InsuranceNewsNet Magazine - March 2012

Life

Annuities

Health

March 2012

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MARCH 2012 • VOLUME 5, NUMBER 3

Scan this QR code with any QR code reader on your smart phone

CONTENTS

View and share articles from this month’s issue

36

ANNUITIES 36 A nnuity Anxiety

20 INFRONT

20 A merican Injustice

8W hy Multi-Channel Marketing Could Help Life Agents

By Linda Koco If you’re shrugging off the use of web, mobile devices, social media, call centers and other channels to reach customers, LIMRA’s research suggests that you might want to reconsider.

By Steven A. Morelli This exclusive investigative report reveals the untold story behind why an advisor is now facing up to four years in prison for selling an annuity.

30

10

FEATURES An interview with Dan Sullivan Sullivan explains why you can’t do really great things without breaking free from what you’re currently doing and start thinking bigger—10x bigger.

2

InsuranceNewsNet Magazine

March 2012

40 A nnuities cure asset Loss From health expenses

By Ron Mastrogiovanni Use annuities to create clients concrete financial plans that provide an income stream that withstands all medical costs throughout retirement.

44

LIFE

HEALTH

30 F ive Elements Every Sales

44 T he High Wire Act of High-

System Must Have

10 1 0x Growth Formula

By Chris J. Brown and Laura H. Varas Research shows that your clients’ lack of faith in annuity products and carriers are making them uneasy with this investment option.

By Cory Carlton Don’t sell life insurance as if you were selling a commodity—you must develop a systematic way to continuously find prospects and help them hit their goals.

Net-Worth DI Claims

By Vivian Gallo Learn how to successfully sell DI to high-income clients in a way that helps prevent the dreaded outcome of a claim being denied.

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FOR THE EDUCATION OF PRODUCERS/BROKERS. NOT FOR USE WITH THE PUBLIC. Prudential, the Prudential logo, and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities. © 2011 Prudential Financial, Inc. and its related entities.

0208076-00001-00

CONTENTS MARCH 2012 • VOLUME 5, NUMBER 3

VIEW ONLINE LEADS DIFFERENTLY

FINANCIAL 48 T he Power of the Mastermind

By Irving Katz Mastermind groups are a way to find qualified prospects that match your ideal client that you’d like to clone—without breaking the bank.

INSIGHTS 50 M DRT: Cultivate Critical Self-Management Habits With “My 3 M’s”

By Randy L. Scritchfield Time management is more about a plan of execution, than it is about actual time—so use a system to help measure weekly, monitor monthly and manage quarterly.

52 L IMRA: Five Steps that Get More Consumers to Decide to Buy

By Cheryl Retzloff Fifty-four percent of recent life insurance buyers were firsttime buyers and those over 44 were more likely than younger buyers to be new clients—so, why the shift?

53 N AILBA: Personal Relationships Play a Powerful Part in Closing Big Cases

By Dexter Umekubo Using each and every personal relationship you have in place can help close big cases that even your toughest competition is trying to take.

EVERY ISSUE 6 Editor’s Letter 18 NewsWires 28 LifeWires

34 AnnuityWires 42 HealthWires 55 Advertiser Index

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

First-rate customer service More consumers ready to buy NOW Unique fraud-detection engine

DISCOVER:

INSURANCENEWSNET.COM, INC. 355 North 21st Street, Suite 211, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 www.InsuranceNewsNet.com

VICE PRESIDENT OF MARKETING Peter A. Winer

EDITOR-IN-CHIEF Steven A. Morelli

TECHNOLOGY DIRECTOR Joaquin Tuazon

VICE PRESIDENT OF BUSINESS Mark E. Waters DEVELOPMENT

PUBLISHER Paul Feldman CHIEF OPERATIONS OFFICER Jim Barton CREATIVE DIRECTOR Jake Haas PRODUCTION EDITOR Natasha Clague

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ASSISTANT EDITOR Ann Gallina

MARKETING COORDINATOR Christina Brindamour

REGIONAL ACCOUNT MANAGER Brian Henderson (SOUTHEAST)

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REGIONAL ACCOUNT MANAGER Rob Holdaway (WEST)

Copyright 2012 InsuranceNewsNet.com. All rights reserved. Reproduction or use, without permission, of editorial or graphic content in any manner is strictly prohibited. How to Reach Us: You may e-mail editor@insurancenewsnet.com, send your letter to 355 North 21st Street, Suite 211, Camp Hill, PA 17011, Fax at 866-381-8630, or call 866-707-6786. Reprints: Copyright permission can be obtained through InsuranceNewsNet at 866-707-6786, Ext. 115 or reprints@insurancenewsnet.com.

Editorial Inquiries: You may e-mail editor@insurancenewsnet.com or call 866-707-6786 ext. 117. Advertising Inquiries: To access InsuranceNewsNet Magazine’s online media kit, go to www.insurancenewsnetmagazine.com, or call 866-707-6786, Ext. 115 for a sales representative. Postmaster: Send address changes to InsuranceNewsNet Magazine, 355 N. 21st Street, Suite 211, Camp Hill, PA 17011. Please allow four weeks for completion of changes.

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

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Here is a key point that stuck with me from the various gurus and wisdom of the ages: success is not a destination, it is a gate opened to the next opportunity for more important work.

That particularly resonates this month because this is our fourth anniversary issue. We are proud of what we have accomplished since this magazine started in March 2008. Heck, these days it is a sterling achievement just to stay alive when you consider how many magazines have folded—even in our industry.

Mere survival, however, is not enough.

We want to inform you about the latest news from across the spectrum of the life insurance, annuity and health insurance industry. But we also want to take it one step further—we want to delight you. OK, delight is a word full of rainbows and puppies—and if you get that from our magazine, that’s a beautiful thing. What we are looking to do is earn your eager anticipation each month. If you are not ripping open this magazine when it arrives in your office or home, then we are not doing our job.

(In that case, please send me an email on what you would like to see—smorelli@ insurancenewsnet.com.)

We have earned accolades for our work from awards, but we feel even more rewarded by the many encouraging words we get from our readers. We’re human and we bask in that for a bit, but we know that the acknowledgments set the bar a little higher. That means: fresher and more vibrant design, such as this month’s cover; new features, such as the financial section that we started in January; and even more significant articles, such as this month’s feature.

Our main feature this month, “American Injustice,” is an example of the important work we’re here to do. The Glenn Neasham case is a frightening

instance when somebody who appears to have done all the right things and gets punished for it. Neasham is an annuity producer, or he used to be—now his business is trying to appeal his conviction.

He was found guilty of theft from an elder, a felony with a maximum penalty of four years of prison. His crime was selling an annuity to an 83-year-old, which is legal in his home state of California. This is not a clear case of a producer gone wild. In fact, at the time of the trial, the client still had the annuity, earned more than $40,000 on it and had not taken out the 10 percent penalty-free withdrawal she was entitled to.

We would be among the first to say that when insurance and annuity producers are punished for bad behavior, that helps preserve confidence in the system. But when lawful behavior leads to punishment, that destroys faith.

We were surprised by this case and we suspect you will be, too. We want to surprise you each month, not just with the latest market intelligence and sales ideas, but with the real stories out there. We consider that our opportunity and you can consider that our promise.

The magazine you are reading was four years in the making. Every month, we learn and we grow. This magazine next month, next year and in four years will not be the same as this one—you can count on that. Come along, it will be a fun ride.

Steven A. Morelli Editor-in-Chief

in Front

Timely issues that matter to you.

BY

Linda Koco

Why Multi-Channel Marketing Could Help Life Agents

L

ife insurance advisors who are shrugging off the use of web, mobile devices, social media, call centers and other channels to reach customers might want to reconsider.

LIMRA says it has new research that shows how using all of those channels actually helps agents and advisors engage customers, identify qualified leads and close sales.

That notion may ruffle some feathers in advisor circles, however, where much of the attention in recent years has been on cultivating customer relationships via seminars, community involvement and selling systems.

But LIMRA researcher Sean O’Donnell says multi-channel marketing is not a replacement for existing means of customer involvement for the agent. He says it is a marketing concept, not a sales concept, and that it can be an advisor’s ally in delivering insurance and financial services.

It won’t replace what the advisor does nor will it replace the advisor, stresses the director of member relations for LIMRA. Rather, it can extend the advisor’s reach.

To illustrate, he points to the research LIMRA has completed with auto insurance shoppers. All shoppers reported having used multiple channels as part of their shopping experience. The channels included company websites, general web searching, contacts with friends and family as well as toll-free phone numbers—in addition to calls to local agents and meetings with local agents.

As one might expect, the use of channels differed by the shopper’s generation. The younger generations (X and Y) did more shopping via websites, general search and friends/family than did boomers and their elders (the silent generation), both of which tended to shop more by using a local agent. For instance, 27 percent of Gen-Y said they shopped on 8

InsuranceNewsNet Magazine

March 2012

websites, 26 percent via search, and 37 percent via friends and family, and Gen-X was somewhat close to that, at 20 percent, 18 percent and 28 percent, respectively.

Meanwhile, 42 percent of silents said they met with an agent as did 35 percent of boomers; and 35 percent of silents said they called an agent as did 24 percent of boomers.

But when it came time to make a purchase, the picture changed dramatically.

By far, the largest percentage of all shoppers—50 percent—said that they met with an agent to make the purchase. That compares to just 11 percent who said they bought on a website and only 1 percent who said they bought by responding to a mailing.

The figures show that consumers are definitely using multiple channels to research and to shop. But the figures also show that when it comes time to buying insurance, “the agent channel still plays a critical role,” O’Donnell says.

The conclusion he draws is that multichannel marketing can provide advisors with multiple points of contact with customers and prospects. Because people tend to use channels based on their preferences and needs, he adds, the multichannel approach will enable agents to serve consumers in the way they want to be served.

“That doesn’t take business away from the agent. It lifts the business up, and extends the reach of the sales channel and makes it more efficient.”

If a customer calls or emails asking to make a routine policy change, for instance, the agency can direct the customer to the call center for assistance. “Do you need an agent to do that?” O’Donnell asks quizzically. This call center referral should help free up the agent to spend more time with customers who want to buy insurance or review coverage, he says, noting these would be qualified buyers.

“You do need an agent for that,” he adds.

It’s important for life agents and companies to find ways to leverage the various channels, the researcher stresses, because consumers everywhere are already using multiple channels to research and buy other products, such as food, furniture, clothes and toys. Those other multichannel shopping experiences affect expectations for shopping in all industries, including insurance, he continues.

“If I can buy a pair of jeans on my credit card and have the company ship the jeans to my house, I will come to expect something similar when I buy life insurance.”

Some ideas for leveraging multi-channel follow. But first, there’s a nagging point about those research findings that needs attention.

You see, an astute life insurance advisor might have noticed that: 1) the study is about auto insurance purchases, not life insurance; and 2) the life insurance sale can be much more involved than that for auto insurance. The advisor might then surmise that the auto insurance buyer findings are not applicable to life instance sales.

That very astute advisor would be correct on the first two points, of course. But O’Donnell says the auto insurance findings do carry over to life insurance. Virtually every industry is looking for ways to leverage the multi-channel trend, he explains.

Where life insurance is concerned, O’Donnell points out that the need for the coverage has never been greater.

For instance, 50 percent of life insurance owners said they needed more life insurance in 2010, up from 39 percent in 1998, according to LIMRA research.

Meanwhile, life insurance ownership has never been lower, and the industry has fewer advisors today than in years past.

So, O’Donnell continues, now more than ever, the industry needs to find ways to

Do MEDICAL “extend the reach of the existing distribution system as well as to add more agents.”

Multi-channel marketing is one of the ways he recommends.

Here are a few of his suggestions for doing that: • Although meeting people at the local Rotary Club or similar group is a traditional method that life agents have used to make connections, today’s advisors should consider how many people are in those groups. “If the market is meeting on LinkedIn or Facebook, that’s where you need to be.”

• Recognize that younger and less tenured reps are going to do business in a multi-channel environment. In fact, O’Donnell says, a LIMRA survey found that these reps are more likely to disagree with the statement that, ‘My company’s efforts to build online sales and services capabilities will hurt my business.’” These reps want and will use these capabilities, so foster that.

• Remember that people don’t want to do business with people they don’t know. In today’s marketplace, they will check you out electronically first and then decide. So think web.

• Advisors who do not have the time or ability to come up with ways to leverage multiple channels can always consult other resources—such as specialists in multi-channel engagement or perhaps their professional associations—for assistance.

LIMRA research shows that meeting with an agent is still important to insurance customers. In fact, in one study, consumers said they value agents especially for listening and understanding their needs, providing education and being knowledgeable. Multi-channel marketing can help bring those buyers and sellers together, says O’Donnell. “It’s about blending the efficiency of electronic tools and media with the effectiveness of faceto-face meetings.”

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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InsuranceNewsNet Magazine 9 Only the insurance company can accept or deny an applicationMarch after a 2012 formal underwriting process.

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10

InsuranceNewsNet Magazine

March 2012

10X GROWTH FORMULA | FEATURE

IF

you have been trying to break out of a sales slump and failing, Dan Sullivan has news for you: stop thinking you’re just an insurance agent and think bigger… 10 times bigger!

As founder of the Strategic Coach Program, “the 10x school for entrepreneurs,” Sullivan has been making that his mission—to help others see themselves as entrepreneurs instead of salespeople. Some are naturally entrepreneurial and just need to set themselves up to launch to greatness. Others are hard workers and need a system for leverage. But Sullivan’s point is that everyone can achieve phenomenal success—not just doubling or tripling numbers, but boosting sales 10 times. Now that doesn’t mean tinkering with what you are doing—that requires a whole new perspective.

Sullivan has been coaching life insurance producers for more than 35 years, taking good or even great salespeople and helping them propel themselves to a new level of success beyond their wildest dreams. He is author of more than 30 publications, including The Great Crossover, The 21st Century Agent, Creative Destruction as well as How The Best Get Better. He also co-authored The Laws of Lifetime Growth and The Advisor Century.

In a conversation with InsuranceNewsNet Publisher Paul Feldman, Sullivan didn’t pull any punches. They had some frank discussion on what insurance companies and producers are doing wrong. More importantly, Sullivan explains how producers can’t do great things unless they break free of what they are doing—and what they’re thinking.

FELDMAN: I think we both agree with the fact that life insurance producers are an amazing breed of entrepreneurs. Why do you think that is so?

