Families That Flourish

Paul Brooks

Paul Brooks is currently the Director of R&D for InsuranceThoughtLeadership.com. He was the co-founder of Renaissance Inc. and Helixx Group, LLC, innovative companies created to enlarge the value of human life impact. He is preparing to launch his next venture in the area of life worth and value creation. Paul.Brooks@wcinput.com

During the latter half of the 20th century, financial services professionals became very sophisticated in their ability to help people and families manage their tangible assets (money, physical property, etc.) by utilizing planning methodologies like financial planning, estate planning, retirement planning and tax planning. As we move more deeply into the 21st century, managing tangible assets is no less challenging or necessary. However, other developments in the worlds of technology and health, among others, have brought a renewed interest in intangible assets.

Personal intangible assets include elements such as reputation, name recognition, knowledge and know-how. Generally speaking, personal intangible assets are nonphysical and invisible. They derive their value from what they add to other assets; that is, how they figure into the creation of capital. Author Hernando Desoto (The Mystery of Capital, 2002) tells us that capital is not necessarily money. It is, rather, the ability to see in any asset new forms of value that have not yet been exploited.

So why are these non-physical, invisible assets so important? Individuals collaborating with others can combine their unique, intangible assets with physical assets to create new forms of value, be they economic, philanthropic, civic, ecological or spiritual. This value creation spectrum allows each person to participate in ways that are at the core of their being. This has often been referred to as a person’s “calling.”

Os Guinness tells us in his book Entrepreneurs of Life, “That issue — purpose and fulfillment — is one of the deepest issues in our modern world. At some point every one of us confronts the question: How do I find and fulfill the central purpose of my life? As modern people, we are all on a search for significance. We desire to make a difference. We long to leave a legacy. We yearn, as Ralph Waldo Emerson put it, ‘to leave the world a bit better.’ Our passion is to know that we are fulfilling the purpose for which we are here on earth. Deep in our hearts, we all want to find and fulfill a purpose bigger than ourselves. Only such a larger purpose can inspire us to heights we know we could never reach on our own.”

Guinness continues, “For each of us the real purpose is personal and passionate: to know what we are here to do and why. Kierkegaard wrote in his journal: ‘The thing is to understand myself, to see what God really wants me to do; the thing is to find the truth which is true for me, define the idea for which I can live and die.’”

An initial exploration of intangible assets teaches us that at the core of all sustainable family wealth are the family members themselves, each one unique and imbued with his or her own personal gifts. Members of a resilient and flourishing family will not only manage their tangible assets well but will also focus on helping all of its members to define, confirm, grow and apply their intangible assets. In this way family members become more personally confident and capable of contributing both within the family and to the world around them.

Many years ago, one element of this idea called “economic human life value” arose as an underlying construct of life and health insurance. While this principle has since been largely lost as a defining construct of the insurance industry, it is more relevant today than ever—and not just to the insurance industry. It is also relevant to each person, family and community. I include a quote from the seventh edition of Life Insurance by SS Huebner and Kenneth Black, Jr., the primary textbook originally written in 1924 and still used today to teach students about life insurance:

Man possesses two estates, an “acquired estate” and a “potential estate.” The former refers to what he has acquired. The latter refers to his monetary worth as an economic force, “existing in possibility,” i.e., his capability of earning for others beyond the limits of his own self maintenance and, if given time, his ability to accumulate surplus earnings into an acquired estate. The insurable value of man’s economic possibilities may be defined as the monetary worth of the economic forces which are incorporated within his being, namely, his character and health, his training and experience, his personality and power of industry, his judgment and power of initiative, and his driving force to put across in tangible form the economic images of the mind. This composite value must be distinguished from material values such as land, buildings, equipment, raw materials, securities and finished goods. Being by far the greatest economic asset in dollar valuation, it ought to be insured as certainly as our material values.

Today, our concept of value or wealth has broadened beyond the purely economic to other forms of value including philanthropic, civic, ecological and spiritual. Such thinking moves us beyond accounting for individual value creation capability in purely financial terms of net worth to envisioning it more broadly in terms we might call “life worth” — the total positive impact of the value-creating capability of any unique individual.

Again quoting Black and Huebner, “Heretofore man has been prone to think of his last will and testament as applicable only to his material possessions. He has forgotten himself, that is, his potential estate. Generally speaking, his own life value comprises probably 90 percent (in dollar valuation) of all that he owns, while his material possessions probably comprise only 10 percent. Yet he thinks only of the 10 percent and forgets the 90 percent. He thinks fondly of his ‘personal estate,’ and forgets the ‘person’ in that estate.”


