the market is heading for the washed-up fish heap? Doesn’t look like it. In 2011, new annualized premium for individual LTCi increased by 4 percent to $546 million for the year, LIMRA reports. But there were two percent fewer buyers in 2011 than in 2010—so the market isn’t exactly sizzling, either.

Cameron Truesdell, CEO of LTC Financial Partners LLC, takes the long view on the carrier changes. “In a time of economic transition, it’s logical for carriers to gravitate toward their strength,” he said in a statement. “For Prudential, that appears to be the group market. Other carriers have gone in the opposite direction.” As for his own firm, he says it is planning to offer a “beefed-up array” of LTCi options—for both individuals and employee groups.

WHO’S BUYING CRITICAL ILLNESS

The majority of critical illness insurance (CII) buyers are adults between ages 35 and 54, according to a study by the American Association for Critical Illness Insurance (ASCII) and General Re Life Corporation. In fact, 49 percent of men and 46 percent of women were younger than age 45 when they bought.

The findings are based on data from 10 of the top critical illness insurers, and over 57,200 buyers of individual coverage throughout 2011.

The buying pattern could be useful to advisors in the independent agency market. That’s because, even though the majority of CII sales continue to be in the worksite market, Jesse Slome, executive director of ASCII, says that sales to 18

InsuranceNewsNet Magazine

April 2012

individuals are increasing. At least it’s a trend worth monitoring.

AGENT SENTENCED FOR SKIMMING ANNUITY

California Insurance Commissioner Dave Jones sentenced a Utah agent for an annuity scam that victimized a 75-yearold resident of Madera County, Calif.

The agent, Donald Martin Steffensen of Midvale, Utah, pled no contest in Madera County Superior Court to several charges, including selling an annuity to the elderly client but then directing the insurance company to send the monthly benefits to Steffensen’s address without the client’s knowledge.

The agent continued to receive the benefits — even after the client passed away in April 2003, according to the

California Department of Insurance, noting that the benefits totaled about $55,000. The case took quite a while to close. The department had pulled Steffensen’s insurance license in 2006. Then, in 2007, it opened an investigation after receiving a complaint about the Madera County case.

Other authorities became involved and, in 2009, the US State Department’s Diplomatic Security Service extradited Steffensen from the Philippines and delivered him to California investigators in Los Angeles, the department says. Steffensen, now age 73, has been sentenced to time served, after more than 700 days in jail, plus three years’ probation. He must also pay more than $352,000 in restitution plus court costs.

GETTING DOWN TO BRASS TACKS IS TOUGH

Apparently couples are okay with discussing retirement generalities but struggle when it gets down to brass tacks. BMO Financial Group found that 69 percent of the Canadian couples it surveyed have discussed retirement plans with their partners. But it turns out that fewer than half have discussed retirement essentials.

For instance, only 47 percent have discussed what their ideal retirement lifestyle will look like; 46 percent, the age they want to retire; 44 percent, where they want to live; and 42 percent, how much money they will need to support their ideal retirement lifestyle.

QUOTABLE

Sixty-seven percent of non-retired Americans are not confident that they will have enough money saved to last throughout their lifetime. This problem is going to grow as the number of retirees expands by 15 million, reaching 65 million by 2025.

—Robert Baranoff, senior vice president, LIMRA member benefits

DID YOU

KNOW

?

[ NEWS WIRES]

IN 2001, ONLY 17 PERCENT OF EMPLOYEES said they feel prepared to meet their retirement income needs. Source: Financial Finesse Survey

ADVISORS SHOULD KEEP ON KEEPING ON

Even though consumers are using online channels for researching insurance, the vast majority still wants to rely on personal interaction to make their insurance purchases, according to Ernst & Young. For instance, where life insurance and annuities are concerned, 82 percent of consumers think it is important to have personal interaction when making an insurance purchase.

Now that’s a finding worth munching on, considering that the survey sample was huge—it covered more than 24,000 consumers of insurance products (P/C as well as life and annuity), in 23 countries (including the U.S.) across seven global regions. And get this: consumers often feel that insurance products are too complicated and need expert assistance when making important decisions.

DEAR TOOTH FAIRY…

If Americans could request anything from the tooth fairy, 52 percent said they would like the fairy to pay for their dental bills, according to a survey published

by Anthem Blue Cross.

But that’s not all that people want.

They’d also appreciate some help on oral health matters. For instance, they want the tooth fairy to help with whiter teeth (42 percent), no cavities (37 percent), healthier gums (33 percent) and straighter teeth (24 percent). Only one problem: the magic wand seems to be missing.

AIG GETTING SOME MOJO BACK

American International Group (AIG) is slowly moving back into prime time, following over three years of economic struggle. It completed the sale of a 14 percent stake in AIA Group in March.

The net proceeds from the $6 billion deal will help the company whittle back more of its outstanding debt to the U.S. Department of Treasury, from which it received a bailout loan in 2008.

The AIA deal was for 1.72 billion in ordinary shares of the Hong Kong-listed firm, according to A.M. Best. The stake

Industry-Wide Annuity Sales Up Industry-wide annuity sales in 2011 grew by nearly 8 percent compared to 2010, according to the Insured Retirement Institute (IRI).

On the registered side of the business, variable annuities had their strongest overall year since 2007, IRI reports, citing data it received from Morningstar. Total variable sales increased by more than 12 percent to $155.5 billion for the year. That’s up from $138.2 billion in 2010, the association says. When measured on a net basis, variable annuity sales results were also the strongest since 2007. Here, net variable annuity sales in 2011 topped $27.7 billion, up 28 percent from 2010.

Gross variable sales are showing signs of leveling off, points out Morningstar Director of Insurance Solutions Frank O’Connor. “But the sustained improvement in net cash flow indicates that variable annuities are increasingly attracting new money versus generating sales through exchanges of existing contracts,” he says.

On the fixed side of the business, fixed annuity sales in 2011 totaled $75.6 billion, down 1.1 percent from $76.4 billion in 2010, IRI says, citing Beacon Research data. That downtick might seem like a bummer, but Beacon President Jeremy Alexander sees it differently. “Considering the interest rate decline, fixed annuity sales have proven quite resilient due to the need for guaranteed retirement income,” he says.

sale is “another step towards enhancing focus on core operations and earnings as the U.S. Department of the Treasury’s interests in AIG continues to decline,” Fitch Ratings says. The rating agency notes that it affirmed AIG’s issuer default rating at ‘BBB’ on February 3.

Fitch also revised the rating outlook for AIG to positive from stable in response to AIG’s moves to bolster liquidity and sell noncore operations.

All of this has been happening as AIG has set about sprucing up its brand name. But there is one fly in the ointment—AIG Chairman Steve Miller has announced he will leave AIG to take a post at an aviation manufacturer. Not the best timing for AIG.

QUOTABLE

THE HSAs MEET LTCi

The Arizona House recently passed a bill that would create another type of health-related savings account. This variety sounds a lot like the HSAs that cover medical expenses on a tax-favored basis — a tax-deductible account that Arizona taxpayers could use for paying non-hospital expenses such as nursing home care, home health care as well as assisted or alternative family living.

By the way, the bill would also allow deductions for long-term health care insurance premiums. The outcome is as yet uncertain since the state Senate still needs to weigh in. But it’s worth noting that the measure passed the state House vote unanimously.

It’s been a while since Americans were feeling this optimistic. Steady improvements since September could signal people are breaking the recession mindset.

— Keith Brannan, VP of Financial Security Planning at COUNTRY Financial

April 2012

InsuranceNewsNet Magazine

19

B Y L I N DA KO C O

G

o to any advisor meeting and you’ll hear experts recounting how they went “elephant hunting” and landed a big case. We’re talking about $1 million single premium deals, $100,000 monthly commission accounts, multi-carrier jumbo annuity contracts and multi-million-dollar estate plans with all the bells and whistles.

Advisors yearning to get into this market often clamor for details. The blowby-blow specifics are like food. They feed the imagination and show what’s possible.

But those in the know say that breaking into the ultra-wealthy market requires more than lapping up stories of past deals.

It requires expertise and experience— plus connections, collaboration, business management, patience and finesse. It also requires adeptness at avoiding landmines, managing tradeoffs and rebounding from setbacks. Despite the “elephant hunting” lingo that gets tossed around, big cases are not quarry, the experts point out.

They are people and entities with highlevel insurance and financial needs that require trusted advisors capable of meeting those needs.

How advisors get there is the real story behind big case hunting.

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April 2012

Don’t quit your day job.

The biggest mistake a lot of agents make is to ignore the more routine, lower-end sales—the equivalent of quitting their day job—just so they can concentrate only on the big cases.

The desire to do that is understandable, says Gerald J. Herbison, assistant professor-management at The American College. Those big cases have a “certain allure” that daily selling and servicing of customers does not have, he explains.

But single-minded focus on big cases can be a risky business. “I‘ve seen agents who, six months after starting out, start thinking of themselves as corporate vice presidents,” says Rich Paulsen, an agent with New York Life. The way they dress and act, leave the office early and otherwise disregard doing what it takes to build up a steady flow of business are often signs they won’t make it.

That sometimes happens after an advisor accidentally stumbles upon a big case, or learns of a colleague who has done that. Since that first big sale came so easily and perhaps brought the agent one year’s worth of commission, the agent comes down with “big-case-itis.”

Only later does the agent learn that big cases aren’t that easy to land—but by then, it may be too late. “I’ve watched a lot of people starve while they are out elephant hunting,” says Tom Hegna, president of TomHegna.com. “You need to shoot a lot of squirrels and rabbits along the way in order to make it.”

As a former top agent who now provides sales training to other agents and financial advisors, Hegna advises a less glamorous but more long-lived approach: “Keep on building up your regular business, and add the elephanthunting on to that.”

D. Scott Brennan, principal of the Brennan Group and second vice president of the Million Dollar Round Table (MDRT), suggests treating the big cases as a bonus—something you want but don’t need. After all, he says, the client’s CPA and tax advisors might tell the client not to go ahead with the proposed plan. Or the other advisors might recommend doing less than proposed, or doing it in a temporary way. So the big case might fizzle or shrink to small.

THE REAL STORY BEHIND LANDING THE BIG CASE | FEATURE

Brennan is first to admit that he loses more big cases than he gets. That’s a notuncommon comment among top producers. His word to the wise: “Keep track of the business that got you where you are, and keep your business on schedule.”

Paulsen points out that he still “absolutely” writes small cases. That is even though his income is more than $1 million a year. “If I make $500 for a half hour’s work on one of those cases, that’s fine with me,” he says. That way, he is meeting a client need and he may get a referral out of it, too. “I always ask if the client has a father or grandfather or knows of someone else who may need my services,” he says. That referral could lead him to an older person who has much greater insurance needs, a prospect for a big case.

Be prepared to make sacrifices.

An equally practical consideration is sacrifice. To work on big cases, advisors might have to give up time with the family and devote more weekends to work, Hegna says. They might need to get up earlier in the mornings. They may need to ask the spouse to help with the business, too. Spousal assistance can be a “huge help,” Hegna adds, but it also means the spouse is sacrificing time.