SULLIVAN: Oh yes, I do! The remarkable thing about insurance agents is that they’re selling an intangible. And they’re selling an intangible that nobody wants to talk about. The fact that they can make extraordinary sales, it’s almost like you take a sales ability in another industry and you have to square it for the insurance agents just because of the very nature of the sale that they’re making.

By the very nature of the questionasking process that life insurance agents conduct with their clients, it deals with an incredible number of areas that often people really don’t want to talk about, or they don’t even want to think about.

Among all the entrepreneurs I have— and we have entrepreneurs from 60 different industries—I stand in awe of the top life insurance agents because of their ability to ask questions and to relate and to make a sale in areas that are very difficult.

FELDMAN: Have you ever worked with a producer of the same caliber of as Ben Feldman?

SULLIVAN: Oh yeah, lots and lots. I would say that I easily, over the course of 30 years, have had 40 or 50 agents that were either equal to Ben Feldman or actually did better than he did.

FELDMAN: Do you think the average advisor believes in life insurance like Ben Feldman did?

“Everything that the life insurance industry teaches its agents is wrong for growing a business.”

– Dan Sullivan

March 2012

InsuranceNewsNet Magazine

11

FEATURE | 10X GROWTH FORMULA SULLIVAN: I remember being at a CLU meeting with a couple hundred, wellestablished agents in the Toronto area.

And by well-established, I mean that all of them would have been members of the Million Dollar Round Table.

I said to them, “I’m open to a challenge on what I’m going to say here, but I believe that I probably have more personal coverage on myself than any one of you in the audience has on yourself. The reason is you sell life insurance, but I believe in life insurance. And when you believe in life insurance as much as I do, you’ll sell a lot more.”

Nobody challenged me on it because it’s one of the strange things about a lot of life insurance agents who want to sell a lot of life insurance—they don’t have a lot of life insurance. And I always found it an extraordinary, self-limiting condition.

You should be buying the stuff as much as you possibly can. Whole life especially is one of the greatest financial inventions in the history of the world, and the past 10 years has really borne that out in terms of the returns on the investments that you’re getting.

FELDMAN: There’s an art to selling life insurance, to selling a product that insures something that isn’t going to happen to them. Studies show that people fear losing their house in a fire more than they fear losing a loved one. How can producers overcome that?

SULLIVAN: I would say the American public is chronically and dramatically underinsured. Given the fact that you have this ability to create wealth with insurance—it’s the easiest way to create wealth in the world. You can create your own bank with it. Literally what we’ve done, my wife and I, we created our own private bank over the past 10 years. It’s the greatest thing in the world because you put money into a whole life account and you can borrow against it, and even though you take capital out, it’s still there growing inside the investment component, and the growth is not taxable. It’s like one of the most amazing inventions in the history of the world.

I have to tell you, I’ve never seen anything like it.

12

InsuranceNewsNet Magazine

March 2012

“It’s not in the best interest of the advisors to become people who can do anything because they don’t really do anything sufficiently well that they can really differentiate themselves.”

So, I’m a believer in insurance and I’m a real believer in the top people who can actually sell it. They’re some of the most creative thinkers I’ve ever come across— what they can do with this instrument is why I’ve specialized in coaching at the very high levels of life insurance agents. I really respect and admire these individuals.

FELDMAN: What are some characteristics of highly successful insurance practices?

SULLIVAN: When you’re just starting out, it seems like there’s a lot of complexity to make the thing work. Successful practices create a process. They base their entire company on a process.

And what I mean by this—I could relate it to what you do—like when you just started in the publishing business, it seemed like there’s a lot of complexity to really make the thing work.

And part of the reason is you’re ignorant to the 20 percent that really, really makes the difference, which would be true for anyone starting off.

In any successful operation, in any entrepreneurial field, people are filled up with all sorts of activities, but if you look at what really makes the difference, it’s Pareto’s law. It’s 20 percent of your efforts producing 80 percent of the results.

And all these big agents selling big policies—the vast majority of them work with entrepreneurial customers because those customers have multiple needs.

They have personal needs and then they have corporate needs, benefit needs, key man insurance needs and then they have partnership. You take the average entrepreneurial client as opposed to just somebody who, let’s say, is a highly paid person but is a salaried employee in a large corporation. There will be probably about 10 times more opportunity to expand the

things that you can do for an entrepreneurial business owner than you can for an executive in a corporation.

FELDMAN: Would you say the business market is bigger and more profitable than the senior market?

SULLIVAN: Oh yes, incredibly so— because with business clients, in most cases, their future is bigger than their past. Our own insurance agents were in here yesterday to talk to my wife Babs and me about our company, and we’ve had them for 25 years. I’ve seen these agents every 90 days for 25 years. They were a London life agency when we started with them in 1987 and together these four agents were doing maybe $500,000 in commission. So it was good money then, but this year the four agents will do $10 million in commission.

At one point I said to these agents, “Look, you’ve got corporate executives and you’ve got all these other people, why don’t you just focus on the business market?” So now they’re strictly working with privately owned businesses with a net worth of more than $100 million. They have key men, they have key employees— they just have a multitude of needs. And the biggest need, of course, is the end game for the business owner. And that requires tremendous amounts of insurance with tax laws being what they are.

The use of life insurance to minimize the erosion and the loss of the estate is crucial.

So, I don’t see any comparison between the senior market and the business market. The business market just goes forever and you get a one-time hit or a two-time hit with the senior market.

The complexity of the business market demands that there be an infinite number of solutions. But here’s an interesting point: it takes a different kind of

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...a different experience

FEATURE | 10X GROWTH FORMULA

“You want to get outside the gravitational system of the industry.” intelligence on the part of the agent.

When you go to the business market, you just notice a quantum leap in terms of conceptual intelligence and emotional IQ. They really grasp what’s going on with the person across the table and they make their clients feel profoundly understood, which I think is the key to any kind of sale.

FELDMAN: In the real estate market they use sales teams. Do you see top insurance producers having their own sales team?

Do they have a case manager, underwriter and follow-up person?

SULLIVAN: Yes, all of that plus lawyers and accountants—who are really cheap these days. The accounting and legal industry have been devastated by technology, so there are a lot of very skilled people available. And the other thing is, with the collapse of the career agency systems, a lot of talent got freed up at head offices. The top agents were able to hire people with a lot of head office experience.

They run little expertise corporations, and for every need that a business client is going to have, they’re going to have expertise or they do terrific strategic alliances with law firms and accounting firms. I would say virtually all the business market people that I know have law firms and accounting firms as their main marketing system, because the accountants and lawyers don’t have a clue about insurance.

I’ve never met a lawyer yet who has even a clue about life insurance. You could take a first year agent in the life 14

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March 2012

insurance industry and put him up against most lawyers, and the first-year agent would have vastly more understanding of what you can do with insurance than a lawyer or an accountant.

Lawyers and accountants only see billable hours. When a pickpocket looks at a saint, all he sees is pockets.

I know very few life insurance agents who would be considered the key advisor to most business owners. It’s generally the accountant or the lawyer. The guy who can keep you from getting sued or going bankrupt is usually your biggest hero.

FELDMAN: You have talked about how people can multiply their business 10 times. How is that possible and why is it 10?

SULLIVAN: Ten is the number I get them to focus on because you really have to change things and rework your model from the beginning if you go 10 times.

If you go two times you can keep a lot of the stuff you’re doing. I was just talking to an investment advisor about an hour before this interview. He came to Strategic Coach about nine years ago when his personal income was $120,000 and this year its $1.2 million. So he’d multiplied it 10 times.

I asked the financial advisor, “How about $12 million?” And he said, “I’m going to have to reconfigure myself, but I definitely can see how I can go to $12 million.” And in the next 10 years, he’ll be going for $12 million.

I’ve got hundreds and hundreds of

people in that situation. And as you said right at the beginning of the interview, most advisors don’t comprehend the almost unlimited opportunity that’s available—that there are three things— unlimited capabilities, unlimited opportunities and unlimited resources.

FELDMAN: Why is it important for producers to rebuild their model?

SULLIVAN: In the beginning, they have to change a lot of things because the way the industry taught them from day one is wrong. Everything that the life insurance industry teaches its agents is wrong for growing a business.

If someone’s really an entrepreneur, you don’t want to be constrained by the way you were taught. You want to get away from that. You want to escape from the industry. You want to get outside the gravitational system of the industry.

FELDMAN: What are some qualities of the best agents?

SULLIVAN: I’ll give you one word to describe them: killers. And what I mean by that is, whether it’s a sale or an outcome for the year in terms of their revenues and profits—once they lock on, they kill off all alternatives except that result.

There’s no personality profile. You’ve got introverts; you’ve got extroverts; you’ve got people who are extraordinarily intuitive; you have people who are very good with details and numbers. So they really vary.

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FEATURE | 10X GROWTH FORMULA I would say the big thing is that they’re killers and they play within their own game. They don’t imitate other people. They’ve discovered what works for them and they’ve continually built a bigger and bigger system around what they uniquely do.

FELDMAN: Is that killer instinct something that has to be inherent? Or is it possible to develop it?

SULLIVAN: You can develop people who are very good at adapting other people’s best practices, but it’ll be imitative. No, the best ones are as creative as great artists, as great inventors. They’re just unique individuals. And, by the way, this is true of all entrepreneurs, not just insurance agents. Their uniqueness is factoryinstalled. They didn’t pick it up along the way. You can get guys who do everything right. They read every best practice book in the world; they follow every good example of other agents; and they’ll get about halfway to what these guys can do naturally on any given day.

FELDMAN: When you’re dealing with clients, what tells you they’ve got that special something that makes them one of the top?

SULLIVAN: They’ll change almost anything immediately if it looks like it can free them up for more opportunity.

They’re willing to go through almost any kind of personal or organizational change very quickly to jump to the next level. And you usually only have to tell them once. They have a nose for growth.

FELDMAN: So, in a sense are they ruthless about it?

SULLIVAN: Ruthless in the best sense of the word. Interestingly enough, they’re not driven by money. They’re driven by desire for greater freedom and they’re driven by the experience of growing in what they do. They’re always fascinated with what the next opportunity will be— just very unusual kind of people. And I’m just describing entrepreneurism at its highest levels.

This would be true if you went to the 16

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March 2012

“When you believe in life insurance as much as I do, you’ll sell a lot more.” high-tech world or the real estate development world. It’s just a unique characteristic. They’re just driven by growth and they’ll take risks; they’ll make sacrifices; they’ll go through extreme discomfort and extreme anxiety to jump to the next level of growth. It’s a very unusual characteristic. Most people don’t have the nervous system that can actually put up with that.

FELDMAN: Can a generalist be in the top tier of sales?

SULLIVAN: I would tell you that my experience with the top people is they all specialize in one thing, and then they team up with other people who have the other specialties. The firm that we deal with only sells whole life, they don’t sell a single other thing. You can’t buy universal life and term—they’ve just become the masters of whole life. I’m a total believer that one person should specialize in one thing. And that’s why you want to have the teamwork, that’s why you want to create a company, because you can have another person who does annuities and another person who does something else.

My experience is it’s not in the best interest of the advisors to become people who can do anything because they don’t really do anything sufficiently well that they can really differentiate themselves.

It might be in the interest of the financial services company for them to do that, but I don’t see that it’s really in their interest. It would be much better if they found the best annuity salesperson in the market and they just brought him in on the case.

They can work out what the deal looks like, but specialists who cooperate with each other will always out-compete generalists who are operating individually.

FELDMAN: If you’re the entrepreneurial type that you described, how do you manage people who aren’t like you?

SULLIVAN: There are two distinctions that I’ve found that really work with the top agents. And that is—we make a distinction between front stage and back stage. Front stages you’re out selling in the public and back stages you’re working inside your organization. What I tell them is that the biggest mistake that you can make is that when you’ve been out selling and you walk in the door, you think you’re supposed to put on another hat. You’re selling front stage and you’re also selling backstage.

So what I try to do is to get them out of the whole notion that they’re supposed to be managers. What they’re supposed to be doing is selling a vision to their team and then have good managers under them. The first person that I want any top agent to hire is someone who will free him or her up from all the details, the backstage details, so that they can be out selling. But the second person I want them to hire in an important position is someone who manages the team and the day-to-day work.

What I’m describing is a distinction between artists and craftspeople. The top ones are artists. They’re rock stars in a certain sense. But at the craftsman level, they can become extraordinarily good craftspeople.

They’re going to have to start thinking of themselves as an entrepreneur and not as a life insurance agent. That’s the No.1 thing—if you start thinking of yourself as an entrepreneur, you’re running a business. You are a life insurance agent for the purpose of your training, but then you have to become an entrepreneur for the purpose of your success.

To read the extended version of Dan Sullivan’s interview, visit our website at www.insurancenewsnet.com/sullivan.

To find out more about Dan Sullivan and his Strategic Coach Program, visit his website at www.strategiccoach.com.

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[ NEWS WIRES] Next MLR Compensation Protest Begins The medical loss ratio issue is back.

In early February, four U.S. senators introduced S. 2068, a bill that proposes to exclude agent and broker compensation from the medical loss ratio (MLR) calculations of the Affordable Care Act (ACA). The National Association of Health Underwriters (NAHU) promptly applauded the bipartisan measure, saying it would protect health care consumers and the economy by preserving the role of health insurance agents and brokers.

Agents have long protested the MLR rules on the grounds that the required calculations would lead to deep cuts in agent commissions, forcing many agents out of the business and leaving consumers with limited access to the services they provide. The U.S. Department of Health and Human Services (HHS) disregarded those objections and determined that agent commissions should be included in the MLR calculations. Agent groups have continued fighting the rules ever since. “Without agents’ expert advice, many individuals and businesses will end up spending more for health insurance and receive less care,” maintains NAHU CEO Janet Trautwein. The new Senate bill has been referred to the Senate Committee on Health, Education, Labor and Pensions.

Last year, a similar bill—H.R. 1206—was introduced in the U.S. House of Representatives. The House measure currently has 170 bipartisan co-sponsors, according to NAHU. So, even though the MLR is not a top-of-mind issue for the public, it does have some support.

FINANCIAL COUNSELING ROCKS

Independent insurance and financial advisors, who wonder whether the time they spend on financial counseling with clients is worthwhile, might be interested in what the Colonial Life & Accident survey of 15,000 workers revealed. The insurer says that 96 percent of employees who take part in oneon-one benefits counseling sessions say they better understand their benefits.

In addition, 47 percent say the counseling sessions significantly improved their understanding.