If every family acknowledged the existence of each member’s personal intangible assets and then acted to help its members use those assets to develop their life worth as well as their net worth, they would find themselves collectively and individually prepared to flourish. You can’t pass on wealth more effectively than that!

Originally published in the Fall 2013 issue of The Wealth Channel Magazine, It's All About Family. 

Families With Special Needs Face Unique Challenges

Sophia Duffy, JD, CPA

Sophia Duffy, JD, CPA, is an assistant professor of employee benefits at The American College. Duffy is an attorney and CPA practicing in Pennsylvania. Duffy graduated from Temple University’s James E. Beasley School of Law and received a B.S. in accounting from Rutgers University. Sophia.Duffy@wcinput.com

The term “special needs” has expanded greatly over the past several years. Once used to describe only the physically or significantly mentally impaired, special needs now refers to a wide range of individuals with varying physical and mental capabilities. Per the 2010 Census, 18.7 percent of the general population (not in prison or hospitalized) has some form of disability. In addition, about 12.3 million people aged 6 years and older (4.4 percent) needed assistance with one or more activities of daily living. Recent studies claim that one out of every 88 children has some form of autism. Interestingly, autism diagnoses are more common in children from higher-income families. Disabilities can differ widely, and not all are immediately apparent, such as arthritis, developmental delays, seizure disorders, ADD/ADHD and mental illnesses. For financial professionals, it is more and more common to come across clients who require planning specifically tailored to individuals with special needs.

The financial issues that families with special needs members face are unique. Less than one-half of disabled individuals aged 21 to 64 are employed. In comparison, the employment rate for people in this age group without disabilities is 79 percent. One significant issue is the caretaker burden placed on parents of special needs children. Eighty-six percent of disabled people live with their families for their entire lives. One parent is often forced to remain unemployed to care for the child, reducing income potential for the family. These parents frequently end up caring for the disabled child and their own elderly parents at the same time. As these special needs children grow into adulthood, they are less likely to be employed or become financially independent from their parents. The parents become elderly caretakers and the entire family must live off of the parents’ retirement income. Most disabled children outlive their parents, so the need for financial planning in advance is critical. In addition, the cost of medical care has skyrocketed in recent decades, and special needs care is no exception. Significant expenses for the special needs child commonly include modified vehicles and household equipment, home remodeling, and physical and cognitive therapy.

Clearly, there is a significant need for these families to work with financial advisors to ensure the family’s financial security in the short and long term. And tax-planning and estate-planning opportunities for families with special needs individuals can minimize tax liabilities and maximize financial security.

Available tax deductions

Parents with special needs children are often unaware of the various available tax benefits that apply to their families. Some common tax advantages are medical deductions (subject to the 10 percent adjusted gross income, or AGI, threshold), dependent deductions, work expenses related to impairment and the earned income tax credit. 

Generally, costs for education are not deductible as medical expenses. However, the unreimbursed cost of attending an eligible institution for special needs may be deductible if incurred for a neurologically or physically handicapped individual. To be deductible, the principal reason for attendance must be to alleviate the handicap through the resources of the school or institution. In addition, costs for lodging, meals and transportation to and from the school are also deductible. The IRS has strict guidelines on what qualifies as an eligible institution.

Generally, capital expenditures are not permitted as a medical expense deduction, but a deduction is available when the capital expenditure is made to acquire an asset primarily for the medical care of the disabled individual. To be deductible, the expenditure must be necessary and reasonable. Common deductions include expenditures that improve or better the taxpayer’s home, such as installing a swimming pool for arthritis or remodeling the home for wheelchair access. Some of these deductions are allowed only to the extent that the cost exceeds the increase in the property’s fair market value as a result of the capital expenditure. Costs to operate or maintain the capital expenditure are also deductible.

Registration fees and travel expenses are deductible for medical conferences and seminars in order to learn more about their child’s disability. To ensure their medical deduction, parents must attend the conference or seminar per the recommendation of the child’s doctor. Meals and/or lodging costs incurred while attending the conference are not deductible. The conference or seminar must deal specifically with the medical condition from which the child suffers, not just general health and well-being issues.

Deductions for dependents with special needs are more flexible than general dependent deduction rules. A disabled individual is eligible for a dependency deduction as a “qualifying child” if the person is totally and permanently disabled at any time during the year. This means that grandparents, uncles, aunts, brothers and sisters may qualify for the deduction. Note, however, that the other dependency requirements (for example, residency, support, citizenship) must also be satisfied. A disabled qualifying child is exempt from the requirement that he or she be younger than the individual claiming the dependency exemption.