In his own selling years, Hegna worked 10 to 15 hours a day,” investing in his future,” as he puts it. But he says he didn’t think of it as sacrifice.

“I’m military,” Hegna explains, “and what civilians call sacrifice, the military would laugh at. In the army, you work 24/7, 365 a year.” So the time investment he made in developing his career—and his big case sales—did not seem like too huge a sacrifice to make.

But the time commitment can seem extraordinary when measured against a little talked about big case fact—that big cases can take many years to develop and to close. Herbison says big individual cases could take six months to a year to close, and big corporate cases could take several years. Even some individual cases take five years or more.

The cases may not be more complicated in terms of products and processes

involved, but such cases often take more steps because the clients have more options than other people. These options include investments, information access, attorney services, accounting services and more—things that other clients can’t typically afford. The time and effort involved—and the fact that some of the cases just fall apart—are big-case realities that advisors sometimes overlook.

“You have to weigh the possible long-term gain versus the sacrifice,” Hegna says.

Get educated and stay connected.

memberships can be a source of valuable large case connections.

Barr recounts how she had wanted to become a member of the top estate-planning organization in her town. The members include trust officers, estate planning attorneys and people with certain designations, including the CLU. It’s an exclusive group, with limits on the number of members in each category. Finally, an opening became available in her category, and Barr decided to apply. She had to fill out an application, get someone to sponsor her in her “category” and go through a background check. The fact that she had just earned her CLU definitely helped her qualify, she says.

This was “a game-changer,” she recalls.

“When you are breaking bread together at the members’ dinners, you find people you like, you talk some shop and you learn. I get some of my best learning there.” She also gets connections that lead to large case opportunities. Currently, for instance, she is working on an irrevocable

One sacrifice that remains valuable whether big cases go north or south is an investment in professional education.

Janet Barr believes advisors absolutely need to have professional designations if they want to be in the large case market. “Designations show that you are not only a student of the business, but also that you are a planner and will work hard,” says the indepenSince that first big sale came dent financial advisor at Collaborative Financial so easily and perhaps brought Solutions. “They sepathe agent one year’s worth of rate you from the pack.”

Advanced academic commission, the agent comes degrees, such as a masdown with “big-case-itis.” ter’s in financial services, are “very helpful,” says Herbison of American College. For one life insurance trust case (ILIT) with an thing, the degrees can help advisors talk attorney who is a member of that group. at a higher level with clients, he says. They “It was expensive, taking all those can also help with financial due diligence, classes,” Barr allows. For instance, one making an advisor more qualified to offer of her designations set her back roughly the right solution at the right time. $5,000 when it was all done and she lost Those credentials are important not out on outdoors-time when the weather only to clients but also to the other advi- was balmy. “But the trade-off was worth sors who work with big-case clients, says it,” she says.

Barr, who has eight sets of letters after her name. When they see the designa- Be an educator, too. tions and degrees, “those other profes- In the big case market, education has sionals know that you have had to study, an expansive effect that strengthens the take exams and keep up with your field,” advisor’s prowess. As Herbison puts it, she explains. “Other professionals may “you need designations and degrees not not have the same designation as you, only so you can work with the people who but they know your designation is pre- will write the big checks, but also so you mier and that you have been vetted.” are qualified to help educate the other Designations also help advisors advisors who work with the client.” tap into professional groups, Barr The other advisors could include the says. That’s important, because those accountants, attorneys and others who April 2012

InsuranceNewsNet Magazine

21

FEATURE | THE REAL STORY BEHIND LANDING THE BIG CASE

BIG CASE POINTERS Get an advocate. The advocate could be a wealthy client who likes to introduce people to one another, to help them get connected. If they are successful themselves, they will likely introduce you to other successful people. This is a way to get face time with them.

– Tom Hegna, TomHegna.com, Fountain Hills, Ariz.

Don’t hesitate to sell a 10-year term policy to solve a big problem. Be sure it’s a convertible policy, though. Then, if the client experiences a health change later on, the client will be able to convert that policy to a permanent plan in order to be sure the coverage is in force when the person dies.

–D . Scott Brennan, the Brennan Group, LLC, South Bend, Ind. Warm up first. I warm up for the day’s contacts by calling my family and friends first, and getting the good vibes going. Then I make my business calls.

Even if seven out of 10 people that I contact later on put me off, the warm-up helps me end the call as pleasantly as possible. I might say something like “it’s fantastic that you have everything put together, but don’t hesitate to give me a call if you ever have a need.” There is nothing to be gained by burning bridges.

– Rich Paulsen, New York Life in Stockton, Calif.

Be careful what you recommend. Even at the large case level, the client needs to be able to afford the premium. So don’t just get the case. Check to be sure the person will able pay the premium 10 to 20 years down the road. You want your clients to have no regrets. If they do, it will bite you. So focus on selling the right product for the right amount for all the right reasons.

– J anet Barr, Collaborative Financial Solutions, LLC, Santa Barbara, Calif.

Build an effective referral process. This should be a system that effectively gathers referral names. It can’t be passive. That could include seminars for the wealthy or a cocktail reception to which they are asked to “bring a friend as a ticket to get in.” At the reception, maybe invite a mutual fund manager to discuss the economy or other financial topic.

– Gerald J. Herbison, The American College, Bryn Mawr, Pa.

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April 2012

have specialized knowledge in their own fields but who may not be proficient in insurance and financial services. Sometimes, they do want the insurance and financial advisor to help them understand, Herbison says.

Hegna suggests that advisors conduct seminars for CPAs and attorneys on cutting-edge ideas in annuities, life and long-term care insurance. In his own seminars, he educates on longevity risks and how mortality credits in products can take this risk off the table.

Later on, those same advisors “will call you with questions and come to you for help,” Hegna says.

Experience and reputation count.

Much of the time, the big case market is a closed-loop system, with all the experts knowing all the other experts in the community. That means “the advisor can’t afford to fail in that system, because everyone will find out,” says Herbison.

So, a key point for advisors is to be sure to dot all the i’s and cross all the t’s. That is, get the designations and degrees, build experience and expertise, develop relationships and cultivate a good reputation as a trusted advisor.

Along the way, be sure not to sidestep the attorneys and accountants who work with the client, says Hegna, the consultant. “Instead, find out their names, meet with them first and get them onboard, so you can all go to the client as a team. When you do that, it builds confidence in you among the other advisors, and you get contacts and referrals.

“If you don’t do that, the other advisors will try to sharp-shoot whatever you do.”

Building a good reputation also has to do with branding. Barr recalls that when she was starting out, she would go out on bigger cases but she would always lose out. After two or three years, she found out why. “The people in this market want their advisors to be branded, with the right look, image, education, experience and connections.” The people she was contacting also wanted to use advisors who shop several insurance companies and “get the best underwriting,” she says.

That awareness spurred her to leave her captive insurance arrangement, join an independent financial firm and get the education detailed earlier. “And yes, I do get big life cases now, north of $5 million,” she says.

Brennan says he makes a point of staying active in his community. “When you offer to do things for local organizations and then follow through, people get to know who you are.” One person tells another and a good reputation grows. That counts in the big case market, he says.

But if an agent doesn’t deliver, he cautions, a dozen people will tell others and that agent’s reputation will fall.

Run the agency as a business.

Operating the agency like a smooth-running business is critical.

“It’s important to treat what you do as a career and a business.

People take that as a sign that you will be around for that person and that family,” says Paulsen.

To that end, “you have to be organized and prepared,” he says.

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InsuranceNewsNet Magazine

23

FEATURE | THE REAL STORY BEHIND LANDING THE BIG CASE

MORE BIG CASE POINTERS Greet potential prospects warmly. If I bump into a prospect a few months after an initial inquiry, I treat that person as I would my best customer.

Or, I might call later to suggest having coffee and talk about an idea I have that might be of interest.

Usually, something good comes out of it.

– Rich Paulsen, New York Life in Stockton, Calif.

Try different approaches. Try calling them early in the morning or late in the day when the receptionist is not there. Or play detective by finding people that own or control small- and medium-sized businesses, who are communityminded, and who have good cash flow. In smaller towns, it’s tough for them to go unnoticed.

–D . Scott Brennan, the Brennan Group, LLC, South Bend, Ind. Take a broad view of big cases. It can be one large package of planning products for a single client, a deferred compensation case, or several sales through an organization that endorses the advisor to 50 different people. I recall one agent who sold a stack of term life policies at the executive level for a total commission of $50,000. This was a regular occurrence for this agent and was in addition to the big cases he sold on individuals.

–G erald J. Herbison, The American College, Bryn Mawr, Pa. Come up with unique ways to meet wealthy people. “One agent I know had moved into a wealthy neighborhood on a lake. He invited neighbors to a Labor Day wine-and-cheese get-together with me—“Author Tom Hegna”—as the featured guest.

It was not a seminar or a sales presentation. I only talked about my book. The people who came signed in, and that gave the agent a list of people to whom he mailed my book when it came out.”

– T om Hegna, of TomHegna.com, Fountain Hills, Ariz.

Don’t assume a person can’t afford it. “Remember that millionaires can live right next door. They get up early, work hard, stay up late, and don’t drive fancy cars. But they do want a relationship with an advisor, someone who will stay close with them as they grow older.”

–D . Scott Brennan, the Brennan Group, South Bend, Ind. 24

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April 2012

In his own practice, Paulsen says he has things to do every day, week and month. He also “out-prepares” for the people he meets by learning all about them, their business, family, partners, activities, hobbies and more. He is active in his community too, in ways that demonstrate that he is organized and that he delivers.

To do all this, Paulsen relies on the support of his team, including four staffers, the experts and resources of his carriers, and the members of his study group.

“There is no magic wand,” he says. “On Jan. 1 of every year, we all start out batting zero. We don’t know what March and April will bring, but I know that I will have a great quarter.” He says he knows that because he continually plants seeds, tends them as they germinate, stays organized and makes sure that everything is in place.

Many caution that building the practice up as a business won’t happen overnight. The average producer might start off with a part-time assistant, and only later on add staffers (such as a marketing assistant, administrative assistant and para-planner) and institute office procedures that keep the business running smoothly.

There’s a landmine here, however. Many advisors are good at sales and relationship-building but not at business development and management, Herbison warns. So the advisor needs to hire staffers who can do what the advisor doesn’t like to do and is not good at doing. Failure to do that runs the risk that the practice will not run smoothly and that potential big case clients and advisors will look elsewhere.

Bounce back from rejection.

No advisor is immune from rejection, whether it’s a small or a big case. But in the big case market, the rejection can be an especially disappointing blow, especially if the advisor has put countless hours into the case. Most professionals don’t dwell on the loss, though.

Brennan tells of a big case on which he spent one and a half years, working in depth with the client’s six advisors. Right at the end, five of the advisors signed off—but the sixth did not—and the case fell through. “It wasn’t my greatest day,” he laughs, “it stung a little bit.” But as he reviewed everything that happened, he says he bounced back.

He saw that he had not swerved from his conviction to do right by the client, he says. He saw that he had learned quite a few things that he would be able to apply elsewhere. He remembered that “you don’t lose until you quit calling.” And he remembered the importance of staying active and upbeat, including “trying to brighten someone else’s door with lighthearted conversation.”