But that’s not all. Ninety-eight percent say having annual, one-on-one benefits counseling sessions is important, with 63 percent saying this is very important.

True enough, the survey is about benefits consulting at the workplace — not insurance and financial planning done by independent advisors in the advisor’s 18

InsuranceNewsNet Magazine

March 2012

office or other off-worksite location.

But, the fact that the majority of survey respondents hold counseling sessions in high regard may be a sign to other advisors that clients think financial counseling rocks, too.

WHAT WEALTHY WOMEN WANT

Nearly all affluent women (96 percent) want their financial advisor to understand their unique circumstances and entire life picture, according to the Family Wealth Advisors Council, a national network of independent, feeonly wealth management firms. This finding is based on the Council’s survey of 551 women who have a net worth of $1 million or more. The survey group included single, divorced, married, partnered and widowed women — and it varied by employment, age and net worth too.

Most of the financial services industry “continues to lump women together without taking the care to understand individual women and their personal financial journeys,” comments co-author of the study Heather Ettinger, adding that “this is the primary reason for women’s overall dissatisfaction with our industry.”

So, where do we go from here?

THE INCOME GUARANTEE MARKET’S CASH INFUSION

A Boston venture capital firm is putting some money — to the tune of $4 million—into a firm that provides guaranteed retirement income solutions through registered investment advisors (RIAs).

The income solutions firm is Aria Retirement Solutions and the capital infusion is from Polaris Venture Partners.

The deal might be of interest to independent advisors who work with RIAs and have clients looking to create a guaranteed retirement income stream from their no-load mutual funds and exchangetraded funds (ETFs). That’s because one of the solutions that Aria is facilitating is a standalone living benefit product—also called a contingent deferred annuity — offered by an insurer. The advisor’s client could purchase the guarantee via the RIA and thus structure a mutual fund or ETF to guarantee a lifetime income stream— similar to how a guaranteed lifetime withdrawal benefit guarantees an income stream from a traditional annuity. These arrangements are new and still evolving, but might be worth checking out.

QUOTABLE

The market volatility has created a new generation of savers.

Younger workers are saving more and spending less than their parents, while 66 percent of those over 50 years of age admit to not saving at an early enough age.

—Kristi Mitchem, senior managing director, State Street Global Advisors

DID YOU

KNOW

?

JUST 4 PERCENT OF EMPLOYERS are very confident that their workers will retire with adequate retirement assets, down from 30 percent in 2011, according to a survey of more than 500 large U.S. employers. SOURCE: Aon Hewitt

RIGHT OUT OF THE INCOME ANNUITY PLAYBOOK

Here’s how a New York investment management firm executive describes the plight of clients looking for investment income, especially when near or in retirement: “Low yields and high volatility have made generating investment income more challenging than ever.”

Michael Fredericks, U.S. Retail Head of BMACS (the BlackRock Multi-Asset Client Solutions team), went on to say, “With rising longevity, it is especially urgent for those near or in retirement to secure stable income streams that outpace inflation.” One might think that Fredericks was introducing an income annuity, but he wasn’t. He was unveiling a new multi-asset income fund for retail and high net worth clients.

The takeaway for advisors: the language used in discussing the need for income funds can be so similar to that used in discussing the need for income annuities that it may be hard for clients to keep things straight. Advisors will need to ensure they differentiate their own products in clients’ minds, within the scope of their licensure.

NEW LTCi IS COMING OUT

The long-term care (LTC) insurance marketplace sure has had its share of struggles in recent years, but some LTC carriers are still developing solutions.

One is John Hancock Life, saying it has re-entered the California individual LTC insurance market with two comprehensive policies: one for customers in the California Partnership (which protects some assets from state Medi-Cal spend-down requirements for Partnership insureds who exhaust their policy benefits) and the other for non-Partnership customers.

Meanwhile, Prudential has started providing LTC policyholders with access to a single, integrated source of personalized guidance to support independent living. “Historically, aging individuals and their families have had to piece together care services from many uncoordinated sources,” explains Peter Goldstein of Univita Health.

[ NEWS WIRES]

There’s Money In Moving To Independence Seventy-six percent of 173 financial advisors who moved to an independent business model within the last five years say they’re better off financially, according to a Fidelity Investments survey. What’s more, the financial payoff seems to happen quickly—of the advisors reporting they’re better off, 64 percent say they were better off within six months of the move. Examples of an independent business model include an independent broker/ dealer (IBD) or registered investment advisor (RIA).

Moving to independence is apparently a solo affair, with fully 80 percent reporting having made the switch alone. Only 20 percent told the researchers that they moved as a team. A few more tidbits to ponder: half of the advisors who moved did so without any strong influence from others or a written plan, the researchers say. And, on average, they explored two to three different business models before making the move.

RECRUITMENT IS ON THE RISE

Northwestern Mutual says it will recruit more than 5,000 financial professionals in 2012—the largest recruiting effort in the company’s 155-year history. Of those, 2,000 will be financial representatives and 3,000 will be financial representative interns. State Farm also has recruiting plans to fill 3,000 positions in the U.S. and Canada as well as add about 900 agents during the year.

And Guardian Life has its eye on hiring over 800 financial representatives during the year. News about insurance hiring during the economic downturn may come as a surprise to some people, allows Meg Skinner, Chief Distribution Officer at Guardian. But she says “the rise in demand for qualified sales reps is driven in part by a rise in demand for more secure and reliable financial products not as adversely affected by the turbulent economy.” Long story short: if you know someone who is looking for work, why not clue them in to the emerging opportunities?

DID YOU

KNOW

?

DI ADAPTS TO THE CHANGING FACE OF MEDICINE

Individual disability income (DI) insurance needs to adapt to the changing medical environment, according to Guardian Life. The DI insurer points out that many doctors are joining hospital staffs and large medical practices as salaried employees rather than operating as solo practitioners. It also says that more women and Gen-Xers are becoming doctors, but with a priority on work-life balance —and that non-physician professionals, such as physician assistants and nurse practitioners, are on the rise too.

Medical workers still want DI protection, Guardian says, but some of the newer ones may not want or need all of the bells and whistles that suit solo practitioners. So, what to do? One change Guardian has made is to offer a “valuefocused” DI policy that allows insureds to customize coverage via various configurations and riders. Bottom line is that change is in the DI air.

OUT OF $11.2 TRILLION OF PRIVATE PENSION ASSETS IN 2011, 21 percent were maintained in defined benefit plans, 36 percent in defined contribution plans and 43 percent in IRAs. Source: Board of Governors of the Federal Reserve System, Flow of Funds Accounts of the U.S., Statistical release Z.1, as cited in a Treasury Fact Sheet.

March 2012

InsuranceNewsNet Magazine

19

Glenn A. Neasham had a thriving insurance business in Lakeport, Calif., before a three-year ordeal ended with his conviction of theft for selling an indexed annuity.

BY STEVEN A . MORELLI

G

lenn A. Neasham was sure the state didn’t have a strong case against him as he watched the jury file into the courtroom with his verdict. But, still, he awoke that October morning with a bad feeling.

So, when he heard the word “guilty,” he was not shocked like his family, friends, lawyer and many people in his community were. The 51-year-old Neasham was already numb from more than three years of an ever-deepening nightmare.

His insurance business was in ruins; he was relying on private and public assistance; and now he was facing as many as four years in jail for his felony conviction 20

InsuranceNewsNet Magazine

March 2012

of grand theft from an elder. All for selling one annuity.

“A day or two later, it hit me that they found me guilty,” Neasham said. “At the beginning of all this, my attorney told me the only way there would be a conviction is fate.”

Few would have predicted Neasham’s current fate if they saw him before his arrest. He had a thriving insurance business for more than 20 years in his hometown of Lakeport, the county seat on the shore of Clear Lake in northern California. He was involved in the Mormon church and in the community as a board member of civic organizations.

The married father of three young children (soon to be four) lived in a lovely home. His sales led him to qualify for the Million Dollar Round Table (MDRT) for seven years and he made more than $500,000 income in 2007, his best year.

By the time the verdict came down, Neasham had made $20,000 in all of 2011, was renting a house from his inlaws and his family was relying on food stamps.

His alleged victim not only still held the indexed annuity he sold her, she had earned more than $40,000 on it, despite the worst recession since World War II.

AMERICAN INJUSTICE | FEATURE

The Case That Led to The Case Neasham’s trouble started on Feb. 1, 2008, when Fran Schuber, then 83, and her boyfriend, Louis Jochim, made an unsolicited visit to Neasham Insurance Agency in Lakeport. Neasham had known Schuber since 1997 and Jochim had been a client since 1998. Jochim said Schuber had a CD maturing that month and thought she would get a better return from a product like the Allianz indexed annuity that he had bought through Neasham. The annuity had earned 10 percent the previous year.

Neasham had a preliminary discussion with the couple and started some of the paperwork. “On the health questionnaire, I asked about her health and she quoted ‘good,’ ” Neasham recalled. “I did my due diligence. I gave them a brochure and they left for the weekend.”

They were scheduled to return Feb. 5, but the couple came back a day early.

Neasham spent an hour and a half on his presentation and the application. In addition to considering what to do with $239,000 from a maturing CD, they looked at Schuber’s entire financial picture. They decided to leave $100,000 in CDs and bank accounts, allowing for a monthly income, and to purchase a $175,000 MasterDex 10 indexed annuity from Allianz, which was approved to sell to people up to 85 years old. The product had been introduced in 2004 and had been one of the most, if not the most, popular indexed annuity nationally since then.

Neasham said he made certain the annuity was suitable for Schuber and complied with California’s senior protection law, SB 620. The law is one of many passed nationally to protect seniors against con artists and aggressive salespeople. Annuities have a particularly bad reputation with some insurance departments and consumer organizations because of some unscrupulous salespeople and unflattering media coverage. Neasham said he is aware of the potential for abuse and said he is a member of the National Ethics Bureau, had an A+ rating with the Better Business

Bureau and never had any charges filed by the Department of Insurance.

“The few questions she did ask were not financial—she said her boyfriend handled that,” Neasham said. “I didn’t notice that there was anything wrong with her. And my assistant, Deanna (Jones), who was in the room during most of the presentation, later testified that she seemed very competent and not at all confused about the transaction.”

Neasham said no one mentioned dementia or Alzheimer’s.

Main Concern Schuber’s mental condition did not raise a red flag for Neasham, but the choice of the beneficiary did—that was Jochim and his daughter was named as the contingent. When Neasham questioned that, Jochim later produced a bank statement showing that he had been a beneficiary on Schuber’s CD since 2004.

Neasham said he called Schuber’s son, Ted Schuber, on Feb. 5 and met with him the next day.

“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, ‘Hmm, I’m concerned about my mom’s overall health, too.’ He never said what

the details were.”

That was during the phone conversation. The next day, Neasham discussed the annuity’s details with Ted Schuber.

Years later in court, Ted Schuber would say he couldn’t understand how his mother could make any investment decision because “she just can’t concentrate.” His relationship with his mother had deteriorated because her mood fluctuated and she was increasingly under Jochim’s control, Ted Schuber testified, according to the Lake County Record-Bee. Still, Ted Schuber didn’t mention his concern about his mother’s mental state during the phone call or meeting, according to Neasham.

“If there was a definite problem, I would have stopped it,” Neasham said.

“I’m a member of the Church of the Latter Day Saints. I’m 100 percent ethical.

And I would rather live in a tent under an underpass next to a freeway than hurt someone financially.”

Neasham had Fran Schuber and Jochim sign an addendum in reference to the beneficiary.

[In a phone conversation with InsuranceNewsNet, Ted Schuber said his mother had Alzheimer’s since 2002 but hung up when he was asked why he didn’t tell Neasham that. Louis Jochim could not be reached for comment.]

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

March 2012

InsuranceNewsNet Magazine

21

FEATURE | AMERICAN INJUSTICE

The Investigation Begins Meanwhile, the manager of the Savings Bank of Mendocino, which held the CD, was raising her own red flags.

The manager spoke to Neasham, who began explaining the annuity to her. “But then she said, ‘we don’t have a problem with the annuity—we have a problem with Lou,’ ” Neasham recalled.

Because the bank manager was concerned that Schuber was under Jochim’s influence and she did not understand the annuity, Neasham later asked Schuber if she had any questions and if she understood the product she was buying.

“She said she did and gave me a check with a big smile on her face,” Neasham said. At that point, Schuber had 30 days to cancel the contract without penalty.

The bank manager reported Jochim to Adult Protective Services, which involved the Lake County District Attorney’s Office, according to court records.

An investigator interviewed Schuber in April 2008. “In a statement by the DA’s office, they said the client did it for tax purposes and did it of her own free will and choice and nobody pressured her to do it,” Neasham said. The report also showed the investigator thought Schuber displayed some signs of dementia.

The investigator recorded the interview, but according to court records, prosecutors denied the existence of the recording until three and a half years later—the day before closing arguments at Neasham’s trial.

After the interview, the DA’s office did not press charges but instead referred the case in May 2008 to the California Department of Insurance, where investigator Kristin Schriber got involved.

She met with Schuber and Jochim that December for 30 minutes during which Schuber showed signs of dementia, according to Schriber’s testimony.

Neasham wouldn’t be charged with a crime until two years later in December 2010.

The Arrest On Dec. 14, 2010, Neasham said he hurried home from an appointment with a client because Schriber had called him and said she was in the area to “close the case.”

“I was at my house still dressed in my suit,” Neasham said. “Two people came to my door. I knew something was up because one was standing on one side of the door and the other was on the other side. They asked me to come outside and she said you’re under arrest.”

Neasham found himself in the back of the car, heading to jail but not really worried. “I just had the feeling that everything was going to turn out all right because I didn’t do anything wrong.”

An insurance department press release trumpeted Neasham’s arrest with a statement from then-Commissioner Steve Poizner: “Insurance agents or brokers who steal from vulnerable seniors will not get away with their shameful tricks.

CDI investigators will continue working

to track down any unscrupulous agent who preys on California’s seniors.”

On the day Neasham was arrested, he had a good name in his community as a native son who served six years in the U.S. Navy, attended a couple of colleges and whose all-American good looks had gotten him minor acting gigs in movies and on TV. He had returned to the area more than 20 years earlier to start a family and a business. He at one time published two newspapers in the Sacramento area. His insurance practice was thriving despite the down economy, making about $200,000 that year.

His family—a wife and four children— enjoyed their $735,000, 4,000-squarefoot home. They also had a 14-acre site on top of a mountain overlooking Clear Lake where they planned to build their dream home one day.