Special needs individuals are entitled to claim itemized deductions for their unreimbursed impairment-related work expenses. The expenses must represent expenditures necessary to enable the individual to maintain employment. As a Schedule A unreimbursed business expense, this deduction is not subject to the AGI limitation on miscellaneous itemized deductions. 

Generally, a family may qualify for the Earned Income Tax Credit (EITC) based on the presence of two “qualifying children” in the taxpayer’s home. The definition of “qualifying child” under the EITC is the same as for dependency, so a disabled individual qualifies regardless of age. However, the EITC is not subject to the other dependency requirements (such as support, gross income, joint return and citizenship).

Special needs trusts

In addition to tax planning, estate planning using special needs trusts can help secure a family’s finances to care for an individual with special needs. Special needs trusts (SNTs) provide financial protection to disabled individuals by allowing funds to be set aside for that individual’s care without disqualifying them from receiving public assistance. Generally, an SNT cannot provide for basic medical care that is covered by public assistance programs; trust funds can only be spent on benefits to improve the person’s quality of life. Permissible expenditures from a special needs trust include:

·         Medical services and equipment not covered by public benefits

·         Household costs other than food

·         Mortgage or rent

·         Real property taxes

·         Utilities: heating fuel, gas, electricity, water, sewer and garbage removal

·         One vehicle used for transporting the beneficiary and related auto maintenance

·         Laundry services and supplies

·         Nonfood groceries

·         Over-the-counter medications

Special needs trusts were designed to protect individuals who are too wealthy to qualify for needs-based welfare programs such as Medicaid and Supplemental Security Income (SSI). Under these programs, eligible individuals must have income and resources below certain levels to qualify for assistance. These resource thresholds vary by state. A “resource” is cash or other real or personal property that an individual owns and could use for his or her support and maintenance. In a legal sense, if the individual has the right, authority or power to liquidate the property, or his share of the property, it is considered a resource. Therefore, a common conflict arises for caretakers who want to provide a comfortable life for a disabled individual but remain under the resource thresholds so they will still be eligible to receive benefits under these programs. Even after initially qualifying for the programs, eligibility can be lost if assets are transferred to the disabled individual, and the child will only be able to re-qualify for benefits when the funds have been exhausted. So families will often try to understate their financial condition in order to qualify. The most common technique used to meet Medicaid eligibility is transferring assets out of the disabled individual’s name. Congress anticipated this action, however, and imposed a “look-back” period of 60 months for the transfer of assets after February 8, 2006. Assets transferred during the look-back period are treated as resources, regardless of the motive.

This conflict leaves families in a bad spot, and some have been forced to look at disinheriting the disabled dependent or transferring assets to other adult children or third parties to care for the disabled child. However, disinheriting is a difficult emotional prospect, and selecting a person to care for the disabled child is risky because there is no legal duty to act in accordance with the transferor’s instructions. The third party is free to dispose of the assets as he or she sees fit. Therefore, Congress carved out SNTs as a solution to this situation.

Special needs trusts generally fall into two categories: those funded with the assets of the disabled individual and those funded with assets of a third party. Trusts funded with the individuals’ assets are known as D4A “Payback” or D4C “Pooled” trusts. Trusts funded with a third party’s assets are simply known as “Third Party Special Needs Trusts.” These trusts accomplish the same purpose of preserving assets for the disabled child, but they have different requirements and are appropriate in different situations. If properly set up, these trusts will not be counted among the disabled individual’s resources. 

A Payback Trust is a trust established for the sole benefit of an individual with a disability under the age of 65 by the individual’s parent, grandparent, legal guardian or court. The trust must contain a Medicaid payback provision, which requires that at the death of the beneficiary, the trust must reimburse Medicaid for benefits paid for during the life of the beneficiary. The trust is funded with the assets of the disabled person, typically inheritance or lawsuit proceeds. To avoid having the trust treated as a resource, the trust should not direct distributions to be made for the support, health or maintenance of the beneficiary. D4A Trusts are included in the estate of the grantor/beneficiary for estate-planning purposes.

If the individual is over 65, a D4C Pooled Trust is a way for disabled individuals to place their own assets into a trust without disqualifying themselves from receiving public benefits. To be excluded as a resource, a pooled trust must provide that the trust is established and managed by a nonprofit association. A separate account is maintained for each beneficiary of the trust, but all accounts are pooled for investment and management purposes. Accounts in the trust are established solely for the benefit of the disabled individuals. The trust must also include a Medicaid payback provision. At the disabled individual’s death, any amounts not retained by the nonprofit association must be paid back to the state. The disabled individual cannot bequeath assets remaining in the trust to anyone; they must remain in the pooled trust for the benefit of the other disabled individuals.