Brennan’s rebound suggestions: “Go to professional and community groups, attend meetings and become exposed to different levels of thinking and ideas. And don’t forget that abundance is a state of mind.”

That optimism—even in the face of rejection—is perhaps the backbone of the untold story behind big case hunting.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at Linda.Koco@ innfeedback.com.

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[ LIFEWIRES]

DID YOU

KNOW

?

Individual Life Sales Looking Up

OLDER GENERATIONS ARE MORE LIKELY TO AGREE that retirees should focus on enjoying their retirement rather than leaving large gifts to heirs (73 percent of Baby boomers; 69 percent of Gen-Xers; and 54 percent of Gen-Yers). Source: MetLife Mature Market Institute

4% 38% 5%

22% 30% 9%

2011

It was an arrows-up year for the individual life insurance business in 2011. New annualized premium rose by 4 percent, making for the second consecutive year of growth, according to LIMRA. Strong whole life sales accounted for much of the gain, with whole life premiums up 9 percent over 2010, making for six consecutive years of skyward growth. And it was not just whole life premium that soared. According to LIMRA, whole life policy count rose in 2011 too, by 5 percent.

Variable universal life made gains as well, climbing 22 percent for the year.

But it’s not all good news here, since LIMRA found that variable policies sold fell by 9 percent. By the way, policy count in this product line hasn’t increased in 29 quarters, the researcher says.

Universal life brought some lift, with premiums rising by 3 percent in 2011 and policies sold by 8 percent. The big buzz here, though, was that indexed universal life premiums jumped 38 percent for the year and policy count soared by 30 percent. Indexed sales represented about 25 percent of universal life premium sold in 2011, LIMRA adds.

As for term life, it continues to represent 65 percent of coverage and nearly 40 percent of all new individual life policies issued in the U.S., the researcher says. However, this was the only product line to see both premium and policy count decline for the year, by 6 percent and 4 percent, respectively. All told, it looks as if 2011 was a partially sunny year in the individual life business.

LONG WAS DYING FOR THAT MONEY

AG 38 GETS THE GO-AHEAD

Jamie Dwayne Long, 38, of Lunenberg, Va., pled guilty to one count of mail fraud arising out of his attempt fraudulently to obtain the proceeds of a $750,000 life policy that was issued in his name in August 2010. Someone claiming to be Long’s brother-in-law called the insurer, Modern Woodmen of America, to report that Long had died in a car accident and to request the paperwork for filing a claim, according to the U.S. Attorney for the Eastern District of Virginia. The caller said to send the paperwork to Long’s newly-opened post office box. Then, to obtain a certified death certificate, Long tried to order a vital records embosser for the county. That triggered notification to Virginia State Police, which subsequently uncovered the scheme. Guess Long didn’t get the “you have to be dead before your life policy pays out” memo.

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The National Association of Insurance Commissioners (NAIC) signed off on a “bifurcated approach” to calculating reserve methodologies under Actuarial Guideline 38 (AG 38), according to A.M. Best. AG 38 addresses statutory reserves for universal life contracts with secondary guarantees and term universal life products. The bifurcated approach will allow regulators to apply AG 38 differently to new and closed blocks of business. NAIC also gave the okay to allow a joint working group of state regulators to hire outside actuaries to help in the fact-finding and analytical assessment of those universal life products.

All of that is pretty technical and company oriented, but it has implications for life insurance agents too. That’s because it signals that NAIC is moving forward on its efforts to address reserving issues related to AG 38. Since reserves affect

pricing, experts say that the universal life policies and prices that advisors present to clients could be affected.

That could take a while, though. A joint working group of NAIC’s Life Insurance and Annuities (A) Committee and the Financial Condition (E) Committee still must go through Phases 2 and 3 of NAIC’s “Draft Framework” on AG 38 issues.

FITCH ON POSSIBLE HARTFORD BREAK-UP

Buzz about a possible split of the Hartford Financial Services Group (HFSG) into separate life and property/casualty (P/C) companies spurred some interesting remarks from Fitch Ratings. As you might expect, the New York rating company says it would review the impact of any such breakup on the credit quality and financial strength of the resulting company structure.

Among several factors that Fitch says it would look at is this hindsightenriched comment: “The P/C companies served as a source of capital to the life operations during the financial crisis.

While we do not expect the P/C insurance operations will be needed to fund potential future capital needs of the life companies, the P/C companies continue to have the ability to provide such support. This could serve as a particularly valuable source of financial flexibility should the life operations require an additional capital boost.” It’s something to think about, no?

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Occupy Opportunity PLANNING FOR THE 99% significant amount of ink has been spilled on articles, blogs and commentaries on the best planning ideas for the vaunted 1 percent.

Advisors flock to well-heeled clients to present the latest and greatest planning strategies to meet their goals and mitigate their tax burden.

But what about all the opportunity with the other 99 percent? They are individuals and families that are typically underinsured (or not insured at all) and underserved by financial advisors. There are many great planning ideas and insurance products that can plug the holes in many of the 99-percenters’ financial plans. Here are just a few…

Life Insurance as an Asset Class First and foremost, life insurance can be an effective financial product for creating wealth at a time when it is most needed— at the death of the insured. The leverage provided by death benefits, when examined relative to the premiums paid, can potentially offer individuals an ability to transfer wealth to their beneficiaries while reducing their concerns as to the 28

InsuranceNewsNet Magazine

April 2012

BY GONZALO GARCIA AND LIZ WEBER

performance of their other assets. Universal and whole life insurance, unlike indexed universal life insurance or variable life insurance, are also assets that are uncorrelated to the stock market. These products can often provide stable crediting rates that are based on the investment portfolios of the insurance companies, which are typically heavily invested in bonds and real estate. Policies that offer high, early cash values make the investment in a life insurance policy even more valuable. Many carriers’ crediting rates exceed those offered by CDs and money market funds.

As we are all now painfully aware, even if an individual assumes a particular rate of return on investment assets, performance can fluctuate from year to year.

Depending on the actual long-term performance of the individual’s assets, their beneficiary’s inheritance could be more or less than expected. If less than expected, the result is potential disappointment— the beneficiary only receives an inheritance based on the value of the portfolio at some indeterminate point in time. Life insurance is different than other financial products—it provides a fixed amount on

the occurrence of a specified event; the death of an insured. Few other assets can offer the ability of a payout on the occurrence of a specified event. With life insurance, the value is known and the disappointment is averted.

By dedicating a portion of an individual’s portfolio or investment income toward life insurance premiums, that investor has the potential to hedge the portfolio he or she wishes to pass on to their beneficiaries against fluctuation in asset value. Of course, life insurance is not technically insuring the portfolio; but a life insurance death benefit could be used to offset losses that have occurred in the policy owner’s portfolio. In effect, the individual transfers the risk of payment from his or her own investment performance to the insurance carrier to assure an inheritance to his or her beneficiaries.

New Products with New Options

Something for baby boomers. Insurance carriers have stepped up to the plate and are now offering a myriad of insurance products to meet the needs of the 99 percent, and not just the 1 percent previously mentioned. Policies with high early cash values and strong accumulation features can provide a “private retirement plan” for baby boomers sorely in need of such an arrangement.

It is not only the 1 percent buying BMWs — many 99 percenters have spent disposable income freely while not exactly planning for their retirement. New

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LIFE | OCCUPY OPPORTUNITY

Most insurance companies see policies.

PERCENTAGE OF TAX DUE

NET AFTERTAX COST

LOST ASSET

SELL AN ASSET

YEARS

PAY CASH

$50,000 FOREVER $1,000,000 $1,704,697 170.47%

$62,500 FOREVER $1,250,000 $2,130,872 213.09%

TAKE A LOAN

ANNUAL COST

5 WAYS TO PAY ESTATE TAXES

$85,811 25

$0

$1,209,409 120.94%

BORROW FROM IRS

$33,733 1 –4 $0 $1,066,211 106.62%

$118,553 5 –15 USE LIFE INSURANCE PROCEEDS

products with strong accumulation features, such as indexed universal life, can fill this retirement gap. Funding can begin in the high income years (typically ages 40–60), and then withdrawals and loans can be taken later in life to supplement other retirement assets.

One major carrier has an innovative product for small, qualified retirement plans where the cash surrender value can be rolled into an IRA at plan termination (the qualified plan and the insurance must have been in place for at least eight years before termination) and the net amount at risk is then issued as a new life insurance policy outside the qualified plan or IRA (obviously, without new underwriting). So the individual gets the benefits of a qualified retirement plan (tax deduction, taxfree build up), the benefits of life insurance AND a solution for the “problem” of how to extract a life insurance policy out of a qualified retirement plan.

And let’s not forget grandparents.

Grandparents love their grandchildren and are looking for ways to pay for college, weddings and other life events. They may not want to leave a lump sum in a complicated trust and they also do not want to hand their grandkids a pot of money.

The alternative? Insurance carriers have new payment stream options that can reduce the premiums paid for the policy, making this type of planned giving a really attractive alternative to other investments and trusts. These policies allow grandparents to leave their heirs a specified amount of money to be paid, for example, either monthly or annually (i.e., on a birthday).

They also allow the grandparents to leave letters to be given to their heirs when the payment is made. These products allow them to leverage their legacy through life insurance, while also controlling how much is paid and when (along with a lovely letter if they so desire).

And what about long-term care insurance? The 1 percent can easily self-insure their days in an assisted living facility

$18,000

20

$406,215 $692,474

69%

Life insurance is clearly the best way to pay when you compare the options.

should their activities of daily living erode.

The 99-percenters? Not so much. One longterm illness in a family can quickly wipe out all of a family’s savings. The result? No inheritance, no safety net and no long-term care for other family members.

More and more carriers today are offering long-term care, or living benefit, riders with their life insurance policies. These policies solve the “use it or lose it” conundrum of standalone long-term-care policies. Individuals can finally get needed life insurance along with the option of long term care if desired.

And back to the 1 percent. They also need life insurance for everything, from key man insurance to charitable giving, but estate taxes will continue to be a key driver in this market. The chart above makes the case for life insurance as the best way to pay estate taxes. It is safe to assume they are not going away and the tax man does always cometh!

Gonzalo Garcia, CLU, Partner AgencyONE. Gonzalo is responsible for business development at AgencyONE. He can be contacted at Gonzalo.Garcia@ innfeedback.com. Liz Weber, JD, Chief Marketing Officer AgencyONE. Liz is responsible for marketing and Advanced Markets at AgencyONE. She can be contacted at Liz.Weber@innfeedback.com.

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[ ANNUITY WIRES] Winners, Losers in Annuity Sales Annuity sales turned heads last year, totaling $240.3 billion, up 8 percent from 2010, according to LIMRA. But the trajectory was uneven, to say the least. Variable annuities galloped ahead by 13 percent to $159.3 billion, but fixed annuities fell 1 percent to $81 billion.

And there is more to the choppy story. The first six months produced “significant growth” in the double-digit range, according to Joseph Montminy, assistant vice president-annuity research for LIMRA. But in the third and fourth quarters, total sales fell quarter over quarter.