Neasham said his attorney, Mitchell Hauptman, assured him that there wouldn’t be a trial—and if there were a trial, there wouldn’t be a conviction. In less than a year, however, all Neasham would have left would be his family.

Trial by Trial In March 2011, more than three years after the annuity was sold, Deputy District Attorney Rachel Abelson laid out the case during a three-day preliminary hearing. Abelson said she was submitting medical records showing that, in 2003, doctors had diagnosed Schuber with “Alzheimer’s-type dementia,” according

TIMELINE* Feb. 1, 2008 Fran Schuber, 83, and boyfriend Louis Jochim, make an unsolicited visit to Neasham Insurance Agency in Lakeport, Calif. Jochim tells producer Glenn A. Neasham that Schuber has a CD maturing that month and wanted to talk about an annuity similar to the Allianz indexed annuity that he had. Neasham takes information and gives the couple material on the Allianz MasterDex 10.

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InsuranceNewsNet Magazine

Feb. 4 Neasham spends an hour and a half on his presentation and the application. In addition to considering what to do with the $239,000 from a CD, they looked at Schuber’s entire financial picture. They decided to leave $100,000 in CDs and bank accounts, allowing for a monthly income, and to purchase a $175,000 MasterDex 10. In a questionnaire, Schuber says she is in good health and Neasham does not observe signs of dementia.

March 2012

Feb. 5 Neasham calls Schuber’s son Ted to discuss Fran Schuber’s annuity, her choice of Jochim as beneficiary and Jochim’s daughter as contingent. The next day, Ted Schuber meets with Neasham about the annuity. Ted Schuber would later say in court that they spoke that summer, but Neasham said he has it in his meeting planner and the point of the discussion was Fran Schuber’s choice of beneficiary.

Feb. 13 During policy delivery, Neasham has Schuber and Jochim sign a letter verifying Schuber’s choice of Jochim as beneficiary.

March Lake County District Attorney’s Elder Abuse unit gets the case after a notice from the bank that holds the CD, indicating the bank manager’s concern about Jochim’s possible undue influence over Schuber.

April 1 Lake County District Attorney investigator interviews Schuber and Jochim.

Schuber says she is happy with the investment, but the investigator notices signs of dementia. The session is audio-taped, but prosecutors deny the existence of the tape for three and a half years, until just before closing arguments in Neasham’s trial.

*According to court records, news accounts and Glenn A. Neasham

AMERICAN INJUSTICE | FEATURE to the Record-Bee. Hauptman crossexamined district attorney investigator Martina Santor and suggested that, in her April 2008 interview, she as an expert might have noticed signs of dementia— but that a layperson such as Neasham would not have.

In April, the newspaper reported that County Judge Richard C. Martin allowed the charges, but said the prosecution’s case “has only passed that (strong suspicion) test by the thinnest of lines.”

Neasham faced a felony charge of theft from an elder or dependant adult exceeding $950, and two special allegations, with one stipulating that the theft exceeded $100,000.

After months of delays and a failed dismissal motion, trial was set for Sept. 21.

During the trial, two out-of-town defense witnesses were brought in early and testified out of turn during the prosecution’s portion. One was Dick Duff, noted author on annuities, who said an Allianz MasterDex 10 is complicated but has “many more benefits than there are negatives,” according to the Record-Bee. “Not

Glenn Neasham with three of his four children.

everyone wants liquidity.”

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, is credited 1.5 percent annually and would be able to “break even” after seven years if the owner surrendered the product.

Duff said that he himself receives money from annuities and would, in fact,

be happy to buy Schuber’s annuity for at least $180,000—$5,000 more than she paid for it. Duff knows a good deal when he sees one because, at that moment, the annuity had $217,000 of annuitization value.

Another one of Neasham’s witnesses, psychiatrist Dr. Douglas Rosoff, said he did not meet with Schuber, but reviewed medical records and viewed a video of an interview of Schuber from the summer of 2011. He said the dementia seemed quite advanced at that point but he could not say what her condition might have been three and a half years prior. He also said

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InsuranceNewsNet Magazine

23

FEATURE | AMERICAN INJUSTICE

84815 ptman SB Mitchell HauLaw at Attorney ng St. 333 Armstro 95453 CA Lakeport, A 3 -3707 2, 2011 IFORNI (707) 263 Defendant ber Dated Decem TE OF CAL for 1 ________ THE STA 4 Attorney __________________ COURT OF MAN SUPERIOR 2 MITCHELL HAUPT OF LAKE 5 COUNTY FOR THE 185 3 e CR 925 6 Cas } DUCTION INTRO 4 fornia, TRIAL } Of Cali 7 PC 368(d), theft N FOR NEW The State of a single count of } MOTIOconvict People Of ed)by jury verdict 5 was 1181 et seq Neasha 8 theory under (PC } m was a straight larceny Plaintiff, presented1 to the jury } The theory 6 Dec 20, 201 9 IM 1800. from an elder. } DATE: 8:15 am ed as to theft by larceny per CALCR instruct E: only 7 was TIM 10 vs.

PC 484. The} jury CE: Dept 2 theory such as theft e PLA alternat } ed on any other 8 IM 11 The jury was }not instruct THE by an agent per CALCR to theft m, es, or n Neasha false pretens LAKE and 9 by trick, NTY OF 12 Glen Defendant. embezzlement, theft COU verdict. guilty a OF THE does not support 10 ATTORNEY e. The evidence indirectly 13 DISTRICT 1803-1806 inclusiv anything directly or TO THE ever took e that Neasham or as soon 11 evidenc r no was am Schube RT: d There 14 deprive 8:15 BLE COU 2011 at e that Neasham intentionally 20,no evidenc VE HONORA emberwas 12 Glenn on Dec r. There e 15 ABO Schube endantSchube ICE that Defloss r. In fact, the evidenc NOTfrom to Courtany TAKE13 caused waytled ve enti PLEASE in any or abo following 16 propert herhea of be rd at ythe t to the uan d a significant benefit receive purs r can trial Schube e that matter 14 able inferenc him a new unavoid 17 thereafter as the raised the orde set r granting an particularly 15 Court for nds more the Neasham.

18 product to an her interaction with(6), on the grou will move sold a complex annuity Neasham (5), and was that Neasham 16 e 1181 (2), element of 19 The State’s theory Cod failed to prove any s of Penal . They fundamentally provision trial juror woman 17 old of year 83 tion 20 incompetent was contrary to the declara chedresultin atta g jury verdict of guilty in. the The here . at on 18 larceny this,by of theft 21 forth ly received crime ed on thebas be e previous enc ion will evid mot reason 19 y toding This 22 to stand will ented ters, inclu evidence rand pres matcontrar allowing the verdict and ncebe e as may conscie on such othe to the enc g evid is shockin of Briant and20 23 The verdict in and any . The conviction Robert O’ k’s file here of the judicial process 21 s of the clerh public confidence in the integrity 24 diminis to due process of the content the trial, n of Defendant’s right 22 ion. tes a significant violatio constitu 25 ant mot Defend constitutes an ring of the of the prosecution at the hea tion of the theory 23 applica the ion as ch 26 law, inasmu only rational conclus State’s power. The 24 us exercise of the 27 never do arbitrary and capricio is that they should conform to the law 25 citizen wishing to a 28 to be drawn by a of the State will have fear that some agent 26 senior citizens for any business with ndise.

-Page 1mercha se lawful the quality of otherwi 27 negative opinion about

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2

people with dementia have good and bad days and she could have had a meeting where she appeared lucid.

The trial was scheduled off and on for a month until the prosecution rested its case on Oct. 19 and the defense called two witnesses. One was a former Neasham assistant who said Schuber did not seem confused and to understand the annuity. The other was Jochim’s daughter, who said Schuber understood her finances around the time she bought the annuity.

Several other defense witnesses were lined up to testify, but Neasham’s attorney Hauptman pulled him aside and gave him some surprising news.

“He said, ‘I’m not going to call any of your witnesses because I don’t think the state has proven anything,’ ” Neasham recalled. “He said it would just muddy the water and he was just going to go to his close.”

Then the prosecutor revealed the existence of the audiotape of the interview with Schuber in April 2008. Hauptman decided against playing the tape but said it would be grounds for an appeal if he were convicted, Neasham said. “But he said that wasn’t going to happen—I wasn’t going to be convicted.”

The prosecution’s argument was that Neasham was motivated by the $14,000 commission and that Schuber was denied access to her money because of the annuity, which the prosecutor compared to moldy bread.

28

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“It’s like if you sell bread to a blind person,” Abelson said, according to the Record-Bee. “It’s fine if it’s good bread, right price; the same as everybody else. But if you sell them a moldy piece of bread with them not being able to see it, then that’s where you’re looking at a criminal case.”

Hauptman argued that the prosecutor did not show any evidence of theft and that the alleged victim had, in fact, profited from the annuity. The whole case was the product of an “overzealous” government.

The jury deliberated into the next day, Oct. 21, when Neasham was found guilty on the felony theft but not the other two charges.

“My wife blew up,” Neasham said. “She was crying, ‘How could this possibly be happening to us?’ ”

New Trial Motion Judge Martin denied Neasham’s request for a new trial at a hearing on Feb. 29.

Neasham was then sentenced to the probation’s office recommendation of 300 days, which the judge reduced to 90 days with three years’ probation. That sentence was further reduced to 60 days for Neasham’s good behavior credits. Neasham may also have to pay yet-unspecified restitution to Schuber. His lawyer has filed for an appreal with a higher court. Neasham owes his attorney at least $40,000 and can’t pay him anymore, so he has qualified for a public defender.

In his new trial motion, Hauptman cited several significant points. Perhaps one of the most important was a statement from Robert K. O’Briant—Juror No.3.

O’Briant said a juror’s grandfather had Alzheimer’s and another juror’s father had dementia, neither of which was disclosed during jury selection. Two others said they made their minds up about the case before the trial because of newspaper accounts.

TIMELINE CONTINUED* May 2008 District attorney’s office refers case to California Department of Insurance.

Dec. 8, 2010 A criminal complaint is filed against Neasham and he is arrested.

Dec. 3 Department of Insurance investigator interviews Schuber and Jochim.

December 14 Neasham is charged with theft from an elder, a felony and two special allegations – one of which stipulates that the theft exceeded $100,000.

September 2009 Neasham has annual review with Schuber.

Neasham nor his assistant notice any signs of dementia.

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InsuranceNewsNet Magazine

March 2011 During a three-day preliminary hearing in March 2011, Deputy District Attorney Rachel Abelson says she has records showing that doctors diagnosed Schuber with “Alzheimer’s-type dementia” in 2003. Judge allows charges but says the prosecution met the standard by the “thinnest of lines.”

Oct. 21, 2011 Jury finds Neasham guilty of the theft but not the two special allegations. During the trial, Neasham’s lawyer argues that there was never a theft and that Schuber still had the annuity, which had gained more than $40,000 in annuitization value. Plus, she had not taken a penalty-free, 10 percent annual withdrawal.

February 2012 Sentencing has been postponed and Neasham has filed a motion for a new trial. If the trial is granted, Neasham says he will not be able to afford his lawyer and will need a public defender, which he qualifies for, along with food stamps.

March 2012

*According to court records, news accounts and Glenn A. Neasham

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FEATURE | AMERICAN INJUSTICE Other jurors said they should make an example of Neasham: “Some jurors made the statement that, in essence, meant we should send a message to insurance companies to be careful when selling annuities to 83-year-olds. The jurors also felt they should send a message to insurance agents that they should be careful who they sell to.”

The motion made several other arguments, including: • Schuber did not suffer a loss, therefore there was no theft. She, in fact, gained the significant benefit of $43,000 in the process. She also had access to a 10 percent withdrawal without penalty and had not taken any money out. Also, Duff’s offer to purchase the annuity at a profit for Schuber still stood. If Neasham was guilty of theft for passing a check from Schuber to the insurance company to purchase an annuity, then the bank would have been just as guilty for taking Schuber’s money to purchase a new CD at the same time in a “virtually identical” transaction.

“My wife blew up,” Neasham said. “She was crying, ‘How could this possibly be happening to us?’ ”

talked to during the last week has said the Neasham case will force them to think twice about doing business with the elderly. Who wants to sell someone a piece of property, a car or a remodel of their kitchen to later on be hauled into court because someone alleges the person was incompetent to enter into the contract at the time you sold them goods or services?”

The Effect on Annuity Sales

Hauptman concluded that the case has far more ramifications beyond Neasham.

“The verdict is shocking to the conscience and allowing the verdict to stand will diminish public confidence in the integrity of the judicial process. The only

The chilling effect also concerns indexed annuity analyst Jack Marrion of Advantage Compendium.

“Essentially, he was convicted of selling an annuity,” Marrion said.

“It’s saying a surrender charge Glenn Neasham shown in happier amounts to fraud.” times with his wife, Tonya, and Katie, The conviction’s effect will one of his four children, in 2004. depend on whether it becomes a precedent, he said. If it is considrational conclusion to be drawn by a citi- ered a precedent, it puts producers in a zen wishing to conform to the law is that tough spot because, in Neasham’s case, they should never do any business with he sold an annuity approved by the state senior citizens for fear that some agent for sale to someone up to the age of 85 of the State will have a negative opinion and the insurance company approved about the quality of otherwise lawful the sale. Marrion said he knew of many merchandise.” cases where producers have been convicted of pocketing premium or keepCommunity Reacts ing withdrawals on client contracts and Many others in the community agreed keeping the money. This is the first time with Hauptman’s conclusion, including he’s heard of someone being convicted several letter writers to the Record-Bee, or even charged with theft for selling an the overwhelming majority testifying annuity. to Neasham’s solid character and hon“That’s the whole thing. Is this just an est dealings. Publisher Gary Dickson also isolated case?” Marrion asked. “Now, you wrote a column excoriating the verdict. have people saying, ‘What do I do?’ ” “I have not talked to one local person Neasham said he knows what he would who wasn’t absolutely shocked by the rul- do now. “If they came in today under the ing of the jury,” Dickson wrote. “Most same circumstances, I’d do the exact people I have visited with about the case same thing,” Neasham said. “She got a have indicated a strong opinion that it great deal out of it. That’s the thing I should never have gone to trial.” don’t get—how can they convict me of Dickson also made a larger point about theft when she made $43,000?” the chilling effect the whole affair would Steven A. Morelli is editor-in-chief have on service to seniors. for InsuranceNewsNet. He has more “Unless the guilty verdict is over- than 25 years of experience as a turned on appeal I can envision it as reporter and editor for newspapers, a footstep toward American business magazines and insurance periodicals. He was also vice president of becoming more standoffish in dealing communications for an insurance with elderly customers,” Dickson wrote. agents’ association. Steve can be “More than one business person I have reached at smorelli@insurancenewsnet.com.