A pooled trust has several advantages over the payback trusts, such as lower administrative fees (due to combined management and the trustee being a nonprofit organization), broader investment options and ease of execution because the trust is already established. The best time to use a pooled trust is when there is a modest corpus involved; that way, substantial assets are not lost to the state when the individual dies.

Third-party SNTs are created and funded with the assets of a person other than the disabled beneficiary. These trusts are not counted as a resource if the beneficiary has no control over trust distributions and no ability to revoke the trust. The trusts can be revocable, irrevocable or a life insurance trust. The great advantage of a third-party trust over one funded with the disabled individuals’ assets is that there is no Medicaid payback requirement. The trust may be funded by assets during the grantor’s life or at grantor’s death, and can be funded with property, investments, retirement accounts or life insurance. The trust corpus remaining at the death of the disabled beneficiary passes to remaining beneficiaries selected by the donor or testator. The disabled beneficiary has only a lifetime interest.

Families with special needs individuals are in great need for competent and compassionate financial advisors to guide them through the complexities of providing financial security for their disabled family members. You can use tax-planning and estate-planning strategies to help them achieve their goals.

Originally published in the Fall 2013 issue of The Wealth Channel Magazine, It's All About Family. 

The Magic of Our Products

Morris A. “Moe” Silverman, CLU®

Morris A. “Moe” Silverman, CLU® began his insurance career with then American United Life in 1959 and is still an active agent. OneAmerica (AUL) recently honored Moe with the company’s first Lifetime Achievement Award, adding to the recognition he has received over his many years of service and leadership in the industry. Moe.Silverman@wcinput.com

Early in my career, I found that I could stay busy working the night shift—marriage leads, birth leads, etc., but I was struggling for daytime activity. I decided to just start down the street and call on every business I encountered.

That’s how I met Ed, a small business owner. I told him what I did for a living, and he indicated he would buy all the life insurance I could get him but that he’d been told his health issues meant he couldn’t buy any. “Just sign here,” I said. “I’ll get you some coverage.” And I did.

Ed’s key employee, Bill, owned the policy to be used to fund a buyout agreement in the event Ed died. A few years later, Ed passed away and the policy proceeds allowed Bill to acquire the business from Ed’s heirs. Bill in turn bought personal insurance from me and introduced me to Jerry, his newest employee and best salesman. Jerry and I become good friends and he, too, became a client.

I recommended to Bill that Jerry was the obvious business buyer should Bill pass away, and it made good business sense to have Jerry purchase a policy on Bill. They followed my advice and Jerry purchased the business when Bill retired and continued to maintain the coverage. A few years later Bill passed away and Jerry received the proceeds from the policy to help recover his buyout costs.

I need to tell you about Bill’s retirement party. There were just a few people there: his family, his employees and, yes, Judi and Moe. After the very nice dinner, Bill moved around the table and said a few words about each attendee. When he got to me, he said, “This guy is very special. He’s the person who saved our business. If not for him, there would be no business to celebrate. In 1980, when interest rates were sky high and we were doing very little business, and many of our competitors were going out of business, I borrowed all the cash value from the permanent life insurance that Moe had sold me and we kept the doors open. So, all of us owe this guy a big thank you!”

Wow, what a moment! What we do is magic. We are the completer of plans, the fulfiller of dreams. We always show up at exactly the right time with exactly the right amount of money.

Back to Jerry. He had the funds to recovehis buyout cost and some extra to infuse needed capital into the business. The business continued to grow and, in time, Jerry brought his son, J, into the business. As manufacturers’ reps with a long relationship with their suppliers and customers, they were very successful. I sold J insurance too, and when his younger brother joined the business, he also became a good client of mine.

J became a key player in the ongoing growth of the family business and the father of three wonderful kids. I encouraged Jerry to purchase disability coverage for J, as there was no question both J’s family and the business would struggle financially should he become unable to work as the result of an illness or accident.

Father and sons continued to build this 50-year-old business through some tough economic times. Jerry shared with me that more than once he questioned the need for the disability policy they had purchased on J but, fortunately, they paid the premium.

Always involved in their community and their church, after the floods in Haiti J asked his dad if he could take a year off and go there to help rebuild the country. Jerry said, “Go. Don’t worry, we will cover your territory and pay you a portion of your salary to help defray your costs. J picked up his wife and three children and moved to Haiti.

J was in a freak accident while rebuilding a hospital in Haiti and was crushed under a piece of machinery. Ten broken ribs and a broken back have left J confined to a wheelchair. He is now a paraplegic.

Jerry called me from a Miami hospital to tell me the tragic news. I reassured Jerry that I would take care of the insurance issues. “You just concentrate on getting J well,” I said.