Even the 2011 star—variable annuities—had a bumpy ride. After six consecutive quarters of positive growth when compared to the prior year, fourth quarter variable annuity sales came in flat, LIMRA says. And when compared to third quarter, variable annuity sales actually fell by 4 percent to $38.4 billion.

Now for the diamonds in the rough: in the fixed annuity market, immediate annuity sales hit a record of $8.1 billion in 2011, up 7 percent over last year. And indexed annuity sales totaled $32.2 billion, which is flat compared to 2010. But for the second consecutive quarter, these sales outperformed sales of traditional fixed annuities and took 44 percent of the fixed annuity market share, LIMRA says.

PEAS AND CARROTS ANYONE?

Variable annuities (VAs) and alternative asset classes may not go together like peas and carrots, but some dual-licensed independent advisors may find themselves dishing them up together. That’s because VA issuers have been adding alternative investment subaccounts to their products in increasing numbers since the start of the 2008 recession.

The term “alternatives” is being used to refer to a wide range of “non-traditional investments.” For instance, a new variable annuity from Jackson National Life includes as many as 12 alternative investment options including: managed futures, commodities, listed private equity, global infrastructure, convertible arbitrage and emerging markets debt.

Experts say VA carriers are going in this direction so that advisors can offer clients more diversification options and more non-correlated assets inside their VA products. Some advisors may not yet know about it, but it’s definitely a trend.

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For example, 25 active individual annuity carriers offer a combined total of 39 unique subaccounts in the broad category of alternative investments — and 67 percent of those subaccounts were added to the products after year-end 2008, according to Morningstar.

CONTINGENT DEFERRED ANNUITIES ARE ANNUITIES

That is the conclusion reached by the National Association of Insurance Commissioners (NAIC) Life Insurance and Annuities (A) Committee during the group’s spring meeting in New Orleans. The committee adopted a resolution to that effect by unanimous vote. The vote came after several months of study by a subgroup of the committee that had been tasked to determine whether contingent deferred annuities (CDAs) should be regulated as annuities or financial guarantee insurance (a property-casualty product). The subgroup decided, and the full committee agreed, to go for the

regulate-as-annuities approach. But the work isn’t over yet. The committee has now set up a working group to evaluate whether rules for solvency and consumer protection, which currently apply to annuities and guaranteed living withdrawal benefits, are adequate for CDAs. As the regulatory folks like to say, however, “issues remain.”

INDEXED ANNUITIES ROLLING OUT

A couple of indexed annuity carriers must have been pretty busy in the past few months. Consider: Lincoln Life & Annuity just brought out Lincoln OptiChoice NY, the company’s firstever fixed indexed annuity (FIA) for sale in the state of New York (and one of the few FIAs approved there). A few weeks later, Standard Insurance Company debuted its own newbie, the Index Select Annuity, a single-premium FIA. Both products offer a fixed account option and an index-linked account that credits interest based on the performance of the Standard & Poor’s 500 index, and both join at least three other indexed annuity launches from the first part of the year. In its “Life/Annuity Review & Preview 2012” report, A.M. Best Co. points out that some annuity carriers have been curtailing or deemphasizing lines such as fixed annuities. That comment certainly fits with the industry group-think. But curtailing doesn’t seem to have stopped carriers from unveiling — new FIA products, that is.

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alk about strange bedfellows. The federal government, courtesy of proposed regulations and rulings from the Departments of the Treasury and Labor, has started encouraging Americans to consider using annuities to help create a lifetime retirement income.

That sounds like the makings of a healthy relationship with good feelings flowing from both the government and the industry. But how does it play out for independent agents and advisors who recommend and sell annuities in the individual market? After all, the measures focus on the retirement plan market, so what’s in it for them?

And, not to be overlooked, the moves have a “federal” stamp on them. Things federal don’t exactly sit well with many advisors, especially those who remember the Securities and Exchange Commission (SEC) effort a few years ago that would have prevented non-securities licensed producers from selling fixed indexed annuities. That controversial Rule 151A failed, but advisor distrust of big government still lingers. And it is being stirred up again this year by proposals to impose new taxes on contributions to retirement 34

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plans and IRAs and new taxes on life insurance sold to businesses.

So what will the government’s new initiatives on lifetime income options and annuities mean? Should the independent producer embrace the measures or keep them at arm’s length?

The Initiatives To sort this out, let’s review what the Treasury and Labor documents entail first. There are proposed regulations and there are final rules—and the provisions in both are extensive. Some of the key annuity provisions include: • A Treasury proposal to “encourage” the inclusion of partial annuity options in employer-based retirement plans, making it easier for workers to split funds in their plans between cash and a lifetime income stream from an annuity.

• A Treasury proposal to make it easier for workers to use part of their retirement accounts to buy longevity annuities (deferred income annuities (DIAs) that start their payouts many years after retirement, typically at age 85).

• An Internal Revenue Service (IRS) ruling that clarifies plan rollover rules involving purchase of annuities.

• An IRS ruling that clarifies protection of spousal rights involving purchase of longevity annuities as well as other deferred annuities in 401(k) plans.

• Labor department final rules that provide for increased transparency about costs and fee disclosure in retirement plans.

None of this is mandatory on retirement plan sponsors. Rather, the various provisions are designed as “guidance” that will remove obstacles to including annuities with retirement plans.

Praise, Indifference and Concern On the very day the government announced those initiatives, two Washington-based insurance trade groups— the Insured Retirement Institute and the American Council of Life Insurers— issued statements lauding the annuity proposals. Other trade groups followed,

UNITED STATES OF ANNUITIES | ANNUITY

including the Retirement Income Industry Association, the Defined Contribution Institutional Investment Association and others.

The praise was certainly expected.

After all, such organizations include among their members some big insurance carriers, most of whom serve the institutional retirement plan market. The organizations and the carriers themselves had actively supported the need for regulations that will help increase lifetime income options for American workers. This was a good day for them.

On the independent agent and broker side of the fence, however, reaction has been muted. That is partly because the annuity provisions focus mostly on employer retirement plans—not on the individual annuity market which the advisors serve.

Skepticism about the federal government may play a role in the agent’s subdued response as well. So might the fact that industry associations, including leading agent groups, have other issues on their plates. Right now, that includes renewed efforts to derail any federal measures that would reduce tax incentives for consumers to invest in retirement products, including annuities.

But some annuity experts have been studying the Treasury and Labor measures’ possible impact on the individual annuity marketplace. Their collective wisdom: independent producers could benefit from the measures.

The Plus Side The government actions could create a lot of energy around annuities in terms of renewed credibility and reinvigorated sales—and yes, even in the individual market. Take a look at how the experts reached this conclusion: Positive image. The actions by Treasury and Labor amount to a “huge endorsement” of annuities and of the message that “you, as a consumer, need to protect yourself” from the risk of outliving your assets, points out Michael Pinkans, senior vice president of marketing at Zenith Marketing Group.

That could be a powerful antidote to all the negatives that critics heaped on annuities a few years back and could sway some consumers to give annuities a second look, experts say.

Annuity analyst Jack Marrion predicts that the institutional side of the market will benefit the most from the government actions because the annuity provisions focus on needs of employer retirement plans. But that doesn’t mean independent agents won’t also benefit, says Marrion, president of Advantage Compendium. In fact, he says, “the proposals are pro-annuity and should be used by agents to point out that ‘even the federal government supports the use of annuities in retirement planning.’ ” Douglas I. Friedman, principal of the law firm Friedman & D ow ne y, add s

In the United States, $4.7 trillion is held in 401(k), 403(b), 457 and similar defined contribution plans; $2.3 trillion is held in private defined benefit plans; and another $4.9 trillion is held in IRAs largely created by rollovers from employer-based retirement plans.

Source: U.S. House of Representatives

that “any discussion of annuities in plan materials is a help to annuity sales.” As for Labor’s disclosure rules about fees and costs, “if it makes information easier to find, as this appears to do, it can only be helpful,” he says.

A whole new market. The initiatives have opened up another opportunity for making a sale as well as opportunities to do some planning, Pinkans says. For instance, although independent advisors could always offer workers partial and full rollover IRA annuities, now they have the government’s endorsement of annuities to help them, he says. They will also have the government regulations to give more support to partial annuities than previously was the case, he adds.

A reason to educate and advise.

Retirement plans have routinely provided information about the monthly payments for the options they provide, allows Friedman in an email. “But I would be surprised if they would want to do the testing needed to help a participant determine what the monthly payout would be—for example, if a participant takes his 401(k) as a 30 percent annuity versus a 60 percent annuity, or an annuity at 30 percent for life versus one at 40 percent that is joint-and-survivor.”

ANNUITY | UNITED STATES OF ANNUITIES

Someone has to help the customer evaluate the alternatives, he continues, and that someone could be the agent.

“More complexity means more need for explanation,” Friedman explains. “Here, I would expect that an agent could help estimate the monthly payments from the various alternatives, consider a participant’s income needs at various points during retirement, and then illustrate the numbers to help the participant make a decision.”

Some analysts have suggested that the federal initiatives could, if implemented by the plan sponsor, make decision-making easier for workers, so they won’t even need independent advisory services. However, Pinkans thinks certain workers will indeed want to obtain independent expertise. “People don’t know where to turn when they enter retirement,” he explains. “But independent advisors can weave all the pieces together for the worker. Advisors can also use annuity calculators available in the industry to help find guaranteed income values for clients.”

In addition, independent advisors can review all the options available to the client, not just the ones offered by the employer, he says.

Innovation potential. The overall market will benefit from greater innovation, predicts Keith Newcomb, principal and certified financial planner with Full Life Financial. That’s because the initiatives will reduce government restrictions on what employers and plan participants can do with their retirement plans, he says.

“That makes for a more free market, and free markets support innovation—and that’s good for business and for consumers.”

Cost and fee transparency. The Labor department’s rules to increase cost and fee transparency will be good for advisors as well as customers, Newcomb maintains. That’s because objective information will be available to plans and plan participants and, by extension, to the advisors who serve them. This information will put the advisor in a better position to help clients decide, say, whether the in-plan annuity option is good for the 36

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client or not, Newcomb predicts.

No Bed of Roses As positive as all that sounds, the Treasury and Labor initiatives won’t necessarily create a bed of roses for independent agents. That’s because several thorns may lie among the petals: Level playing field. One area of concern has to do with whether there will be a level playing field for annuities that are sold inside a retirement plan (in-plan annuities) with those sold when a participant rolls money from a 401(k) into an IRA annuity outside the plan, Newcomb says.

He points to the Treasury proposal involving longevity annuities. The proposal says that workers who buy a longevity annuity inside their 401(k) plans

would be exempt from making required minimum distributions (RMDs) on the money put into that annuity. This proposal caps the amount available for RMD relief to 25 percent of the retirement account value, not to exceed $100,000.

RMDs are the distributions that retirees must start taking from their defined contribution plans after reaching age 70.5.

The proposed regulations say that workers who choose to roll 401(k) money into an IRA and buy a longevity annuity of their choice within the IRA will also be able to benefit from the RMD relief, Newcomb points out. “But agents will need to work diligently to be sure that the final version of the regulations keeps that provision in place, so that the playing field will be level. That will preserve flexibility for the client and enhance competition.”