26

Check our website at www.insurancenewsnet.com for further developments on Neasham’s case.

• The last-minute introduction of the audiotape from the interview the DA investigator conducted with Schuber and Jochim in April 2008 constituted prosecutorial misconduct. Hauptman was not able to cross-examine witnesses based on the information on the tape. The prosecution was allowed to show a video of the clearly incapacitated Schuber three and a half years after the annuity sale but the jury was not able to hear the far more lucid Schuber a month after the sale.

• Schuber was not legally determined to be incompetent or unable to enter into contracts until the middle of Neasham’s trial, when her son took conservatorship—three and a half years after the annuity sale.

InsuranceNewsNet Magazine

March 2012

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[ LIFEWIRES] Big Deal Ahead In Independent Life Distribution The “big deal” is BB&T Corporation’s agreement to buy Crump Life Insurance Services and Crump Property & Casualty Insurance Services from the Crump Group for $570 million in cash. Crump Life markets itself as the largest, independent wholesale distributor of life insurance in the U.S. It says its network includes more than 200,000 producers and institutional clients, and that it does business with more than 100 life carriers. So, by any stretch of the imagination, purchase of this firm will impact the independent life sector.

That includes independent agents who have been placing life cases through Crump as well as other life brokerages that have been competing head-tohead with Crump.

The buyer, BB&T, is a Winston-Salem, N.C.-based Fortune 500 company in various financial services businesses and no newcomer to brokering. It has a Raleigh, N.C., insurance unit — BB&T Insurance — which is a major property/casualty (P/C) broker. (According to BB&T, this insurance unit is the sixth largest insurance broker in the U.S.) That explains BB&T’s interest in owning the Crump Property & Casualty operation, which does a sizeable amount of P/C business.

But it also explains the firm’s interest in Crump Life. Or, as chairman and CEO of BB&T Insurance Wade Reece puts it: “This is an opportunity for BB&T to become a significant and strategic player in the high-growth, highmargin life insurance distribution business and expand our property and casualty business.” At this writing, the deal was still subject to regulatory approval. BB&T, however, says it expects it to close in the first quarter.

GOOD NEWS ON THE DEATH CLAIM FRONT

The state regulatory probes into death claim payment practices of life insurers, which made many headlines in 2011, will probably have some near-term impact but not necessarily on insurance company ratings. At least that’s the word from Fitch Ratings.

Carriers will likely increase claim payments and face additional expenses, the rating agency says, but “we do not feel there are any ratings implications at this time.” For life insurance professionals, that should be a breath of fresh air, removing the likelihood that there will be DID YOU

KNOW

?

28

a flurry of downgrades related to the issue and thus a trail of bad publicity to address.

But advisors still might want to keep abreast of developments in this area because the fallout is not yet over. As Fitch points out, regulatory requirements in this area are “new” or “still-evolving” and carriers will be changing claim-payment practices as they respond to that and to the legal challenges that crop up. Freely translated, the death-claim issue is not yet dead.

LIFE APPS UP 6%

Some life insurance agents must’ve had a busy December. According to MIB,

TWENTY-THREE PERCENT OF AFRICAN-AMERICANS have life insurance coverage equal to up to five times their salary —higher than the total population (18 percent) — and 70 percent of African-Americans are likely to leave life insurance proceeds to their heirs, compared to 53 percent of the total population. Source: ING US

InsuranceNewsNet Magazine

March 2012

life insurance applications were up by nearly 6 percent compared to a year ago. They were up in fourth quarter too—by 2.5 percent over fourth quarter 2010.

Even the results for the entire year were up, albeit slightly—up 0.2 percent, all ages combined, according to the firm’s MIB Life Index—but that’s after two years of finishing slightly down. MIB CEO Lee Oliphant sees the 2011 numbers as “cause for optimism” in 2012. The “market stability in challenging economic conditions may signal a new floor from which the industry can grow,” he explains. It’s been a long time since the industry has been hearing words like that.

SEEK OUT SINGLES FOR EXTRA SALES OPPORTUNITY

Life insurance agents who are looking for new prospects might want to mosey on over to the local singles hangout and make some acquaintances. Could be that some of those new contacts will become customers. After all, only 26 percent of single people recall having an opportunity to buy life insurance versus 74 percent of married people, according to Cheryl Retzloff, senior research director at LIMRA Markets. That leaves a lot of room for prospecting.

In particular, single mothers could be a possible source for prospects, at least based on results of another LIMRA survey. That other study found that 33 percent of single mothers who are the primary wage earners in their families have no life insurance coverage at all, and those who do are often underinsured. Those last findings might suggest that the majority of single mothers just are not life insurance buyers. But that might not be the best conclusion.

After all, according to LIMRA, 73 percent of households that shopped for life insurance because of births or adoptions actually bought policies. Those single mothers clearly have a need for coverage, and it looks as if they need an advisor to contact them about it. Might be worth testing out the possibilities.

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FIVE ELEMENTS EVERY SALES SYSTEM MUST HAVE

BY CORY CARLTON

have all seen the industry surveys that indicate consumers are underinsured and that they prefer to buy life insurance from an agent. And yet another survey concluded that almost 20 million middle-market households in the United States want to buy life insurance in the near future.

Life insurance solves a multitude of problems for families and businesses, and the majority of consumers want to meet face-to-face with an agent to solve these problems instead of simply buying it online. But unfortunately, most agents treat this product and the sales process like they are selling a commodity.

When you treat the life insurance sales process the same as if you were selling a commodity, the consumer will respond in the same fashion, making their buying decision as if insurance is a commodity.

The initial point of contact with your prospect is a critical piece of the process that sets the stage for establishing a sale. Producers who operate

We

30

InsuranceNewsNet Magazine

March 2012

at the top in our industry understand this fundamental. More importantly, these top producers have a systematic way to assist their prospects in understanding what is in the way of accomplishing their financial goals or taking care of the family or business after their death. Top agents also understand the importance of having a systematic way of always being in front of a large volume of new prospects.

Build your insurance career on fundamentals. Fundamentals are the key to accomplishing your financial goals.

Chasing leads or trying to market the latest and greatest product will provide very little success and put you in the position of always looking for a better lead or the next new product.

Find a sales system that fits you. There are many sales systems available that will align with how you want to build your business. Effective sales systems do not have to be expensive or labor-intensive to learn. Price and training should not be barriers for you in choosing the right sales system.

Today’s top producers are not any

different from yesterday’s legends. To be truly successful, you need to have a system that helps you effectively prospect, uncover your client’s need, and then solve that problem.

So what, exactly, should you look for in a successful sales system?

For a sales system to be effective, it must: HELP you prospect easily and effectively.

LEAD the prospect to want you to solve their problems.

SOLVE the prospect’s problems with a simple point-of-sale process.

GIVE you the opportunity to sell massive amounts of life insurance.

BE EASY to repeat so that it can be sustained over the balance of your career.

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LIFE | FIVE ELEMENTS EVERY SALES SYSTEM MUST HAVE

1

Easy prospecting.

An effective sales system starts with prospecting. The prospecting process needs to be simple and easy for you so that it is done the same way each and every time. Your prospecting process should be economical and efficient.

The most important piece of your prospecting process is that it should immediately position you as a professional in the prospect’s mind. That sets the stage for your prospect to want you to follow up with an appointment.

How can you accomplish that? Use informative and professional thirdparty material that educates the prospect about problems that can be solved by using life insurance. The key is that this material needs to be professional, informative and presented to the prospect as a “gift” (something of real value).

You will be amazed at how effective and economical this is.

2

Most insurance companies see only policies.

Correct follow up.

The second part is the follow up to your prospecting. When prospecting is done correctly and you call your prospect to follow up, your prospect will definitely want to meet with you.

That’s because both the initial contact and follow up have positioned you as a financial problem-solver, not a commodity-product pusher.

Give your client time to review the educational information you provided.

It will evoke questions from the prospect that lead to you determining a time to set an appointment.

3

Effective client appointment.

The third part is the client appointment.

This meeting should build on the first two points of contact (prospecting and follow up) with the prospect. At this first of two interviews, the client will be eager to share with you their financial dreams and goals. With the right series of questions, the prospect will share with you the financial commitment they can make to accomplish these goals.

Prospects respond better when they can easily understand what is being said and what their financial commitment can achieve. The sales presentation will be effective with a specific stepby-step process for each topic, including retirement, college funding and goal planning.

4

Strategic plan design.

5

Easy close.

The fourth part is taking the financial commitment the prospect gave you back to your office to design the appropriate plan that helps the prospect accomplish their goals. Your sales system should give you a clear, logical way to translate their goals into a solid plan.

Use all resources at your disposal to make sure the most appropriate plan is deployed for your prospect. Take advantage of the planning and case-design experts at various companies and firms to make sure you take the best plan to the closing appointment.

The fifth and final part to a successful sales system is an effective second interview and close. This is when you take the plan design to your prospect, demonstrating how they can achieve their financial goals and dreams using your strategies and customized product recommendations. You close the sale knowing you have done the right job for your client and their family.

Making sure your sales system has these five key ingredients will ensure your success. That is what is so great about our business; we can help others attain what they want while accomplishing our own financial goals and dreams, too. In fact, you can be one of our industry’s top agents—but it all begins by having the right sales system first.

Cory Carlton works in the marketing department of Oak Tree Brokerage, a life and annuity brokerage that offers exclusive sales systems and training, helping agents build and grow their business. He can be reached at Cory.

Carlton@innfeedback.com or 800842-9124 ext. 155.

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[ ANNUITY WIRES] Booster Shot for

ANNUITIES

The Treasury and Labor departments have laid out some proposed regulations and final rulings that should help make annuities more broadly available in and with employer-sponsored retirement plans. The initiatives could be a boon for advisors in the individual, non-qualified annuity market and those in the employer plan market, because the documents essentially condone the use of annuities for lifetime retirement income purposes.

This move follows a 2010 request for information from Treasury and Labor, seeking input on ways to encourage lifetime retirement income options, an analysis of the 800+ responses that came in and two days of public hearings.

The documents are designed to “give employees and employers more options for putting the ‘pension’ back in our private pension system,” according to a Treasury fact sheet.

The proposed regulations focus on annuity issues and, if adopted, they would: 1) encourage inclusion of partial annuity options in employer-sponsored retirement plans; 2) remove a key obstacle to retirees purchasing deferred longevity annuities (which start the income stream many years after purchase); and 3) clarify plan rollover rules involving purchase of annuities.

For advisors, those measures could become door-openers to meaningful conversations with clients about retirement planning and options. For instance, the Treasury fact sheet points out that “a life annuity provided through a defined contribution plan, an IRA, or otherwise” is one source that retirees can use to obtain a guaranteed and predictable stream of lifetime income. And this, the document continues, “can be a valuable way for retirees to protect themselves from financial risks, especially the risk of outliving their savings.”

There’s more to come, too. According to the Treasury, the proposals are “only a first step in clearing the way for better and more accessible retirement income options.” It says the initiatives will be followed by “continued dialogue and further retirement income guidance from both the Treasury and Labor departments later this year.” In the meantime, the proposed regulations are available for viewing and comment at regulations.gov.

INDEXED ANNUITIES ARE RISING STARS

A new study from Conning Research & Consulting sees the growth in indexed annuities as a sign of the times. As early as 2005, the researchers recall, the business had been under intense pressure due to ongoing uncertainty about which distribution channels could sell the products, the negative publicity about product design and the thenimproving status of equity markets.

But now it’s another story. Low interest rates are curtailing consumer interest 34

InsuranceNewsNet Magazine

March 2012

in traditional fixed annuities. Plus, the equity market volatility is diminishing consumer appetite for variable annuities, thus “enhancing the case for indexed annuities,” the researchers point out.

Sure, sounds great—but Conning Director of Research Stephan Christiansen adds a word of caution. The indexed annuity’s guaranteed investment return and potential to earn extra index-linked returns is particularly appealing to consumers today, he says, “but those same conditions have made

this a difficult operating environment for insurers.” So here’s the rewrite: things have been great in the index annuity-land of late, but the industry is facing challenges too … buckle up!

EXCLUSIVE DISTRIBUTION IS GETTING POPULAR

Is exclusive distribution of indexed annuities heading for trend status? It’s probably too early to call, but here’s a heads up for advisors in any case: two carriers have already announced exclusive initiatives this year. First out of the gate was Security Benefit Corporation, a Guggenheim Partners Company.

In the second quarter, it plans to start exclusive distribution of a new fixed index annuity through four independent marketing organizations. The exclusive distribution model it will use builds on the insurer’s experience with the “limited distribution model” it used last year when introducing another fixed indexed annuity.

Next up is Allianz Life, with its exclusive launch of the Allianz 365i Annuity and an optional Income Maximizer Rider (for guaranteed lifetime income withdrawals) through FMOs and agents associated with the Allianz Preferred distribution model. And, get this: the new annuity is the second product to be offered solely through the preferred network. But the year is still young, so who knows what other exclusive arrangements might be on the way…

Go to AnnuityNews.com for exclusive sales ideas and more!

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@Annuity_News

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B Y C H R I S J . B R O W N A N D L A U R A H . VA R A S

ith the aging U.S. population, many financial professionals are hoping to see a steady rise in annuity sales in the years ahead, as Americans convert their nest eggs into predictable retirement income.

Indeed, this uptick may have already begun, but consumers remain uneasy with annuities.

When conducting focus groups with older investors for our retirement and savings research firm, Hearts & Wallets, we often see annuity owners express embarrassment or even apologize for owning this product. Annuity manufacturers and marketers must confront this issue that has a major impact on annuity sales. Can the old adage that annuities are bought and not sold finally be turned on its head for the boomers, or even their children who are sobered by observing their parents’ woes?

Ultimately, the answer will depend on whether insurance companies can be sufficiently creative and flexible to transform the consumer experience amid changing technology, onerous regulations and consumer clutter. But there still is a lot that producers and marketers can do now.

Our data shows that the opportunity is increasing, especially among older, wealthy investors. The major hurdle is, 36

InsuranceNewsNet Magazine

March 2012

however, that many Americans place little faith in these products and the companies behind them. Changing the perception of these firms and products remains a key challenge for anyone seeking to expand this market. And perhaps most importantly, for advisors who are challenged with helping millions of aging Americans generate a secure income from the assets they’ve worked decades to accumulate.