I first saw J after the accident in a rehabilitation center. His wife gave me a big hug and we all had a good cry as I explained the benefits the family would receive from J’s disability policy. Today J is back at work doing a bang-up job as always. He still receives his disability income payment and will continue to do so for the rest of his life. His family now includes an adopted daughter from Haiti. J and the entire family have a warm spot in their hearts for Moe and the magic of our products.

I have been in this business for more than 50 years and I tell anyone who will listen that we sell the finest piece of financial property known to man. The products we sell allowed a 50-year-old business to continue. They allowed three families to keep the doors open and a young man to continue to provide for his family. In addition, they have also made one life underwriter very proud and pleased with his chosen career.

Originally published in the Fall 2013 issue of The Wealth Channel Magazine, It's All About Family. 

A Rewarding Gift Arrangement

Allen Thomas, JD, CAP®

Allen Thomas, JD, CAP®, is vice president of Advancement and Alumni Relations at The American College, where his area of expertise is planned giving. Allen.Thomas@wcinput.com.

The gift of a retained life estate in a residence or farm is a unique planning tool that completes a current gift of the property to your favorite charity while you retain the right to occupy the property for a term of years or the remainder of your life. It represents a win-win planning opportunity.

Here is an illustration: Bill and Susan Smith have great admiration for The American College and the impact that its academic programs had on Bill. Bill earned a CLU® and ChFC®, and he credits his professional training from The College for giving him the knowledge to be quite successful in his career.

Bill and Susan own a seaside vacation home that they purchased in 1973. It has a current fair market value of $500,000 and there is no mortgage debt on the property. They wish to donate the property to The College and retain a life estate for the remainder of their joint lives. Bill is 76 and Susan is 75. Bill and Susan have an estimated joint life expectancy of 16 years. They agree to pay the real estate taxes, insurance and all maintenance costs while they continue to occupy the property. 

They deed the property to The College, subject to their life estate. This is a completed gift and they are entitled to an immediate charitable income tax deduction of $345,700, which they can use in the year of the gift and an additional five-year period. The charitable income tax deduction represents the fair market value of the property less the net present value of their joint retained life estate. In this case, the net present value of their joint retained life estate calculates to $154,300. 

The process of completing a gift of a retained life estate is relatively simple. As an alumnus or friend of The American College, you contact the Advancement Department and indicate your desire to make the gift of a residence, a vacation property or a farm. The IRS requires that the donor have a qualified fair market value appraisal completed. A simple agreement is executed and the property is deeded to The College.

The benefits of this gift arrangement are quite rewarding. The donors receive a substantial, immediate charitable income tax deduction while reserving the right to occupy the property for the remainder of their lives, and they have completed an irrevocable gift to The College that will have a valuable impact on its mission.

If you are interested in making a planned gift to The American College, contact Allen Thomas, JD, CAP®, vice president of Advancement and Alumni Relations, at 610-526-1422 or Allen.Thomas@TheAmericanCollege.edu.

Originally published in the Fall 2013 issue of The Wealth Channel Magazine, It's All About Family. 

Advisors and Not-For-Profit Boards

Rosemary Smyth

Rosemary is an author, columnist and an international business coach for financial advisors. She spent her career working at leading investment firms before pursuing her passion for coaching. She lives in Victoria, BC. Visit her website at www.rosemarysmyth.com.

There are many advisors that volunteer, give back to their community and use their skills and talents to become board members for not-for-profits, foundations or endowments. They bring their strong financial background to the table and usually take on the role as of treasurer or part of the finance committee for the charity. Their intention is to contribute in a meaningful way, while also being exposed to the pillars of the community and other liked-minded people at events. They are building their network by wearing their “not-for-profit hat” and connecting with others to discuss what’s happening at the charity.

Before you enthusiastically jump in to sit on every not-for-profit board in town, there are a couple items to consider- mainly conflicts of interest and the role of the charity’s investment advisor.

If you do choose to be a board member for a not-for-profit you’ll be required to disclose any conflicts of interest and asked not to solicit business from other board members. There are many ways that conflicts of interest occur on boards and the standard rule is that if you think you may have a conflict of interest, - you probably do.

Some boards are very clear about their director’s roles and responsibilities and do not allow advisors who are current board members to also act as a charity’s investment advisor. They also may have policies that no alumni or society members can act as the charity’s investment advisor either. To add to that list, non “arm’s length” contacts of board members may also be prohibited from acting as the charity’s advisor.

If you are an advisor and are approached by a not-for-profit to respond to a request for proposal (RFP) as they are looking for an advisor for their assets (and you are not on their board) there are a few things to keep in mind.  