How Annuity Initiatives Affect Independents PROS

CONS

The measures amount to a federal endorsement of annuities and their lifetime income features.

Advisors will need an increased ability to quantify alternative strategies.

he measures will create a T new reason to educate and advise workers who have retirement plans.

The measures will open up a whole new market for advisors.

The measures will probably spark more innovation in annuity products.

The measures’ cost/fee information can help advisors advise clients on their options.

Work to ensure that the final version of the regulations foster a level playing field.

The type of license the advisor holds will impact what the advisor can say and do.

Advisors will have a greater need to stay abreast of existing and new retirement income options.

Keep watch for efforts to apply fiduciary standards to advisors who do rollover IRAs using annuities.

Brace for greater competition from other advisors such as money managers.

UNITED STATES OF ANNUITIES | ANNUITY

Licensing issues. Agents who want to talk with customers about rolling money out of 401(k)s and into rollover IRA annuities or partial IRA annuities or any insurance product will need to do so within the boundaries of the licenses they hold, cautions Pinkans.

That has always been the case. Agents, however, who are not securities licensed but want to take advantage of some of the new opportunities should partner with someone who does have a securities license, he says. “Either that, or just don’t have the conversation.”

The only other option for these agents would be to become dual licensed as both an insurance agent and a securities rep. But that will take time and money— and some agents won’t want to expend either—a decision that Pinkans says could limit their options in this market.

Know the available income solutions. Advisors who are already dual licensed can discuss a variety of income strategies and solutions with workers.

But that means the advisor needs to keep abreast of the options as they come out.

In today’s market, for instance, it may look as if rolling some of the 401(k) money into a fixed indexed annuity in a rollover IRA would be the best bet for clients with a long term horizon, Pinkans says. “In fact, for some clients, that may be the best thing to do right now, and well before the client retires.” And a dual-licensed advisor could do that for the client.

The advisor should, however, keep an open mind, Pinkans stresses. “It could be that a traditional fixed annuity, a variable annuity or some other option would be better. And if the person already has an in-plan annuity, the advisor should check the payout and compare it to the other options.”

In addition, advisors will need to be ready to address criticism over using annuities in qualified plans.

The complaint continues to be that this strategy puts a tax-deferred product into a tax-deferred wrapper and there are costs associated with that, says Friedman, the attorney. His suggestion is that agents prepare themselves to offer the counter-argument, that “annuities have features such as

lifetime income provisions that can- to take effect, cautions Marrion. For not be duplicated anywhere.” instance, managed money advisors who Competency issues. There is no way advise on clients’ plan assets as well as around it. Agents, advisors and planners individual holdings could decide it’s time will need to develop greater competencies to strengthen their position with clients in order to provide advice to consumers who have 401(k) plans. who will be affected by the Treasury and Instead of watching their assets being Labor initiatives, says Newcomb. sold by dual-licensed annuity agents and For example, the availability of more then turned into IRA annuities, “the choices along with more cost and fee managed money mavens may decide to information means that advisors who wrap lifetime payout annuities around work with plan participants may need to “Advisors will have develop greater quanincreased opportunities— titative competencies than they now have. but they may also come to Annuity companies view their annuity bedfellow that develop products to compete against the with a guarded eye.” in-plan annuity options will probably develop calculators and their client’s funds,” he says. “That way, applications to help the agents compete both they and the consumer can receive in this manner, he allows. But the agents lifetime income—and the agent will be will still need to know how to apply those left out in the cold.” applications to the client’s situation.

Fiduciary issues. The Department of Putting It Together Labor’s rulemaking efforts to expand the Putting the pros and cons together, it scope of fiduciary responsibilities to more looks as if the Treasury and Labor initiaadvisors who give advice will give shape tives could be a mixed bag for indepento the competency issue, Newcomb pre- dent agents and brokers in the individdicts. The rulemaking activities are not ual market. Advisors will have increased part of the new Treasury and Labor ini- opportunities—but they may also come tiatives, he allows, but he predicts that the to view their annuity bedfellow with a fiduciary issues will impact independent guarded eye. agents and advisors who provide advice As Pinkans puts it, “some government related to in-plan annuities, rollover IRA body might decide to launch new efforts annuities and related matters. to regulate indexed annuities. Or efforts Efforts exist to keep fiduciary issues out could be made to put certain annuities of the world of IRAs, Newcomb allows. under the Employee Retirement Income But the issue could still trickle over to Security Act (ERISA), and say ‘now you agents in the IRA rollover market, espe- are regulated under ERISA’.” cially if the goal is to offer a level comThen again, he says, “those things petitive playing field between providing might never happen, because annuities advice on in-plan annuities and rollover today are more heavily regulated than annuities, he says. It may be that the inde- even two years ago, for suitability, dispendent agents who want to compete in closure, product training and more.” this market will need to accept the same Since the jury is still out, his suggestion fiduciary responsibility to IRA owners as for now is to think of the annuity initiaregistered investment advisers have. tives as measures that will open up new “Advisors who don’t want to accept that market opportunities for those producers responsibility will find their world getting who choose to take advantage of them. smaller and smaller,” Newcomb predicts.

Brace for greater competition. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, anAgents may face greater competition as nuities and income planning. Linda can be reached at the Treasury and Labor initiatives begin Linda.Koco@innfeedback.com.

April 2012

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[ HEALTHWIRES] Big Changes Ahead For Health-Care Benefits That’s according to a survey of employers by Towers Watson and the National Business Group of Health. Some of the changes are ones that many workers once considered unthinkable. For instance, of the 512 surveyed companies, only 23 percent say they are very confident that they will continue to offer health-care benefits 10 years from now — down from a peak of 73 percent in 2007, the researchers say.

Also, while only 3 percent are somewhat to very likely to discontinue health care plans for active employees in 2014 or 2015 without providing a financial subsidy, 45 percent say they are somewhat to very likely to offer coverage to only a portion of their workforce. As for the other workers, the employers say they would direct them to the state health-care exchanges.

And plan on seeing more carrot-and-stick approaches, too. The carrots will include providing workers with more service, pricing and quality information; decision-making support tools; and various incentives. The sticks will include adding penalties or achievement standards related to unhealthy life choices. Who knows, at least some of those shifts could turn into opportunities for agents who decide to sell health insurance via the developing health care exchanges.

CORPORATE EXCHANGE, ANYONE?

State health care exchanges won’t be available to employers with more than 100 employees until at least 2017, according to Aon Hewitt. Some organizations, however, are already considering using “corporate exchanges” as a means of delivering health care plans to employees.

A corporate exchange lists plans with group-specific insured rates, the employer determines the contribution for employees to use in purchasing coverage and the employees then pick a coverage level and insurance network of their choosing. Aon Hewitt tested the waters with 562 employers and found that 72 percent are very or somewhat interested in exploring that model. In DID YOU

KNOW

?

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fact, 44 percent say they believe they will provide employee health-care benefits through a corporate exchange in the next three to five years.

PRICE OF PURGING THE MANDATE

The Rand Corporation crunched some numbers recently to see what the impact would be of eliminating the individual mandate in the Affordable Care Act (ACA).

Its conclusion: the number of Americans who would get coverage in 2016 under ACA would drop from the predicted 27 million to 15 million. Despite that, an individual’s cost of buying insurance through the individual state exchanges would rise only 2.4 percent, say Rand researchers.

TOTAL HEALTH-CARE COSTS PER EMPLOYEE are expected to rise 5.9 percent, very close to last year’s increase of 5.4 percent.

Source: Towers Watson and the National Business Group of Health

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But there’s another cost to consider too. Rand found that without the mandate, the amount of government spending for each person newly enrolled in a health insurance plan would more than double, rising to $7,468. It turns out that most individuals who remain enrolled would be eligible for significant government subsidies — yet another yin-yang in the complicated mandate debate.

HEALTH-CARE SERVICE COSTS RISE AGAIN

No, you’re not imagining it. The average per capita cost of health-care services rose during 2011. The S&P Healthcare Economic Composite Index reports that those costs went up 5.28 percent by the end of December 2011. The index measures costs covered by commercial insurance (up 7.11 percent for the year) and Medicare programs (up 2.51 percent for the year). The December figure was an increase from the 4.85 percent annual growth rate posted for November 2011.

Actually, growth rates started accelerating in the summer, particularly for hospital costs and those covered by commercial insurance plans, the New York data service says. So, what next? “We appear to be entering 2012 witnessing a renewed acceleration in health-care costs,” comments David M. Blitzer, chairman of the index committee at S&P Indices. Never a dull moment, right?

QUOTABLE With historically low health price inflation, low utilization growth and some signs of lower health employment growth, we could be entering an era of extended health-care cost control.

— Charles Roehrig, director of Altarum Institute’s Center for Sustainable Health Spending

@InsNewsNet

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‘FUNNEL’ AWAY BUSINESS? ADD THE FIFTH LAYER OF REFERRALS IN SOCIAL MEDIA AND TURN THE AIDA FUNNEL INTO A CYCLE By Bryant Tutterow ompanies in regulated industries like health insurance aren’t typically known for their robust new media presence. Unfortunately, this places them at a distinct disadvantage because consumer buying habits continue to shift toward online research and purchasing.

A solution, that I have found effective in expediting the adoption of new media in the insurance industry, is to leverage established marketing concepts and augment them for use online.

In 1898, Elias St. Elmo Lewis developed the AIDA sales funnel that is still used by marketers at insurance companies all over the world. Lewis originally created it as a way to explain the process of selling in the insurance field.

The model was based on a hierarchical 40

InsuranceNewsNet Magazine April 2012

AWARENESS

INTEREST

DESIRE

New Layer Social Commerce

ACTION

Customer Retention Customer Advocates

REFERRAL Source: HCC Medical Insurance Services

WHY ‘FUNNEL’ AWAY BUSINESS? | HEALTH

process involving four layers: awareness, interest, desire and action.

Look at each layer like it is a step on a ladder—a landmark on the road that leads the customer from a basic product understanding to their eventual purchase decision. Most stakeholders within a health insurance organization understand this traditional sales funnel.

And although the ideas behind this model remain as relevant and as valuable today as the day they were first formed— over 100 years ago — as times change and technology continues to develop, so must this model. In fact, each layer is affected by new media channels.

So what’s the best way to implement this strategy in a world where virtually everything we do and say is at our customers’ fingertips through social networking? For the highly-cyclical health insurance sales market, one solution is to create a fifth layer—referral.

How Each Layer Is Changing Let’s explore how new media affects this funnel—and the first place to look is at the layers themselves. New media is both blending the lines between the layers and helping to better define each step to the sale.

AWARENESS: No business can afford to be without a plan for awareness. Traditionally, this meant buying a slew of newspaper ads, billboard signs, radio spots and TV commercials. All of these can still be valuable tools, but as the insurance industry moves into the digital age, awareness is going to take root in the places where customers spend most of their time: social networks like Facebook, Twitter, LinkedIn and Google+.