The Expanding Opportunity Among High-Net-Worth Each year, Hearts & Wallets conducts its, “Investor Quantitative Panel,” which is an online survey of more than 4,500 U.S. households on their finances and financial attitudes, concerns, relationships and experiences. We analyze and publish this data in a series of syndicated “Insight Modules” and prepare customized analyses upon request.

Reviewing the data on the interest in and ownership of annuities reveals a prime opportunity for sellers and marketers of annuities. Although ownership of annuities among households in which the key decision maker is 55

or older remained relatively flat from 2010 to 2011, ownership among highnet-worth households (those with $2 million or more in investable assets, excluding real estate) rose from 42 percent to 46 percent. Hearts & Wallets’ annual marketing-sizing study, “Portrait of U.S. Household Wealth,” reveals that this segment controls roughly $9.4 trillion, 34 percent, of U.S. household investable assets.

Even more encouraging for annuity manufacturers and sellers is the percentage of these investors who say that they “don’t own an annuity [now], but are interested in learning more” about

32% of high-net worth investors are interested in learning more about annuities. them, which jumped from 23 percent to 32 percent. At the same time, the potential resistance declined. The percentage of households that indicated that they “don’t own an annuity and are not interested” in them fell from 35 percent in 2010 to 22 percent in 2011.

This suggests that selling annuities to older high-net-worth investors should be a lot easier in the future. However,

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ANNUITIES | ANNUITY ANXIETY

other data collected by Hearts & Wallet suggests that, despite these numbers, annuity sales will remain difficult for the foreseeable future. But our research also reveals ways these difficulties can be overcome.

Annuity Ownership and Interest Among Households Aged 55+ with at Least $2M in Investable Assets 3% 2%

6%

9%

35%

A Loss of Faith Many investors have serious concerns about the reliability of insurance companies. As part of Hearts & Wallets,’ “Quantitative Panel: 2011,” we asked investors to rate several retirement income product and service concepts and their attributes, such as “income floor,” sustainable withdrawal and timebased buckets approaches. Some of the most interesting findings were investor opinions about the underlying attributes of each offering.

For example, 36 percent of those ages 55 and older agreed with the statement: “I am concerned about the insurance company behind the annuities going out of business.” If the less affluent are fearful, the affluent tend to be cynical. Only 35 percent of highnet-worth households aged 55-plus agreed with the statement that “guaranteed investments like annuities or CDs give me peace of mind.” Why don’t guaranteed products like annuities provide peace of mind to roughly two-thirds of these investors? At least one likely primary driver was uncovered through our focus group work.

Before taking the “Investor Quantitative Panel” to the field, Hearts & Wallets tested out some of these concepts for our qualitative-based research report, “Reactions to Retirement Income Concepts.” Many times during the focus groups, which were held with affluent and high-net-worth investors in their 50s and 60s, we heard strong doubts expressed about the financial strength of the annuity issuers. In discussing annuities, one participant stated to the others, “It’s not safe, it’s not guaranteed—it’s only as strong as the company is.” Another participant asked, “Is it insured? Is it really guaranteed? What happens if the company folds?” We could fill many more pages with quotes like these.

38

InsuranceNewsNet Magazine

March 2012

Interest in Annuities Among Households Aged 55+ with at Least $2M in Investable Assets

22%

37% 30%

32% 23%

2010

2011

2010

2011

Own annuities and planning to cut back

Don’t own annuities and have no interest

Own annuities and planning to add more

Don’t own annuities, but interested in them

Own annuities, no plans to change

Earning Back Investor Trust Given the collapse of AIG along with other leading financial institutions, investor concern about insurance company solvency is not likely to dissipate anytime soon. Today, anyone selling annuities has to make a strong case as to why the company they’re recommending is financially strong and likely to remain so for a long time.

They’ve got to establish credibility on behalf of the firm making the guarantee. The guarantee is meaningless otherwise.

Furthermore, given the poor image of rating agencies in the wake of the Fannie Mae and Freddie Mac melt-downs and the downgrade of U.S. debt, just offering up an opinion from a rating agency is not going to cut it. Advisors need to be able to discuss the firm’s history and how it has survived economic turmoil in the past, how it manages its assets and reserves, and why this means the company is highly likely to remain solvent for decades to come. Another key driver our research has shown is that they need to clearly disclose the fees and commissions they earn from selling product— but that is an issue for another article.

As the data on annuity ownership

Source: Hearts & Wallets “Investor Quantitative Panel”

and interest among older, high-networth households show, there is a tremendous opportunity for annuities to capture more investors and a larger share of their investment dollars. (See accompanying chart.) However, success that is achieved because investors lack a better alternative, as opposed to actually liking the product they’re buying, is likely to be fleeting. There are alternatives to annuities for generating income streams today and there will be even more introduced to the market in the years ahead—annuity providers, and advisors who encourage their clients to buy them, will need to do a better job convincing buyers that the guarantees really mean something. We hope to see fewer embarrassed annuity owners in future focus groups, and perhaps even some proud ones, too.

Chris J. Brown and Laura H. Varas are co-founders and principals of Hearts & Wallets, LLC, the research firm whose multiyear retirement and savings investor research series is outlined at www.heartsandwallets.com. Brown is also founder and principal of Sway Research LLC, and Varas is also president of Mast Hill Consulting Inc. They can be reached at either Chris.Brown@innfeedback.com or Laura.Varas@innfeedback.com.

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ANNUITIES CURE

ASSET LOSS FROM HEALTH EXPENSES

BY RON MASTROGIOVANNI

recent report from Credit Su i sse est i mates t hat health care eats up 33 percent of income for people 60 or older. Housing and food combined came in second at a distant 23 percent. This certainly supports surveys that consistently reveal overwhelming anxiety among retirees and pre-retires about rising health care expenses and the lack of financial planning focused on addressing this issue. It’s a legitimate concern.

About 78 million boomers will retire in the next 20 years, so the need is gargantuan for professional guidance on options that can cover out-of-pocket healthcare expenses. The good news is that excellent solutions already exist. It is simply a matter of educating advisors on how they can effectively use existing products to fund these rising health care costs in retirement.

actuarial data with individualized variables —including age, gender, health condition, lifestyle and chosen retirement age— in order to calculate healthbased life expectancy and total healthcare expenses. Once an advisor has a reasonable estimate of what these future healthcare costs could be, they can create concrete, focused financial plans within minutes that can provide clients with a stable income stream that withstands unforeseen medical costs throughout retirement.

data to estimate costs from ages 65 to 88, the advisor emphasizes several important findings:

Let’s examine a case study.

3) By age 75, John will be responsible

A financial advisor meets with John Q, a healthy 55-year-old that’s open to developing a plan to finance his retirement healthcare expenses. He expects to earn less than $85,000 per year in retirement and when he retires at age 65, will sign up for Medicare A, B, D, and Gap coverage. After using actuarial

What, exactly, is everyone waiting for?

Pre-retirees are distressed about skyrocketing healthcare costs because they have no idea how to quantify what these costs are for current retirees, let alone calculating how much they’ll need during their own retirement. The opportunity is ripe for innovative new approaches to solve the problem.

Today, a handful of firms are quantif ying the problem by combining 40

InsuranceNewsNet Magazine

March 2012

grow at around 7 percent or greater per year during John’s life.

2) Out-of-pocket healthcare costs will

typically start at around $5,700 per year and will rise over time as inflation, premium increases, benefit reductions, and deteriorating health take effect. for approximately $12,500 per year in healthcare expenses, and more than $25,000 per year by age 85.

4) Based on actuarial data, John will

likely be expected to spend about $370,000 for health care during his retirement as shown in the graph below.

Expense Breakdown

19.3% 34.5%

1) Healthcare expenses are expected to

This chart illustrates the breakdown of projected healthcare expenses in retirement. Amounts are expressed in future dollars. Source: HealthView Services

46.1%

JOHN Q. SAMPLE–$369,020 Hospitals, doctors & tests premiums– $127,410 Prescription drugs premiums–$71,340 Supplemental premiums– $170,270

ANNUITIES CURE ASSET LOSS FROM HEALTH EXPENSES | ANNUITY

How the Annuity Works

Initial Investment Value Value at age 65

Source: HealthView Services

Age

Annual Net Return

Income Base

Withdrawal Amount

Annual Healthcare Expenses

Withdrawal Rate 4% Low Risk Investment Rate 2%

$60,000 $183,409

Unmet Healthcare Expenses

Additional Income

Low Risk Investment

55 -3.7% $60,000

60 13.3% 113,815 65 23.5% 183,409 7,336 5,680

1,656 1,689 70 15.0% 291,230 11,649 8,420 3,229 11,019 75 -11.2% 476,366 19,055 12,350 6,705 50,885 80 9.9% 535,913 21,437 17,740 3,697 68,028 85 -1.3% 402,781 16,111 25,160 9,049 48,153 86 5.7% 425,618 17,025 26,980 9,955 38,962 87 -11.7% 375,821 15,033 28,910 13,877 25,586 88 7.4% $403,632 $16,145 $30,620 $14,475 $11,334 TOTAL WITHDRAWALS MADE

By using this very specific data, the advisor can then tailor a savings plan to address John’s needs.

Talking to clients about saving for items like orthopedic shoes instead of lu xuries like a vacation home isn’t glamorous. It doesn’t get people excited.

But consider an emerging philosophy: Those entering retirement can buy a less expensive car, downsize their home or take fewer vacations. They cannot “cut back” on the increased costs of health care as they get older.

Leisurely walks on island beaches and Mediterranean cruises are wonderful aspirations for retirement. However, if an advisor doesn’t guide pre-retirees to plan for how to pay for snowballing health-care costs, those nice trips will by necessity be replaced by trips to the park with the grandkids and exploring exotic locales on rented DVDs.

The solution.

Boomers understand that downsizing health care is simply not an option. So what is the solution?

First, let’s establish that the goal of this type of savings program is

$372,895 $369,020

TOTAL HEALTHCARE EXPENSES

not grow th or accumulation, but safety. New Medicare subscribers will increase at an average of 10,000 per day for the next 20 years. This will translate into one of three scenarios: either Medicare premiums will rise or benefits will decrease, or both. Regardless, it is an inarguable fact that healthcare expenses are going to continue to escalate. So the question becomes: what is the best investment vehicle to use?

Annuities can be a viable health care funding option for boomers. Although annuities have their share of critics, many are very safe financial vehicles that can create a stable, predictable income, similar to a pension, throughout retirement.

From an advisor’s perspective, a narrow focus is often more appealing to clients, which ultimately leads to a shorter decision cycle and a larger investment. Of course, the choice of which type of annuity suits a particular investor is best left to the advisor.

Options are available to satisfy all risk tolerances.

As shown in the chart above, if John invests $60,000 at age 55 in an annuity that guarantees a withdrawal rate of

REMAINING BALANCE

4 percent, it should generate a bit over $400,000; enough to cover the total projected cost of health care throughout his retirement. Also, note that the excess amount withdrawn for the first 10 years can be re-invested in a variety of instruments including a safe, lowinterest product, to grow along with the annuity.

In these uncertain and historically volatile times, when triple-digit swings in the market are becoming commonplace, annuities that can generate stable and predictable withdrawals may easily become an increasingly vital component of a successful baby boomer’s retirement investment strategy.

Ron Mastrogiovanni is CEO of HealthView Services, and co-founder of FundQuest. HealthView Services is a software firm specializing in financial planning, retirement planning, retirement income management, and health risk assessment tools and solutions. FundQuest is, a well-regarded provider of wealth management solutions for financial institutions, including banks, insurance companies and investment product firms, where Ron’s team managed more than $12 billion in assets. He can be reached at Ron.Mastrogiovanni@innfeedback.com.

March 2012

InsuranceNewsNet Magazine

41

[ HEALTHWIRES] CLASS Act Moves One Step Closer To Extinction In a 267-159 vote in early January, the U.S. House of Representatives passed a bill that would wipe off the books a voluntary long-term care (LTC) program created by the Affordable Care Act (ACA). The program, which never saw light of day, was to have been the offspring of ACA’s Community Living Assistance Services and Supports (CLASS) Act. Health and Human Services Secretary Kathleen Sebelius had suspended the program last fall due to long-term solvency concerns, but the Republicancontrolled House has been vowing to make sure CLASS could not come out of suspension in the future.

Hence, they introduced and successfully passed a new bill, H.R. 1173, to kill CLASS. But the game is not over yet. The legislation now goes to the Senate, and an A.M. Best report says the bill is expected to face an uphill battle in that Democrat-controlled body. Under the CLASS Act, Americans would have been able to participate in the LTC program if they paid monthly premiums into the plan for five years, after which time they could have received $50 or more a day to help pay for LTC services.

Consumers were confused about the program from the very start, and that’s if they even knew about it. Now, advisors who had done some consumer education about CLASS may be faced with the task of re-educating clients—that the program is close to the chopping block. It’s not even eligible for LTC services, so to speak.

ANOTHER FEDERAL HEALTH CARE BILL IN THE WINGS

If the U.S. Supreme Court rules that a part or all of the Affordable Care Act (ACA) is unconstitutional, as the challengers hope, what would happen next? It appears the Republicans will have their own health care plan on ramp, ready for legislative debate.

That’s according to an Associated Press (AP) report which says House Republicans are already drafting their own health care bill.

Among other things, the replacement bill would feature provisions such as malpractice reform, high-risk insurance pools for those with pre-existing conditions as well as tax breaks for individuals and small businesses, AP says. Rep. Joe Pitts, (R-PA), chairman of the Subcommittee panel on Health DID YOU

KNOW

?

42

for the House Energy and Commerce Committee, started talking up the plan with reporters in late January, after Congress had gotten underway with its new session.

Sounds as if the health care “reform” debate may—once again—end up on the national agenda. But no one knows what the high court will do so, as of now, no one is crystal-balling the outcome.

IT’S TIME TO GROAN, AND LOOK FORWARD

In 2011, the cost of health care in the U.S. totaled $2.57 trillion, according to The Institute for Alternative Futures. That is equivalent to 17 percent of the gross domestic product (GDP). The nonprofit think tank projects it to grow to 20 percent of GDP by

TWENTY-EIGHT STATES are on the way toward setting up Affordable Insurance Exchanges as provided for under the Affordable Care Act. Source: The White House

InsuranceNewsNet Magazine

March 2012

2020. More jaw-droppers: health care premiums have increased 131 percent since 1999, compared to a 38 percent increase in workers’ earnings and an overall inflation rate of 28 percent during the same period.