The charity will have selection criteria for advisors that will include:

Ø  Experience

Ø  Track record

Ø  Credentials

Ø  Willingness to attend meetings to give updates on the portfolio

Ø  Firm’s history

Ø  Experience with other not-for-profits

Ø  Fees

Ø  Services



To prepare for a RFP presentation for the not-for-profit, remember that for various reasons, they may not have a clear investment policy or up-to-date board manual. They may also lack resources for audits, lack accreditations, lack directors’ insurance for board members, lack structure for big donations, have board members with different levels of risk, have board members with strong beliefs about investing in a socially responsible way and have board members that are unaware of their fiduciary responsibility.

When the charity does their due diligence, they’ll also be asking their current board members if they are clients of the selected advisor, as that is also another conflict of interest. The not-for-profit would also be disclosing which board members have controlling interest in companies which would preclude the advisor from investing.

There are many ways that advisors can be a resource for not-for-profits and give suggestions as to what areas to focus on. For example, they can set up an investment policy. Try to avoid giving a board a lengthy list of changes all at once as that would be overwhelming, especially if they only meet once a month. Each board is different and can change dramatically as board members come and go. Some boards are quite reactive and only deal with issues when they arise, which can be quite challenging.

Advisors often say that once they have sat on a board, they are more willing to become a board member for other charities as opportunities arise. If you currently are a board member for a not-for-profit, ask to be profiled on the not-for-profit’s website and update your company profile, LinkedIn profile and brochure materials to reflect your role. 

Retirement Plan Benchmarking: How The Advisor Can Benefit

Ken Cochrane

As co-founder and managing director of Pulse Logic, Ken also works with companies to help them grow by identifying and implementing their brand strategy, as well as developing and executing sales plans and management practices

The last five years have seen a steady rise of benchmarking in the qualified plan marketplace. Increasingly, plan sponsors want to know how their plan and the service providers they hire compare to other plans and providers. In response, plan advisors have proven all too eager to provide benchmarking services as a way to distinguish themselves and prove their value.

To understand this rise in benchmarking, we need to look at the environment that sparked and perpetuated the swell. Consider first the increased scrutiny and awareness of fiduciary responsibilities across the industry. The potential liability the plan sponsor and plan fiduciaries bear has become a more significant issue when hiring service providers. The second issue is fee disclosure, specifically, IRC §408(b)2. Final regulations seek to ensure that plan participants are bearing reasonable fees through disclosure. It also requires plans to benchmark their fees every three years to assure reasonableness. Third, many employers have found themselves in highly competitive employment markets. Benchmarking their plan can ensure it contributes to a competitive compensation package. Finally, product and service providers are operating in a commoditized market. To set themselves apart, many seek ways to benchmark themselves as a method to gain an upper hand.

Benchmarking retirement plans and their required services has focused on several important elements. Benchmarking fees the plan bears and the performance of the investment options have been traditional methods. The relatively recent regulations of IRC §408(b)2 have ensured plans will benchmark fees. Occasionally, advisors have been asked to benchmark plan design and employer contribution levels in competitive labor markets. In the last five years, we’ve witnessed more frequent participant deferral rate and investment decision benchmarking. More recently, plans are starting to evaluate the retirement readiness of their participants. In other words, forecasting whether participants will meet their retirement needs and what percentage will do so.

Traditionally, plans have been formed for one or a combination of the following reasons: to benefit the owner(s) and/or key employees, to enhance employee compensation and retention packages, and to provide a retirement benefit for loyal, long-term employees. The first reason isn’t as attractive as it once was. Increasing regulations, cost and liability have driven many small professional groups to seek alternatives. The second is very important in today’s economic environment. Consider the software and energy fields both experiencing a shortage of qualified job candidates. Many firms in these fields can’t find or attract the right employees, which hinders their potential in rapidly expanding fields. Qualified plans can attract and retain employees. Meanwhile, established companies with long-term employees pay more attention to their plan’s ultimate goal: what the participants have when they retire. The common thread to all of these motivations is to provide participants a level of retirement readiness.

Retirement readiness means having a high probability for the participants to support themselves and their families throughout retirement. In a Russell Research white paper dated August 2011, authors Josh Cohen, CFA, and Daniel Gardner address what total retirement income (TRI) is sufficient to meet one’s retirement needs and how much participants should save for a high probability of achieving their TRI. The first equation is actually the hardest to determine. The authors cite variables such as:

·         Expense of retirement

·         No single number or formula that guarantees retirement adequacy

·         Volatility of health care expenses

·         Low to moderate income employees facing an uphill battle to achieve their TRI

As many witnessed in the 1970s, the specter of inflation can be devastating to retirees on a fixed income. To answer how much to save, the authors suggest using a rule of thumb they call “TRI 30.” This formula starts with the targeted TRI and subtracts the benefits the employee will receive from Social Security and other savings. The resultant figure becomes the goal to meet his/her retirement needs. If, for example, that number is $5,000 per month, the employee should be saving 30 percent of that figure, or $1,500 per month.