AWARENESS

INTEREST

DESIRE Social Updates Infographics

ACTION

Content

Blogs

Videos

Press Promotions

Distribution Channels

REFERRAL

Source: HCC Medical Insurance Services

DESIRE: Once we have the customer’s attention, we must convey a need for the insurance product. The Internet has made virtually any commodity available to consumers in new and more accessible ways, so it stands to reason that we must use our marketing tools to help the customer envision themselves relying on the insurance policy or product we are trying to sell. In other words, we should always be able to answer: what is so great about this health insurance product and why should I buy from this company?

ACTION: This step was, in many ways, the end of the funnel before the digital age. The potential customer is aware, interested and wants to buy. And so it’s finally time for them to make the purchase. But today’s customers are looking for an easy and intuitive buying process.

This means creating as many opportunities as we can to purchase, as well as being responsive and inviting with our social media communication efforts.

So, the question really isn’t: can an

This graphic piqued interest for travel health insurance by illuminating the high cost of health care overseas in an entertaining way.

INTEREST: The real work of a health insurance agent has always been in understanding potential customers and meeting them where they are. In today’s marketplace, consumers have come to expect that brands will cater to them and become a part of their specific culture. For insurance companies, this means using tools like infographics to grab the interest of potential customers and telling a compelling story.

Source: HCC Medical Insurance Services

April 2012

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HEALTH | WHY ‘FUNNEL’ AWAY BUSINESS?

old model of selling insurance stay relevant in the digital age? New media has expanded our reach and better defined the steps a customer (and a company) must take between awareness and action. Now, the question that is even more important: how do insurance companies most effectively leverage new media and the many opportunities it offers for personal connection?

The answer is simple — trust signals from referrals.

The New Fifth Layer: Referral Arguably the best tool in any insurance agent’s marketing or sales toolbox is the referral. Just one happy customer promoting your product or service can bring you two, three, four or more. If the agent understands how to leverage social media and build a following

Source: travelmedicalinsurance.com

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April 2012

Source: HCC Medical Insurance Services Facebook Page

upon a foundation of valuable content and communication, then the funnel will naturally progress to referral.

When a health insurance company implements the other four layers, it is allowing the consumer to work for them. Social media is like a set of bookends holding all customer interaction in place. And by its very existence will create a sort of customer forum where potential buyers communicate with satisfied customers and begin the cycle anew.

To make the most out of this fifth step in this model (which is increasingly looking less like a funnel and more like a cycle), we must be prepared to communicate with our customers where they are. Just remember that a comment on a social network like Twitter or Facebook is absolutely no different than a phone call between a sales person or a customer service rep and a client.

When questions and concerns are handled positively using new media, customers become effective brand evangelists and prospects are given priceless insight into the way companies care for their clientele.

This model has served the insurance industry well, and there are no signs of its success slowing down anytime soon.

In fact, Google makes more money on its AdWords platform through the insurance industry than any other kind of business. This is clear evidence that insurance marketers understand the

Source: The 20 Most Expensive Keywords in Google AdWords

A welcoming and helpful social media presence makes the action phase much easier.

power of new media, and they aren’t afraid to use it.

But this doesn’t mean there isn’t plenty of work ahead in making full use of social media in insurance marketing. The AIDA funnel must constantly be updated to fit the needs of clients who are acclimating to the new standards set by the Internet. Tools like Twitter and Facebook work to close the gap between the letters in our funnel model, and provide us with a convenient channel for both sales and customer service simultaneously. This is what it means to be reaching out in the digital age.

Gone are the days of directing sales calls away from customer service centers, or vice versa. On the Internet, we all become sales reps, product managers and customer service representatives. This is what new media is all

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about — and it is sure to help the 21st century insurance marketing world be more personal, more effective and more efficient.

Bryant Tutterow is the Assistant Vice President of Marketing for HCC Medical Insurance Services, a provider of international medical insurance. HCCMIS was among the first to make insurance products and services available via the Internet. He can be contacted at Bryant.

Tutterow@innfeedback.com.

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RESETTING

BY CRAIG L. ISRAELSEN

Unreasonable Expectations

If Clients are Realistic About Returns They Will be Happier and More Secure

F

or investment advisors, managing the performance expectations of clients can be more challenging than actually managing their investment portfolios. There are at least two important elements at work here: clients having reasonable expectations and portfolio performance that tends to be reasonably close to that expectation.

Oddly enough, bull market periods are one of the greatest challenges when it comes to developing “reasonable” expectations. Unusually high rates of return (for example, the U.S. equity market during the 1990s) can set expectations that are both unrealistic and unachievable over long time frames.

During the exuberant 10-year period from 1989-1998, the S&P 500 Index had an average annualized return of 19.2 percent. Unfortunately, the average 10-year rolling return of the S&P 500 Index over the 42-year period from Jan. 1, 1970, to Dec. 31, 2011 (during which there were 33 rolling 10-year returns) was 11.56 percent. The performance of U.S. stocks during the 10-year period from 1989-‘98 was quite a departure from the longerterm reality. Sadly, investor expectations of performance are quickly upwardly mobile—even when such expectations are clearly unrealistic.

Here’s the problem: high expectations lead to performance-chasing— and investors late to the game often get burned. Late comers to the tech sector boom of the 1990s got creamed in 2000, 2001 and 2002. During periods of high returns, expectations of the future can become unrealistically high. Likewise, during periods of poor stock performance 44

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(2000-‘02 or 2008) investors can become unduly pessimistic and may abandon their portfolio game plan—often at exactly the wrong time. In short, periods of boom or bust have the potential to create unrealistic expectations on both ends of the performance spectrum.

Unrealistic “up-side” expectations are hard to manage going forward, which means that clients face a high probability of being disappointed even if their portfolio delivers what would otherwise be deemed an acceptable level of performance. In other words, their portfolio is doing fine, but their expectations are messed up. On the other hand, after a messy bear market, it can be difficult for investors to remember that investments actually do produce positive returns.

Unrealistically high performance expectations on the one hand, and unrealistically low performance expectations on the other hand, both create problems.

The goal is obviously to have realistic performance expectations and build a portfolio that consistently delivers performance that is reasonably close to the expectation level.

So, what’s a reasonable expectation for an investment portfolio? As previously noted, the average 10-year rolling return of the large US stock (i.e., the S&P 500 Index) since 1970 has been 11.6 percent. Let’s use that as a reasonable return expectation. (Even if you don’t feel that figure represents a reasonable performance expectation, bear with me here).

I understand that an investment portfolio that consists solely of large cap US equity is not a diversified portfolio—more on that later.

Let’s now examine how often a 100 percent equity-based investment portfolio (the S&P 500 Index) delivers performance close to that “reasonable” rolling 10-year return of 11.6 percent. To measure this we can impose upside and downside performance bands of 500 basis points above and below the mean 10-year return of 11.6 percent (the upside and downside performance bands are shown by the red lines in Figure 1). This created an upside performance limit of 16.6 percent (11.6 percent plus 5.0 percent) and a downside performance limit of 6.6 percent (11.6 percent minus 5.0 percent).

As shown in Figure 1, an all-equity investment portfolio was outside of the 500 bps limits 39 percent of the time (13 of the 33 rolling 10-year periods). The 500 bps performance bands are shown as red lines. In other words, nearly 40 percent of the time, the all-equity investment portfolio produced returns that were significantly different from the mean 10-year rolling return. In recent years, the rolling 10-year returns have been dramatically lower than the average 10-year return of 11.6 percent. This is the type of downside performance volatility that can rattle even the most resolute investor.

Now, let’s consider the rolling 10-year performance of a multi-asset portfolio that includes seven equally-weighted portions of large cap U.S. equity, small cap U.S. equity, non-U.S. equity, real estate, commodities, U.S. bonds and U.S. cash (see Figure 2). Clearly, this represents a more diversified investment portfolio

RESETTING UNREASONABLE EXPECTATIONS | FINANCIAL

than simply investing in large U.S. stock.

A diversified investment portfolio that was rebalanced annually generated a mean 10-year rolling return of 11.3 percent, very close to the 11.6 percent mean 10-year rolling return of a 100 percent large cap U.S. equity portfolio. But, unlike the 100 percent stock portfolio, the multi-asset portfolio had dramatically more consistent 10-year rolling returns.

In only 12 percent of the periods (four of the 33 rolling 10-year periods) was the 10-year rolling return of the portfolio outside of the 500 bps bandwidth limit. Interestingly, it never exceeded the upside limit and only in recent years did it exceed the downside limit.

A well-diversified portfolio that includes both equity and fixed income assets produced returns comparable to a 100 percent equity portfolio, but with a level of consistency that was significantly better than an all-equity portfolio.

Of course, there is a trade off when building a diversified portfolio. You’ll notice that the multi-asset portfolio never had the 10-year annualized returns up near 20 percent that the 100 percent of large U.S. stock portfolio generated in the late 1990s. For some investors, “missing the upside” can be as painful as experiencing the downside. This is where investor/client education can hopefully create the right type of expectations. When building a diversified, multi-asset portfolio for a client it is vital that the advisor inform the client that the performance benchmark for their “multi-asset” portfolio is NOT the S&P 500 Index—in spite of the fact that the S&P 500 Index is widely reported and often cited as the “stock market” return.

The S&P 500 Index is a perfectly acceptable index for a client that has a 100 percent large U.S. stock portfolio. But, if the client’s portfolio includes U.S. stock, non-U.S. stock, bonds, real estate, cash, and other diversifying assets it is crucial that an appropriate performance benchmark be identified and communicated to the client. Failure to do so creates a situation where performance expectations become misaligned because the performance index being used by the client is not comparable to the asset allocation of

their actual portfolio.

An example of a performance benchmark for a diversified investment portfolio is the 7Twelve portfolio (www.7TwelvePortfolio.com). Advisors must identify performance benchmarks that are congruent with the portfolios they are building for clients.

To summarize, having a multi-asset investment strategy and the courage to stick with it during up and down markets is a characteristic of successful investors. Long-term investors learn that portfolios ultimately regress to their mean, particularly as the investment holding period lengthens. For equity portfolios that mean return is somewhere around 10 percent (that is, for periods of 20+ years). But, as we have seen, a 100 percent equity portfolio can experience significant performance variation above and below its mean return over shorter time frames such as 10-year rolling periods. It

is precisely that variation that can lead otherwise logical investors to behave badly, such as selling at lows and buying at highs. Conversely, investment portfolios that utilize broad diversification generate returns that are far more stable, and thus consistently closer to the expected mean return.

When investor expectations are reasonable, when appropriate benchmark indexes have been selected, and when portfolio performance is less volatile because of broad diversification, the advisor-client relationship can be much more enjoyable and fruitful.

Craig L. Israelsen, Ph.D., teaches Family Finance at Brigham Young University to more than 1,000 students each year. He is the author of the book 7Twelve: A Diversified Investment Portfolio with a Plan. Find out more about Craig’s program at www.7TwelvePortfolio.com or email Craig.Israelsen@innfeedback.com.

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A

fter four difficult years in the stock market, most people working with a financial advisor have a pretty good idea if their advisors are any good. Lots aren’t making the grade.

There’s opportunity there.

Wait a second! I’m insurance, not stocks. That’s someone else’s problem.

Maybe, but it’s your opportunity. Let’s assume your prospect has assets. It’s highly likely their investments include stock and related investments in addition to insurance. In their mind, it’s the stock market causing the anxiety. What other investment gets priced every day? Have you noticed the stock market doesn’t do up or down? No, it soars and plunges. No wonder they are worried.