But other predictions are less commonly expected, such as that community health centers will give high-quality care to low-income people, and that there will be personal health avatars and doctors operating remotely. To look forward, download “Primary Care 2025: A Scenario Exploration” at altfutures.org.

HEADS UP ON DEDUCTIBLE CREDITS

Some health insurance companies offer a deductible credit in their policies, according to GoHealthInsurance.com. These plans give insureds a credit if they don’t meet their yearly deductible, the firm says.

For example, let’s say the insured has a plan with a $10,000 deductible. If the insured didn’t meet that deductible in 2011, having only spent $2,000 into it, then the insured’s deductible for 2012 would be only $8,000.

“This is a great benefit for any consumer who doesn’t use health care services frequently,” says the online health insurance comparison resource.

THE WELLNESS BENEFITS PUZZLE

Forty-one percent of workers say wellness programs encourage them to work harder and perform better, according to the 4Q 2011, “Principal Financial Well-Being Index” survey. Workers and employers, however, aren’t on the same page - the top four wellness benefits that workers would most like to see their employer offer are: fitness center discounts (25 percent), onsite preventive screenings (22 percent), access to wellness experts (21 percent) and onsite fitness facilities (19 percent).

But the top four that employers offer are: online wellness info (19 percent), educational resources (18 percent), fitness center discounts (17 percent) and printed wellness info (17 percent).

@InsNewsNet

David McKnight

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gents who sell disability insurance (DI) to high-income professionals often admit that the call they most dread receiving from a client is the one that begins with these five words: “My claim has been denied!”

Often a mixture of accusation and outrage, the client’s harsh tone immediately triggers the agent’s defenses. What went wrong? Why didn’t my client tell me he was filing a claim? Am I responsible? I heard one agent confess that he’d rather have a dozen root canals without anesthesia than deal with a client who was blaming him for a disability denial.

In this fast-paced world, physicians, dentists, attorneys, investment bankers and other high-income executives are often content to believe that they’ve purchased a guaranteed, sustained income stream that will automatically kick in should they ever become disabled. Frequently, these clients are short on time when they purchase the policy and avoid reading the fine print on spot or familiarizing themselves with the contingencies of their coverage—despite the fact that they often have multiple policies with yearly payouts well in excess of a halfmillion dollars!

One agent related an incident about a stockbroker who waved off her offer to go over the terms of his various policies with him, chuckling as he walked out the door that there’d “be time for that later,” and he’d “be in touch if he ever needed to collect.” Three months later, at age 52, he suffered a major stroke that affected both his speech and his vision, leaving 44

InsuranceNewsNet Magazine March 2012

BY

GAL N IA VIV

his grieving and baffled wife to sort out the complexities of his disability policies on her own.

Filing a DI Claim is a Complex Process Filing a disability claim is NOT as simple as collecting the payout on a lottery ticket. You don’t just send in the claim and the company pays. It’s an extremely complex and potentially lengthy process that most people are simply not equipped to handle on their own, particularly when facing the major changes that sudden disability can bring. Too much is at stake, and the risk of denial or litigation is far too great.

In recent years, insurers have stepped up their efforts to identify fraudulent claims, which have in turn made the process even more complex—by filling contracts with countless options, confusing terminology, conflicting definitions of disability, criteria for exclusion, renewability, premium increases, riders, etc.

If a “hurried” stockbroker couldn’t deal with the details of his policies when he was seemingly “healthy,” imagine how his wife must have felt when left to handle matters on her own.

A Case in Point: When Advice Was Seriously Needed Over the course of his 25-year career as a highly respected gastroenterologist, Dr. Howard Richter purchased four individual, long-term disability policies.

As his practice and reputation grew, so

LO

did his family and income. By the time he reached his mid-50s, he was earning well in excess of $750,000 yearly, the vast majority of which was attributable to the colonoscopy, gastroscopy and endoscopy procedures he performed on a daily basis.

Shortly after he turned 57, he began having pain in his left hand and was diagnosed with osteoarthritis, primarily affecting his fingers. At first, his symptoms were well-controlled and he was able to continue his practice on a full-time basis. Over the next 12 to 18 months, however, his condition gradually worsened, making it evident that he was nearing the point where he would no longer be able to perform such procedures.

Reluctantly, because he had two children still in expensive universities and had just purchased a second home, Dr. Richter began to consider filing for disability. After consulting with his wife, he contacted his agent who assured him that “all four policies provided lifetime benefits for disabilities resulting from illness.”

Taking the agent at his word, Dr. Richter first did some financial calculations, factoring in the impact of his tax category and discovered that his benefits from all four policies would only replace about a third of his prior income.

His calculations shocked him since he had always assumed he’d be adequately covered if he ever had to give up his practice. Suddenly, he was faced with the very real prospect that his family might need to modify their current lifestyle.

Belonging to a large group of physicians, at first he considered modifying

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HEALTH | THE HIGH WIRE ACT OF HIGH-NET-WORTH DI CLAIMS his activities and continuing as a general practitioner. This would reduce the income from his practice substantially but would at least enable him to continue working and derive some additional income to help meet expenses.

Fortunately, Dr. Richter did not make that decision, which would have had a serious impact on his disability income as well as his career. Instead, he discussed this possibility with his colleagues, who were dismayed that he was moving so quickly and strongly recommended that he contact a disability claims consultant before he went any further in making such life-altering decisions. Considering the seriousness of his situation, Dr. Richter agreed.

After realizing that Dr. Richter was still hazy about many aspects of his coverage, one of his colleagues gave him the name of a local long-term disability claims consultant specializing in high-income disability, and Dr. Richter contacted her immediately. She asked him to send her his four contracts for review before arranging a meeting to go over the findings with him. Her goal was to give him a clearer understanding of how each policy defined disability relative to his individual situation and alert him to any red flags she discovered that might negatively affect his prospective claim and payout.

The consultant’s first concern was that Dr. Richter’s agent had assured him that all four policies provided lifetime benefits—that is rarely the case without contingencies. And, secondly, that he was seriously considering changing the focus of his practice—never a smart move without also considering the impact of that decision on the disability claim.

After reviewing all four policies carefully, she realized that the situation wasn’t quite as clear-cut as his agent would have had him believe. Riders had been included in all policies that tied the payment of lifetime benefits to the claimant’s age at disability. Two policies, however, provided lifetime benefits only if the disabilities commenced before age 60, and the remaining two only if the disabilities commenced before age 55.

When he had purchased these policies, his agent hadn’t pointed out these distinctions, and Dr. Richter himself had failed 46

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to do his own due diligence. He had never read his policies through carefully before or after purchasing them. Although only 57 when his symptoms began, he was now nearing 59 and his consultant had to break the news to him that he was only eligible for lifetime benefits on two of the policies instead of all four.

Had he waited a couple of years to file in order to avoid jeopardizing his income stream until both his children had graduated from college, however, the outcome might have been far worse. Once he turned 60, he wouldn’t have been eligible for lifetime benefits on any of his four policies.

First the Bad News…

Then the Good Even though Dr. Richter now realized his income stream was likely to be far less than he’d originally calculated, the consultant reassured him that, although the other two policies would not provide a lifetime benefit, he was still eligible for benefits through age 65 with those policies.

She also pointed out that he was fortunate that all four policies defined “total disability” as the inability to perform the “material and substantial” duties of one’s occupation (in Dr. Richter’s case, the duties of a gastroenterologist). Since those duties involved performing complex procedures, she advised him that insurers might deny his claim for “total disability” on the grounds that he could still continue to see patients without doing procedures.

To prepare for that possibility, she asked that he thoroughly review his records before filing his claim to confirm and document the fact that colonoscopy, endoscopy and gastroscopy procedures accounted for more than 70 percent of his income, as he had estimated.

Despite the additional paperwork involved, Dr. Richter took great care to provide comprehensive medical and supportive documentation, making it clear that performing those procedures constituted the vast majority of his duties and income, and as such represented the “substantial and material duties” of his occupation as a gastroenterologist.

The time he took to contact a disability claims consultant before filing his

claim paid off. Not only did it give him a better understanding of the terms of his coverage, it alerted him to possible pitfalls in filing that might have resulted in his claim being denied. He also had the opportunity to discuss his options for continuing to practice medicine while collecting “total disability” under the terms of his contracts. And finally, he had a source to turn to should his insurers respond with questions about his claim.

Both his wife and his colleagues were reassured to learn that he had abandoned his previous plan to become a general practitioner and chose instead to continue working within his group practice.

With the consultant’s help, he filed under all four policies and was delighted to learn that all four of his claims for “total disability” benefits were approved.

Assured of lifetime benefits under two policies and benefits through age 65 from the other two, Dr. Richter then felt confident about modifying his activities within the group practice. Although his earnings were reduced, he was simultaneously receiving tax-free “total disability” benefits as a disabled gastroenterologist, which allowed him to make only minimal changes in his lifestyle while still maintaining sufficient income to sustain his previous standard of living.

Had Dr. Richter transitioned to a different area of medicine as he had initially considered doing, he could never have received total disability benefits as a “disabled gastroenterologist.” Of equal importance, had he later become disabled as a “general practitioner,” “total disability” would then have been based on his current occupational duties. This would not have involved the performance of the highly-specialized procedures he performed as a gastroenterologist, thus making it far more difficult for him to qualify for benefits.

Vivian Gallo, CLU, CSA, AEP, CLTC, a long-term disability claims consultant, is founder and principal of Health Resources Consultants.

For 16 years, she has assisted highincome individuals in filing long-term disability (LTD) claims. Visit www.

HealthResourcesConsultants.com for more information or call (914) 472-2223. Vivian can also be reached at Vivian.Gallo@innfeedback.com.

NAIFA provides the unique training, education and networking opportunities independent advisors need to grow their business.

Find out more at www.NAIFA.org/ItPays

A HIDDEN GEM FOR PROSPECTING SUCCESS B Y I RV I N G K AT Z

H

ow would you like to have a steady stream of financial services prospects that match your ideal client profile—without breaking your bank account? If you’re like me, you have probably spent many dollars over the years on sales and marketing lead programs that resulted in marginal, if not poor, results. But what if I told you there is a way to find qualified prospects that match your ideal client that you’d like to clone?

This idea came to me by analyzing my business model and understanding how I found my best clients. I also studied what didn’t work and why. What became apparent from my research was that, as our industry experts tell us, our best marketing and prospecting methods are referral based.

Following that advice, my business has been built on client referrals and introductions from other professionals. I even coined an acronym for getting referrals from other professionals.

I call it SARP (Strategic Alliance Referral Partnering).

Who are your SARPs? Just ask yourself this question: what other advisors or professionals have my ideal client as their best clients, or who are the professionals who also serve my ideal clients? If different professionals are working with the same type of client, then we can crossrefer each other since our mutual clients need more services than only one of us can provide.

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Although I have used other professionals to build my business, I did not have a formalized program. After thinking about all of the networking I have done over the years, it clicked for me.

My thinking process was: what if I combined my SARP prospecting with networking? What would that look like and how would that work?

It would need to be part networking, part fun and part educational. There would also need to be structure to the group and to the meetings. We would need to decide ground rules, how often to meet and where. All groups need structure for meetings and rules to follow. Those are decided between the leader and the members during organizational meetings.

These organizations are often called “mastermind groups,” a concept that Napoleon Hill discussed in his seminal book, Think and Grow Rich, first published in 1937.

The first step is to determine who should be invited to join the mastermind group. Before I decided on who I should invite, I identified my ideal client as a business owner over the age of 45 who has been in business for 10 years or more, owns a company that makes $3 million-plus in annual sales and has 15 or more employees.

I sent invitations to my best SARPs who had clients that matched my ideal client and also asked those invitees to suggest names of their SARPs for membership invitations. Having a good database will make this a smooth process.

For my group, I determined that the following types of professionals gave me referrals and introductions to my best new clients: » CPAs and enrolled agents that had many business owners as clients, but did not want to be financial advisors. » Health insurance agents specializing in employee benefits, but did not work in the area of employer, executive benefits or succession planning. » Commercial property and casualty insurance brokers specializing in workers compensation and liability insurance issues. » Payroll service professionals who were happy to build a payroll practice. » Human resource professionals who enjoyed the challenge of solving HR issues. » Virtual CFOs who were working with several businesses at one time. » Attorneys who worked with business owners on their issues like transactions, incorporations or estates and trusts. » Business brokers and merger & acquisition specialists. » Commercial real estate brokers working with business owners. » Business coaches who have clients who run their own companies.

THE POWER OF THE MASTERMIND | FINANCIAL And here is the letter I sent to my SARP’s to recruit members for my first group meeting:

If you like my letter and want to use it in your marketing, just be sure to get compliance approval.

Working with business owners is my passion and life’s work.

Should you work in a different market, you can still ask yourself: who is working with clients that are demographically similar to my ideal client?

Mastermind groups are efficient, cost-effective and best of all—they work. I welcome learning of your successes stories in starting and growing your own mastermind prospecting and marketing groups, too.

Irving Katz, MBA, MSFS, CLU, ChFC, is an author, MDRT life member and family business coach.

Irving has published two books, “Family Business Secrets: How to keep your business thriving from generation to generation,” and “Family Business Secrets: A Field Guide for Advisors.” He can be reached at Irving.Katz@innfeedback.com.

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MDRT INSIGHTS | BY RANDY L. SCRITCHFIELD

Cultivate Critical Self-Management Habits With ‘My 3 M’s’ product mix of our offerings—investments, life insurance and managed money. Assessing, tracking and monitoring are very important to our business model.

Manage Quarterly I’ve set a rule to question or change my process only four times a year. It’s not necessary to inquire on a daily, weekly or even monthly basis. If it was a wellthought-out plan in the beginning, it should make sense to implement it for at least one full quarter.

At the end of a given quarter, my team and I analyze the progress we’ve made, taking a close look at revenue and adjusting any prospecting or marketing techniques to determine what’s needed for the year. We measure the results against our business plan, and that’s when we’ll consider adjusting our process in any significant way.

When doing a quarterly review, the most crucial concept is to be selfanalytical and to work with a third party such as a business coach, advisory board or study group. You can also reach out to business partners, spouses, accountants and legal advisors for assistance.

The “My 3 M’s” system keeps me focused and prevents me from forgetting any meetings, reviews or follow-ups. My involvement in the Million Dollar Round Table (MDRT) has helped me enhance this system as well as my self-management habits.