Any employer contributions can offset the savings target, which assumes a moderate rate of growth. Naturally, the later the employee begins saving, the more he/she will need to save to achieve his/her TRI.

While not easily understood by many plan participants, to practitioners this seems reasonably straightforward. Other methods are available. Online tools such as TRAK and Retiremap provide excellent illustrations for the participant and can also be used to gauge retirement readiness.

The problem is life happens. Participants can’t be assured they’ll achieve projected rate of returns. They may take hardship withdrawals, they may terminate and elect to withdraw their vested balance, or their employment may cease to exist.

Retirement readiness presents the greatest opportunity to the plan advisor. According to Chuck Hammond, co-founder of the 401(k) Study Group, “When the local advisor unconditionally serves the employees of a company good things happen. Good things happen for the advisor, good things happen for the plan sponsor and the retirement plan. The most important thing is that good things happen for the participants.”

To effectively manage retirement readiness, it needs to be measurable. The plan advisor should work with the plan sponsor to determine the accepted method to measure retirement readiness. The following example measures retirement readiness using the concepts introduced in the Russell Research white paper previously cited.

In this example, the advisor working with the plan sponsor has established the following retirement readiness goal: Eighty percent of plan-eligible employees are meeting or exceeding the required savings rate to reach a target retirement income of 80 percent of current pay.

The first step to determine where the plan is relative to its goal is to calculate the required savings rate for each employee. Three employee examples follow (FICA benefits are not actual but used for illustration purposes only):

Employee 1:    Monthly Income: $4166 ($50,000 annual)

                        Target Retirement Income = $4166 x 80% = $333

                        Plan Retirement Income = $3333 - $1000 (FICA Benefit) = $2333

                        Required Monthly Plan Savings = $2333 x 30% = $700

                        Monthly Employee Contribution = $700 - $166 (4% ER contribution) = $534

Employee 2:    Monthly Income: $8333 ($100,000 annual)

                        Target Retirement Income = $8333 x 80% = $6666

                        Plan Retirement Income = $6666 - $1500 (FICA Benefit) = $5166

                        Required Monthly Plan Savings = $5166 x 30% = $1550

                        Monthly Employee Contribution = $1550 - $333 (4% ER contribution) = $1217

Employee 3:    Monthly Income: $5000 ($60,000 annual)

                        Target Retirement Income = $5000 x 80% = $4000

                        Plan Retirement Income = $4000 - $1100 (FICA Benefit) = $2900

                        Required Monthly Plan Savings = $2900 x 30% = $870

                        Monthly Employee Contribution = $870 - $200 (4% ER contribution) = $670

Once each eligible employee’s target contribution is calculated, you will need to compare to actuals. As you can see in the following table, seven out of the 10 eligible employees are meeting or exceeding the target savings rate. This is one short of the 80 percent goal previously established. Not only does this present an accurate evaluation of the plan, but also shows where plan results can improve.



Target Savings
Rate (% of pay)


Meet or










































Employee populations differ—as will TRIs, employer contributions and investment returns. Make sure the method to judge retirement readiness only includes what you can influence. While this method doesn’t consider other savings, the age of the participant, investment returns or pre-retirement withdrawals, it provides a meaningful method to both the plan sponsor and advisor. It is measurable and focuses on what the sponsor and advisor can influence: the contribution rates. Once the retirement readiness goal is established, measure where the plan is today to understand what you are working with. Then set goals and establish a road map with your plan sponsor client to meet those goals. Keep the goals realistic and set milestones along the way.

If the plan achieves these goals and meets the challenge of retirement readiness, you will bring your client measurable and meaningful results. To do so, stay focused on the goal. As Jason Chepenik, CFP®, AIF, CkP, wrote in a column for July 17, 2013’s planadvisordash, “Keep the recommendations relevant to the plan success. While plan fees and fiduciary governance are important … the only way to guarantee more money (output) is more input (save)! Stop over- communicating nonrelevant messages.”

Originally published in the Fall 2013 issue of The Wealth Channel Magazine, It's All About Family. 