Here are three conversations to have with friends in specific scenarios.

The Close Friend and the Risk to Friendship You’ve known someone forever. They invest in the stock market and have the potential to be a great client. Why haven’t either of you approached the other? Often it’s the perceived risk to friendship. If something goes wrong, you lost a friend in addition to money. If you’re unsure about asking, remember—“Everyone should have the opportunity to say no.”

Don’t make the decision for them.

It’s a three-part approach: 1) “You know where I work and what I do. I’ve never approached you about business because our friendship is very important to me. I’ve never wanted to put it at risk.” Stop talking. You’ve made the risk to friendship the reason for the 46

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conversation. If they are uncomfortable you’ve given them a way out. At any time they can say, “I don’t want to do business with friends either.” Because they have an out they will probably let you move to the second part.

2) “Besides, I’ve always assumed you work with someone else already. They probably give you great service and take good care of you. Most successful people have that kind of relationship with their advisor.” You’ve stated the obvious. They work with someone already. You’ve also said “successful people are an important client to their advisor.” Most people identify with the word successful. They might start to question “Am I an important client?” It’s possible they will say: “I’ve never met my advisor, what can you do for me?”

That would be great. It’s more likely they will just let you continue.

3) “It’s been a difficult four and a quarter years in the stock market (go back to October 2007 and count forward). You may know some people who haven’t been as lucky as you. I thought we might spend a few minutes talking about ‘What it is that I do.’ So when you come across some of those folks you will know how I may be able to help them.” You have asked for permission in a non-threatening third party way to explain “what you do.” You can align your response to their situation.

They will learn how you can help them or someone in a similar situation.

The Friend Who is Well Connected Your friend isn’t wealthy but they travel in the right circles. This could mean in-laws,

the club circle or volunteer activities.

They are a “go to” person. Let’s assume you have the ability to offer separately managed accounts or managed money as one of your investment alternatives. Let’s make two other assumptions: referrals often involve fresh money and it’s human nature to complain about your problems.

Approach your well connected friend and ask either of two questions: “Who do you know that uses professional money management and is dissatisfied with the relationship? I would be interested in talking with them.” Or...

“Who do you know that uses professional money management and is dissatisfied with performance relative to the market? I would be interested in talking with them.”

In each statement you’ve done three things: In the beginning you prequalified with professional money management. If they use it they know what it is.

If not, they will ask.

In the middle of the first statement you asked about “the relationship.” This is vague. They might interpret it as high fees, level of contact, service, etc.

In the second you asked about “performance relative to the market”. The last four words are important. If the market is doing badly it’s unrealistic to assume you will be unharmed. Here you brought up performance.

The closing statement is the most important. You didn’t say you could do any better. It’s very low key. They might say: “I’m unhappy. What can you do for me?” It’s more likely they will say “food for thought.”

THREE MUST-HAVE CONVERSATIONS WITH PEOPLE YOU KNOW | BUSINESS

Now you have changed the referral dynamic. They aren’t looking for elusive “fresh money.” They are looking for someone with a problem, who complains their broker never calls or performance stinks. It’s easy for your friend to say: “You should really call my friend Steve. He’s with (firm). I bet he would return your call.” It’s human nature to want to help someone with a problem.

They don’t feel they are going out on a limb either.

The Friend Doing Business with a Competitor You have brought up business before.

They’ve told you they have a financial advisor at a major wirehouse firm. They also explained they are “in this program” where one or more money managers make the day-to-day decisions and they get the trade slips in the mail.

When a financial advisor approaches a professional investor, the person choosing money managers for a college endowment for example, they ask several professional

questions such as these: “When do you review the performance of the money managers you use within the endowment?” And “are you open to presentations about other money managers at that time?” Use the same questions with your friend. The conversation might sound something like this: “Steve, I know you use professional money management at (firm.) You’ve told me. We offer professional money management at my firm. We are competitively priced. We have good performance figures.”

Now ask the two “professional questions”: “When do you review the performance of the money managers you’re using at (firm)? Are you open to presentations about outside money managers at that time?” In plain English you’ve asked: “When do you get your next quarterly review? Can I see you a day or two beforehand?” You do.

You are “top of mind” when your friend gets their review. The review

often includes rebalancing and reallocating. Money is in motion. If they aren’t happy with past results they can use the sell recommendations as a way to raise money to send to you. You have your foot in the door.

Why should this work with your friends? It’s likely they are business owners, professionals or middle managers. They frequently review contracts with service providers to determine if they will stay with the same overnight mail company or switch to another.

You are speaking the same language when you say: “review performance” or “review the relationship.”

These conversations are low-key and non-confrontational. Everyone should have the opportunity to say no. Give them that opportunity.

Bryce Sanders is president of Perceptive Business Solutions Inc. His book, Captivating the Wealthy Investor, can be found on Amazon. com. You can email him at Bryce.Sanders@innfeedback.com.

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PERSPECTIVES | WITH LARRY BARTON

Insurance Industry Must Fight for Relevance An interview with Larry Barton, president of the American College American College President Larry Barton is known for his straight talk from his perch as the head of insurance’s leading educational institution. He was in top form when he spoke at his college’s online town hall earlier this year, where he said he was very concerned about the industry and companies in particular. In a discussion with InsuranceNewsNet, he discussed what is concerning him about the industry and how independent insurance producers can thrive in today’s economy.

INN: In your town hall presentation, you seemed to have some concern about companies. Why is that?

BARTON: I think our country is in

the middle of a colossal failure when it comes to protecting financial literacy, and specifically building financial strength for the future when it comes to products. The reason is, obviously, that you have broken social security systems. You have Medicare, which is extremely complicated for the average consumer. The good news is that roughly a quarter of all working people are still covered by a traditional DB (defined benefit plans). And you have about three-quarters of workers that are involved with some type of 401K or 403B. So you have some people that are in moderately good shape. But we know we have tens of millions of people at high risk because their primary source of income is Social Security.

I’ve never worried, nor do I think any sane person should worry, about the ultra-affluent. They have the tax advisors, the products, the structures and the tax shelters to help them. And, most important of all, they are diversified. I’m more concerned about the middle and lower class where the products are often priced at a point that is difficult to attain.

We’re in the middle of this very serious quagmire where a couple of interesting things are going on.

First, the actual cost of product has come down when it comes to life products, which is something that the industry has done a lousy job of advertising.

A term policy is somewhere between 30 and 50 percent cheaper than it was 10 years ago. Cheaper!

Secondly, there are huge exceptions, but the industry could be far more aggressive in talking about the benefits of whole life. We have somehow become

out there just once a year—there should be a yearlong massive effort to say to the country that there are life and annuity products that can help you. Because if you rely upon the government to take care of you in your golden years, they will not be golden but copper, and you’re going to be lucky to get copper.

INN: How do insurance companies fit into the new economy?

BARTON: Our country is deeply depen-

dent upon the health and well-being of our insurance companies. If you really look at what happened since 2008—the banks, the Lehman Brothers, hedge funds—there’s been a hemorrhage of capital and of good will. People don’t trust a lot of these big institutions—that was not true of the insurance companies. They are highly capitalized; they’re strong.

“Our country is deeply dependent upon the health and well-being of our insurance companies.”

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intimidated, maybe by legislative pressure, to not talk about the benefits of taxfree buildup. But the benefits of tax-free buildup largely benefit the middle class and the people at risk. We should rally around and celebrate the fact that they can access that money, that it does grow over time and that it is forced savings.

We have one month a year now called Life Insurance Awareness Month, and they do a pretty good job, but it’s only one month of the year. This is not the Jerry Lewis Telethon. We shouldn’t be

INN: So, why are you concerned about life insurance companies?

BARTON: The low interest rate envi-

ronment is paralyzing the opportunity for the insurance companies to invest in the future. And at a point where companies made guarantees of 3, 4, 5, 6 percent on fixed annuities,

INSURANCE INDUSTRY MUST FIGHT FOR RELEVANCE | PERSPECTIVES they did so because of strong historical records of sound investment. But no one anticipated a Fed that would freeze rates effectively close to zero for potentially three years. Now, will these companies be able to continue to pay annuities? I guess they will. But they will have to be ultra conservative in being able to offer anything meaningful in terms of opportunity for a generation that’s already at risk.

INN: What do producers do at this point?

BARTON: I think a smart advisor

today is going to open the kimono and they’re going to be willing to talk about the options available to the client. Because so many for so many years were selling basically one or two ponies, they were not versatile in looking at some of the other products that are out there.

INN: Does that mean that insurance producers need to get a securities license?

BARTON: It may mean that they

should consider it, even merely to hedge their career and to have opportunities in the future. I don’t think it should be mandated to have a securities license but if insurance agents want to move into that, it would be a wonderful time to start looking at it. Ultimately, there will be fewer companies in the insurance space. We are seeing a shrinkage and consolidation that is only going to accelerate. You have companies that are pulling out of the United States, and you have others that are doubling down on the United States. And that’s why if you have bet the farm on basically one or two products, you’re missing out on an incredible opportunity to help that client.

INN: Do you think the typical insurance producer is aware of the consolidation dynamic s that you described?

BARTON: I’m astounded at how lit-

tle people read. Yesterday, I spoke to a company at its annual meeting, and I

asked this question, “How many people in this room read The Wall Street Journal this past week?” And maybe it’s 10 percent. Shame on those insurance agents. Because you know who’s reading The Wall Street Journal? Their clients.

Those agents a re out of touch because they’re getting inundated by the chief marketing officer pumping them up with the newest product and sales numbers but they’re not looking at the news. They’re not paying attention to the Fed. They don’t even capture at all what’s going on in Business Week or Fortune. And if you’re not looking at InsuranceNewsNet, how can you be relevant? You’re not going to be relevant if you’re not reading this stuff.

BUT WAIT, THERE’S MORE! Go to insurancenewsnet. com/LB to read the rest of this engaging interview.

If you have comments for Larry, he can be reached at Larry.Barton@innfeedback.com.

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April 2012

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MDRT INSIGHTS | BY TOM HENSKE

Variable Annuities: Power ‘Clubs’ Score Hole-In-One Financial Plans Lifetime Guarantee

T

he score of a golf game isn’t necessarily affected by the type of club that’s used—but rather by how the player swings it. The same can be said about developing a client’s portfolio. Let’s consider a variable annuity as the “club.” There are many parts needed to ensure a hole-in-one financial plan, and an annuity is just one small part.

Three Suitability Factors

a factor, as each investor has a varying level of apprehension.

If you determine a prospect to be an ideal candidate for an annuity product, start the conversation by describing the worst case scenario—give the guarantee as an example. You can illustrate this by saying, “Mr. Client, when you’re 65, if your company could provide you with X amount of income—guaranteed for life— would this be something you would be interested in discussing?” They’ll likely chuckle and say, “Umm… yes!”