W

hile building my success- But rather, it is a list of freshly compiled ful practice, one of the most activities requiring immediate attention, valuable “habits” I’ve devel- always keeping in mind the potential of oped is to review constantly and system- something new arising. atically how I have spent my time and Looking at my day, I identify my top then reassessing how I will spend it in projects and prioritize my time from there. the coming day, week, month or quarter. The first project may be urgent or imporI have always felt time management is tant such as preparing for a client meetmore about a plan of execution than it is ing or meeting a pressing deadline. The about actual time. I use a system I refer production activities may include people to as “My 3 M’s.” It’s the process of mea- I saw, proposals mailed and client reviews. suring weekly, monMany of us itoring monthly and learned early in the “Regularly conducting managing quarterly. business the phrase, a strategic time This habit is a “See the people and crucial skill for an management assessment the business will folhelps to remain efficient low.” The resulting advisor, entrepreneur or salesperson production is meaand effective.” to acquire. Regularly sured but I, as the conducting a strategic time management producer, am primarily focusing on the assessment helps to remain efficient and activities—there is a distinct difference. effective—especially as newer and faster Creating a to-do list allows me to prioritechnology continues to add check-list tize my time and effectively measure my items to our day. It is our self-manage- performance for the week.

Randy L. Scritchfield, CFP, LUTCF, ment habits that will enable us to be prois the president of Montgomery ductive and achieve our goals—profes- Monitor Monthly Financial Group in Damascus, Md. sionally and personally.

I refer to my production goals for the As a 27-year MDRT member with current year on a monthly basis. I rec- three Court of the Table and 10 Top of the Table qualifications, he serves Measure Weekly ommend reviewing each month’s results as chairman of the Top of the Table On a weekly basis, I focus on meeting to help put perspective on year-to-date Advisory Board as well as the Ambassadors Task Force. He’s a past member of the MDRT with clients and aim to fill my day with progress made against your goals.

Foundation Board of Trustees and serves on the activities that will generate new business.

Each product line has a goal for that Investment Committee, and is a Diamond Knight I apply very specific tasks to achieve my year, which may include revenue, assets of the Foundation. Randy can be reached at goals from a relatively short to-do list under management and new clients Randy.Scritchfield@innfeedback.com. that I develop at the start of each day. obtained. We also track a very specific Now, this list isn’t 10 to 30 things that may need to be done in the next month. 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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March 2012

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LIMRA INSIGHTS | BY CHERYL D. RETZLOFF

Five Steps that Get More Consumers to Buy

F

ifty-four percent of recent life insurance buyers were first-time buyers, according to a recent LIMRA study. Surprisingly, the study also revealed that life buyers over 44 were more likely than younger buyers to be new customers.

The study examined the life insurance shopping experience from the consumer’s viewpoint as well as how consumers’ experiences during this shopping process influence whether they will buy or not.

And as might be expected: the younger the buyer, the more likely he or she was buying for the first time. But regardless of age, recent life insurance purchasers were more likely to be buying for the first time than just adding coverage.

Why the Shift?

The 50-year decline in ownership of individual life insurance supports the contention that some of these older buyers slipped off the radar screen and have never owned individual life insurance.

And there is another reason, too; insurance sales reps and financial advisors are selling to more first-time buyers today than eight years ago (52 percent versus 39 percent). This indicates that sales reps are pursuing new customers rather than contacting current clients to review and upgrade their insurance coverage as their needs increase. They may be missing opportunities to cross-sell or upsell to existing clients.

Here’s something important to note: research shows that current clients who already have relationships with sales reps or companies should be easier to sell to than finding new customers. The need to review life insurance coverage may come more quickly than sales reps believe. In fact, 39 percent of households that bought life insurance in the past two years thought someone in the household still needed more coverage.

The study also looked at why consumers bought life insurance (see chart).

Replacing income and paying for burial and other final expenses were the top reasons that about half of them bought life 52

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March 2012

insurance. It is important for sales reps to emphasize the uses of life insurance in order to convey its value to clients. If they don’t see the value of life insurance, they won’t buy it. The reasons consumers purchase policies, however, do match up with the needs that the sales reps are stressing.

How Can This Information Help You? LIMRA has developed five recommendations to help get more prospects to buy based on this research: 1. P ractice needs-based selling.

Needs-based selling is very effective.

Prospects who receive needs analyses while shopping are more likely to buy than those who don’t receive them. They also buy larger policies and spend more on coverage.

2. Recommend an amount to buy.

Recommendations to buy specific amounts of life insurance result in larger sales and higher premiums.

Producers, who recommend an amount that their clients should buy, see more clients close the deal and, on average, those clients buy 64 percent more coverage. Buyers receiving recommendations spend $300 more annually than buyers who don’t receive recommendations.

3. Ask for referrals. Half of life insurance shoppers said they would have given a referral to their agent/

advisor if they were asked. Research has found that consumers who are referred by their friends and family are more likely to buy life insurance than those who have not been referred.

4. Review coverage with clients. Reps should talk to their clients about their life insurance needs on a regular basis. Almost half of recent life insurance shoppers admit that someone in their household still needs life insurance.

5. C ross-selling is an important tool. A separate LIMRA study on multi-line companies found that one in three people who buy life insurance from a company other than their auto insurance company do so because they were not aware their multi-line company offered the product.

In the end, while it is important to grow your client list, don’t forget to reach out to your existing clients—people’s needs change over time and it is important that their life insurance coverage is updated to meet them.

Cheryl D. Retzloff, ACS, LLIF, senior research director, LIMRA Markets Research, is responsible for conducting studies related to the middle market.

She can be reached at Cheryl.Retzloff@ 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.

NAILBA INSIGHTS | BY DEXTER UMEKUBO

Personal Relationships Play Powerful Part in Closing Big Cases

A

s a brokerage general agency (BGA) principal for more than 23 years, I have had the privilege and honor to work with some of the most professional and successful financial service producers in the business.

Over the years, some of these producers have become more than just business associates. They have become true friends—and not just to me, but to my wife Audrey as well. Our relationships with these “special” producers were established on a personal level, not simply “business based.” Sharing the same core value systems makes working with these special producers a rich and rewarding experience.

W hen cha l lenges and problems come up in large cases, we work together ver y well. It truly is a team approach—and it helps that we actually like each other, too. So when things go wrong, we’re able to work through the process in a cooperative and collaborative manner, as opposed to a basic vendor/customer style.

Time and time again, it’s our personal relationships with the producers that are responsible for some of our biggest sales success stories. Take this one for example.

One of our special producers was working on a large individual life case that had both health and financial underwriting concerns. It was quite the competitive case with another producer trying to place the coverage, too.

Therefore, a timely and competitive offer would either make or break this case for our producer.

The client had a cardiac history but was treated and doing well. The records, however, still indicated that some follow up work was needed to put the cardiac episode into a positive light from an underwriting perspective. Plus, the insurance was to fund a buy-sell obligation between the insured and his company’s ESOP plan where several key employees were stakeholders.

The challenge was that the company was a “trust company” that didn’t have any “assets,” only revenue because it made its money as a fee on what was being held in trust. So, outside of some office equipment and a building, the real value of the company was in its ability to generate income, which was substantial.

Fortunately, we were able to get all of the financial statements, many years’ worth of previous tax returns as well as the nature of the trust assets, all without compromising the privacy and confidentiality of the trust clients. With this information in hand, we could get financial approval for the amount that the client was applying for.

Now, however, we were left with the challenge for the medical underwriting process. The producer personally took the client to the hospital for a complete cardiac workup (and convinced the applicant to do it at his own expense), obtained authorization to get the medical records and, within one week, we collected all the medical information necessary to make an offer.

Once the offer was made, we called the president of the company to ask if

there was any chance that the reinsurer on this case would be willing to take a second look. Our intent was to get the applicant a better offer than the carrier was able to make, based on the standing reinsurance underwriting guidelines. We knew that the other agent on the case took this to a carrier that shared the same reinsurer and that the other company was contemplating a more “aggressive” offer to win the case.

Because of my personal relationship with the president of the carrier (who has an extensive underwriting background himself), we asked if he could visit with the reinsurer to reconsider all of the facts and the cardiac workup that had been provided.

With their blessing and this extra effort, we were able to get a better offer.

This meant a lower premium for the client, which also meant lower compensation for the producer. Still, it was the right thing to do and everyone involved came out a winner—the client, ESOP, producer, carrier and me, the BGA. This was a multi-million dollar face amount case and, from start to finish, was completed within one month. I won’t disclose how much the producer made, but I will tell you—I’d love to have just one of these kinds of cases a year!

I truly believe that this case would not have happened if it wasn’t for each and every personal relationship that was in place—our relationship with the producer, the producer’s with his client, our relationship with the carrier as well as the carrier’s relationship with the reinsurer.

Dexter (Dex) Umekubo, CLU, ChFC, is the senior managing partner of Producers XL and the 2012 NAILBA Chairman of the Board. NAILBA promotes financial security and consumer choice through the use of independent brokerage distribution. NAILBA member agencies represent 250,000 producers who deliver more than $4 billion in first-year life insurance premiums annually. For more information, email Dex at Dexter.Umekubo@innfeedback.com.

The National Association of Independent Life Brokerage Agencies (NAILBA) is a nonprofit trade association with over 350 member agencies in the U.S. and Canada.

March 2012

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ASK THE

ADVANCED SALES DOCTOR Q:

I have been in the business for more than 10 years, having had great success at first. But I hit a plateau about three years ago and can’t seem to get past it, no matter what I try. Any suggestions?

Rx:

This happens to most producers—especially if you’re using one of the traditional sales approaches. Today’s consumer is harder to reach, harder to sell and they see the so-called “relationship selling” approach as manipulative and self-serving.

To succeed with that approach, you need to compensate for its shortcomings with “personality power.” You need to offset its ineffective sales psychology or contrived language using your intuition, persistence and sustained drive. Your unique set of aptitudes and personality make-up will, however, set a natural limit to what extent you’ll be able to compensate.

Most agents will reach this limit sometime in their career and often makes them lose confidence in their ability to control outcomes and so they simply settle for the status quo. But it seems like you haven’t lost all motivation to succeed to a greater extent, so your answer is to find a more up-to-date sales approach with the right tools to sell in today’s changed market.

Q: Rx:

I strongly believe in whole life insurance but my prospects appear to think I recommend it to boost my commission. How do you counter this kind of thinking?

The media seems to derive a perverse pleasure from bashing the insurance industry and agents. The value of permanent insurance isn’t hard to understand—so its attacks aren’t based on rational reasoning, but on an agenda that targets the whole industry. Media can, nonetheless, make your prospect question your motive so the best strategy is not fighting this at the point of sale.

But if your prospect bought into these claims, don’t continue pressing for the whole life sale. Simply say: “What you’re about to decide is to protect yourself and your family and it does not matter how you do it, as long as that protection will be there for you if and when you or your family should need it. For now, term will

After more than 30 years of coaching and studying insurance professionals and the insurance sales process, Hungarian-born clinical psychologist Dr. Csaba Sziklai (pronounced Cha-ba Sick-lie) has become known throughout the life insurance industry as “The Advocate’s Advocate.” As the author of the “Advocacy System,” Dr. Sziklai has been asked to speak at numerous insurance industry events and has conducted hundreds of sessions for many of America’s top life insurance companies.

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March 2012

accomplish that. Whichever you buy, you’ll have the satisfaction of knowing that your decision was an act of love and responsibility.” Once your prospect becomes a client, your relationship with them will change—they’ll acquire a psychological need to trust you.

Then, within six months or so, you can approach them to convert their term policy to permanent insurance. But this time, you’ll be selling to a different buying motive. You might open your discussion with saying something like this: “Six months ago you decided to protect yourself and your family with insurance, which was a responsible decision you can be proud of. Now, however, I’d like to explain how you can keep this protection, but in a way that is more to your advantage.”

Q: Rx:

I have heard all kinds of recommended answers to the question: “How do you get paid?” But what do you suggest?

When you meet with a prospect, they’ll automatically judge you and your motivation for coming to them— which is usually biased by the prevailing stereotype of insurance agents. Your prospect probably doesn’t see a pressing need for insurance and will assume you just want to make a sale to get the commission.

You have a narrow window to correct this first impression and establish that you have their best interests in mind. People don’t ask a doctor how they get paid because it’s inherent that they represent their interest. When you meet with your prospect for the first time, you need to establish that same expectation.

But when someone asks, just stay calm and say: “I assume you’re talking about monetary compensation? Well, I receive the commission that is standard in the industry from the company that issues the insurance. But my biggest reward is in knowing that I make a difference in people’s lives by helping them secure their financial futures.”

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

Accelemark

www.accelemark.com

877-936-0044

23

Agency Intel

www.agencyintel.com

800-898-7212

15

American Equity

www.american-equity.com

888-647-1371

5

American General

www.agquickticket.com

800-677-3311

7

American National Insurance Company

www.img.anicoweb.com

888-501-4043 Opt. 1

39

Asset Marketing Systems

www.assetmarketingsystems.com

800-319-3440

45

Aviva

www.avivausa.com/joinaviva

800-800-9882

32-33 17

AXA Equitable

www.axa-equitable.com/axa/why-choose-axa-equitable.html

855-275-4292

Brokers Alliance

www.ba-simpleterm.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

800-327-1460

31

Financial Independence Group

www.figmarketing.com

800-527-1155

43

Foresters

www.foresters.com

866-466-7166

37

Gradient Financial Group

www.gradientib.com

800-407-4137

Back Cover

1

Levinson and Associates

www.yourfreecollegescholarship.com

800-375-2279

Inside Front Cover

Life Sales, LLC

www.lifesales.net

800-486-5400

Inside Back Cover

M&O Marketing

www.mandomarketing.com

800-228-5964

49

Midland National Life Insurance Company

www.joinmnlannuity.com

800-895-6143

35

NAIFA

www.naifa.org/itpays

877-866-2432

47

NAILBA

www.agenteoprogram.com

703-383-3081

51

Netquote

www.netquote.com/feb15

877-415-5153

4

Ohlson Group

www.ohlsongroup.com

877-844-0900

13

Petersen International Underwriters

www.piu.org

800-345-8816

29

Prudential

www.worklife65/keepsworking

800-292-0054

3

Wealth Financial Group

www.wfgnetwork.com/INN

888.333.7771

27

off-the-wall sales stories

56

InsuranceNewsNet Magazine

March 2012

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