Today, the human body has the capacity to live well past 100, which is concerning to many of our clients. The longer a person lives, the more resources they will need, which increases the likelihood they’ll run out of money. No one aspires to run out of income, but annuities with guaranteed lifetime payouts, guard against this longevity risk. When the stock market took a drastic decline in 2008 and 2009, it was because people were selling. It is very difficult to talk a person “off the ledge” when they see the value of their portfolio cut in half. Few who held variable annuities with guarantees sold out of the market, and people with guaranteed riders got the benefit of the market rebound—which is important to tell your skeptical clients.

There are no other products that give you the upside of market participation, downside protection and a favorable tax treatment for a relatively small investment.

The three most important factors when Protection evaluating a client’s suitability for an Variable annuities allow investors who annuity product are their age, health tend to be risk-averse to be more aggresand risk tolerance. Older clients may Worth the Risk sive in their asset allocation. For example, find variable annuities to be an appropri- As advisors, we know a variable annu- if an investor without an annuity typically ate tool to achieve their retirement goals ity is not an inexpensive proposition, but felt comfortable with an investment portbecause of the assurance many of them the cost is only relevant in the absence folio with 60 percent in equities and 40 offer. For example, a 65-year-old can be of value. Your client has to be concerned percent in fixed income, they might be invested in a balanced portfolio which about outliving their resources and invest- willing to increase equity exposure if it guarantees a 5 percent ing in equities. The price resided inside of a variable annuity with “An annuity is not for effective annuity prod- a guarantee rider. The long-term benewithdrawal rate for life. an inexpensive This is justified by paying ucts are worth the risk mit- fits of this strategy could be significant proposition, but 3 percent in annual cost. igation they provide. For over an extended period of time, allowing The same 3 percent, example, for a 3 percent their retirement nest egg to last longer. the cost is only however, does not make annual fee, one insurance relevant in the sense for a 35-year-old to absence of value.” company offers a variable Tom Henske, ChFC, CLU, CLTC, CFS, is the founder of incur because they’ll have annuity product guaran- Henske Advisors. He is now one many more years in the market. Annui- teeing the initial value invested will at of seven partners nationwide for ties generally work best the longer you least double in 20 years (3.6 percent rate of Lenox Advisors, a wholly owned subsidiary of NFP. He is a 10live, based on either annuitization or return). Should the market perform well, year member of the Million Dola specific, guaranteed payout percent- the annual rate of return will still depend lar Round Table (MDRT) and has age for life. This is why annuities do not on the portfolio performance, but the net two Court of the Table qualifications. He can be reached at Tom.Henske@innfeedback.com. make sense if you believe the client’s has to be higher than 3.6 percent. life expectancy will be shortened for any health reason. Risk tolerance is also The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.

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LIMRA INSIGHTS | BY JENNIFER L. DOUGLAS

Mid-Life (Insurance Industry) Crisis?

I

have a confession to make. I am having a mid-life crisis. While I saw it coming, I am somewhat surprised by my not-so-graceful entrance into middle-age (undoubtedly, made worse by my son’s eighth grade graduation). Call it what you may, but I have this undeniable urge to discover what lies ahead for me —to redefine and reinvent—and essentially, to change myself. This is unnerving for me, as I hate change.

All of this got me thinking... is the life insurance industry facing a mid-life crisis of its own?

Consider the fact that life insurance ownership is at a record low—30 percent of U.S. households are uninsured (chart). LIMRA’s research indicates that—despite the efforts of insurers— the industry has not been able to penetrate the middle market. And, many of the most traditional products and marketing tactics aren’t attracting consumers’ attention.

Thinking about my own situation, I realized that I basically needed to get over myself—accept reality and stop wishing for what was—or what should be. Perhaps this also applies to the life insurance industry. We have been content to maintain the status quo, tweaking existing products and relying solely on a shrinking distribution model that isn’t reaching the majority of middle America.

For the better part of my career, I have studied long-term care insurance (LTCi) trends. I have to admit, it has been disheartening to see a product line that, I believe, is critical to protecting the financial security of an aging population fail to gain traction in the market. Most consumers don’t understand LTCi and how it protects them in the event that they are unable to take care of themselves. Even when they do, many don’t want to pay for a product they desperately hope to never need. In fact, just over seven million Americans have LTCi protection today—while 12 million people, over 52

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the age of 65 alone, are estimated to need long-term care by 2020.

LTC insurers have had to rethink their products and how they distribute them. LIMRA’s research found that some consumers were far more interested in purchasing a life insurance or annuity product with LTC protection so if they didn’t need LTC, they or their beneficiaries would still benefit from the insurance. In recent years, insurers have introduced hybrid products, that offer LTCi with a life insurance or annuity policy. And, in 2010, hybrid products recorded a 63 percent increase in sales. Admittedly, it is a small market; but it shows that developing products that resonate with consumers will be more successful than developing products that the industry wants to sell.

The LTCi industry has had to be innovative with distribution as well. One of the many admirable and refreshing things about this industry is its view of the market—the entire market. LTC insurers seem much less concerned with, and restrained by, the individual and group product/market distinctions. We’re starting to see glimpses of this elsewhere as some major carriers have reorganized to move away from group and individual silos and adopting a more holistic approach. Is this a tactic that the greater life insurance industry

should consider?

The reality is insurers need to set aside organizational, product and distribution constraints in order to explore what today’s consumers want to purchase—when, where and how they want to engage.

LIMRA’s research shows that the need has never been greater for life insurance and other risk products. Half of U.S. households say they need more life insurance—and those are just the people who understand the risk they face without it. With financial literacy at an all-time low, I imagine it may be far greater. Sweeping change is a daunting consideration. It’s much easier to carry on with the tried and true; but without innovation, it is unlikely we will see true growth and even more unlikely that we will be able to connect with and satisfy the needs of the middle-market. If the insurance industry is indeed going to enter a “change of life,” the ultimate goal must be to change more lives for the better.

Jennifer L. Douglas, M.S., associate research director for LIMRA’s LTC & developmental research, oversees LIMRA’s LTC Research program, as well as marketing studies on longterm care topics of interest. She can be reached at Jennifer.Douglas@ innfeedback.com.

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

ASK THE

ADVANCED SALES DOCTOR Q:

Sometimes I think I may be too quick to judge prospects based on past experiences – good and bad, and it just struck me that prospects probably do the same when they meet me. What do you suggest I do to keep a more open mind and to try to overcome this in my prospect’s mind, too?

Rx:

Throughout our lifetime we are exposed to myriads of experiences and register an endless number of impressions and bits of information about the behavior of people. Some of that knowledge is further processed by our conscious and unconscious mind and then it is stored.

So, it is not surprising that when you meet a new prospect you will use this knowledge to appraise him or her—to get a “feel” for them. When you meet someone new, you will inevitably make some conscious observations and deductions about them, but much of the impression is given to you by your “intuition.”

Don’t think of intuition as some kind of psychic experience.

It is more like an impression or emotion generated by your subconscious, based upon similar prior experiences with situations or people. It is valuable information—don’t dismiss it, make use of it.

Q:

I’m definitely an analytical person. I usually make decisions based on data but I keep hearing that people make decisions emotionally. Do you think being analytic puts me at a disadvantage selling insurance?

The more we learn about the way the brain works, the more it becomes apparent that all decisions are made emotionally. This doesn’t mean that decision-making is accompanied by paroxysms of emotions.

It simply means that some of the more primitive parts of the brain that are involved in processing emotions appear to have the final say when people make decisions. This is no accident. Our lives are governed more by our emotions than by reason. The brain synthesizes all available information, including current input and previous life experiences relevant to the issue at hand—before deciding on a course of action.

Rx:

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InsuranceNewsNet Magazine

April 2012

So your “rational” arguments don’t go totally wasted. Having said that, you might want to learn about what catches the attention of the “emotional brain.” Then, in light of this information, review how you sell. After all, buying life insurance is a largely emotional decision.

Q:

I know insurance is important, but it’s hard for me to get pumped up about. My GA says once I pay my first death claim I’ll understand just how important it is, but after 12 years I haven’t yet delivered a death claim. If I sold the cure for cancer I’d run up and down the street and tell everyone. How can I become that passionate about insurance without waiting for someone to die?

Both you and your GA are right! Delivering a death or disability claim is a powerful emotional experience that has made believers of many agents. Having a firsthand experience with the enormity of the impact you have on people’s lives never fails to make an impact.

But, as you said, this kind of validation of the importance of what you do often takes years to come and it is hard to feel passionate about what you do when you receive no reinforcement to validate you. It is like trying to train a dog by using a treat to make him follow your command. You tell him to sit, but then you wait ten years to give him the reward.

Fortunately, you may receive the same validation by sharing vicariously in the experience of other agents that have delivered death claims or had some other experience that helped them emotionally connect with the significance of the work you do as agents.

Most transforming experiences in life have their origins in vicarious experiences and you will find that hearing other agents’ stories could make a great impact on you, as well.

Rx:

Need a prescription for success?

Send your sales psychology questions to:

SalesDoctor@innfeedback.com

Advertiser Index

For more details on an advertiser, use the contact information below or visit www.InsuranceNewsNetMagazine.com/spotlight

Advertiser Website

Phone Page

123College.com, Inc.

www.123college.com

888-737-4123

6

American College

www.theamericancollege.edu/RICP

888-263-7265

55

Accelemark

www.scientificseminars.com

877-936-0044

49

American Equity

www.american-equity.com

888-647-1371

5

American General

www.estation.americangeneral.com

800-677-3311

23

American National Insurance Company

www.img.anicoweb.com

888-501-4043 opt. 1

Aviva

www.avivausa.com/joinaviva

800-800-9882

Brokers Alliance

www.advisorshaveitall.com

800-290-7226 ext.147

Brookstone Capital Management

www.brookstonecm.com

866-425-3003

25

Eugene Cohen Insurance Agency, Inc.

www.cohenagency.com

800-333-4340

9

Fairlane Financial

www.888fairlane.com/2400

800-327-1460 33

Financial Independence Group

www.figmarketing.com

800-527-1155

Gameplan Financial

www.gameplanfinancial.com

866-255-8064

13

Gradient Financial Group

www.gradientib.com

800-407-4137

Back Cover

Insurance Mavericks

www.freepostcardbook.com

800-393-2054

53

Kansas City Life

www.kclife.com

800-258-4525 ext. 8120

Levinson and Associates

www.yourfreecollegescholarship.com

800-375-2279

LIFE Foundation

www.lifehappens.org/resources

888-543-3777

51

Life Sales, LLC

lifesales.webex.com

877-886-6906

Inside Back Cover

M&O Marketing

www.ira-errors.com

800-228-5964

47

NAIFA

www.naifa.org/itpays

877-866-2432

Inside Front Cover

Netquote

www.netquote.com/feb15

877-415-5153

4

Ohlson Group

www.ohlsongroup.com

877-844-0900

15

Petersen International Underwriters

www.piu.org

800-345-8816

27

Prudential

www.prudential.com/lifesolutions

800-292-0054

3

Wealth Financial Group

www.wfgnetwork.com/INN

888.333.7771

17

29 30-31 1

39

7 43

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7,000 Americans reaching retirement age every day for the next 17 years.

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off-the-wall sales stories

56

InsuranceNewsNet Magazine

April 2012

Puzzled by inconsistent sales results?

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For financial professional use only – not for use with the general public

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