Leverage Technology and Become a Financial Educator

Jon S. Tota

Jon S. Tota is co-founder and president of Edulence. He has spent the past 20 years working in the financial services industry delivering digital media solutions to the field. Jon.Tota@wcinput.com

I have two young children at home, so naturally, the impact of today’s technology on the traditional family unit is always of great interest to me. I have read countless pieces debating the pros and cons of iPads, social networks and the constant stream of news and information to which our children have grown accustomed. These changing times are captured most succinctly in the coining of a new term, “screen time,” to replace the now seemingly ancient phrase, “TV time.” Today, our children are raised in a world of on-demand everything where even the all-encompassing television set is now under siege as the focal point of the family room. Supporters say that all these amazing advancements in technology can bring a family closer together. Detractors easily argue the opposite. In the financial services industry, we look at this topic through the lens of today’s financial advisor. How does technology impact the ways in which a financial advisor interacts with families of clients and prospects in their network? Which tools really add value rather than simply creating more noise for your audience?


You know all the buzzwords by now — websites, blogs, streaming video, mobile and social networks  — but I have never believed it is about the technology in our industry. We look for the business objectives that can more easily be achieved through these new capabilities. These are just the tools and, in many ways, merely a new means to the same end. They will continue to evolve, and your digital media strategy will change with them. What will not change is your marketing philosophy. I propose that this philosophy should be rooted firmly in improving the financial literacy of your clients, prospects and their families.


When you boil down all the sales and marketing best practices in financial services, one common theme is almost always present: Sharing knowledge remains one of the financial advisor’s primary roles. Part of the job is to educate prospects and customers on the importance of a sound financial plan and the products that are best suited to helping achieve that goal. Yet we never get to the second part of that statement if we don’t successfully create the need first. Countless tools are available to today’s advisors to help illustrate this need as effectively and efficiently as possible; but as the basis for any strategy is in the planning, you must commit to the messaging and make it part of your culture long before you take it online. With the goal of becoming an advocate and resource for financial education to the entire family, the following core principles are important to consider.


Financial advisor equals financial educator

Does your role as the family’s financial advisor also include, to some extent, being the financial educator for the entire family? I suggest it does, and that includes teaching the generation behind us that proper financial planning is a mindset that starts much sooner than previous generations ever thought was necessary. Your client’s 8-year-old son may not be very helpful while you are exploring new planning strategies with his parents, but why not become a resource to help educate him on the value of saving over spending? And what more cost-effective way to do this than via the Web? First, let your clients and prospects know that financial literacy for the whole family is a priority to you and will be represented as such in your online strategies.


Be true to your theme

Next, you must select a theme for your digital strategy. Will you take a serious turn or go with a more lighthearted approach? What does your typical client family look like? You may need to consider solutions that offer something for multiple age groups. What is interesting to a young child will certainly not capture the attention of your clients’ teenage children. Determine your audience mix and how you want the entire family to perceive you before selecting what technologies and digital content will apply. Remember the golden rule here: Consistency counts! Explain to your audience what you plan to offer and deliver it over and over again until it is expected from you.


Don’t just create, aggregate

There is so much financial education content available, it can become overwhelming at times. Assess it carefully and use it properly. There is a wealth of knowledge online ready to be distributed to your audience. You can certainly create your own as some advisors have done, but also think of your role as one of a content aggregator. As the financial educator for your client families, it is your responsibility to explore the best articles, blogs, videos, tools and games out there and recommend only the most relevant resources. Now you are adding value by doing the research for your clients and providing a single access point, all within a context you control.


All roads lead here

Whatever resources you employ, it all comes back to your website — literally and figuratively. While many advisors already make great use of social networks such as Facebook and LinkedIn, these are tools designed to capture eyeballs, grow interest and drive traffic. Don’t ever lose sight of the importance of your website as the centerpiece of all online activities. There is no more cost-effective means to tell your story and convey your practice’s mission to all interested prospects and clients. Your marketing activities and communications, both digital and physical, must always begin or end here. Train your clients and prospects to use your website regularly and reward their commitment with fresh content, relevant resources and consistent messaging to each family member.


Fun for the whole family

Yes, your corporate website is a virtual place of business to be taken seriously, but have fun with it too. By understanding your audience you can create a Web experience with something for each family member. Create subsections of your website designated as “kids only” or deploy specific microsites for this purpose alone. But remember, make these areas age-appropriate and educational at heart. Your clients and prospects will appreciate the care and effort you take in creating a financial education resource for their families to enjoy together or on their own.


What if I have a template website?

Many advisors today are provided with template websites from their home offices, preloaded with compliance-approved content. While these sites are cost-effective and easy to launch, they may also be more restrictive in design and content capabilities for obvious reasons. This does not mean the solutions presented here will not work for you. Of course, your respective compliance department must approve everything, but even template sites provide sections where advisors can add personalized content about their own firm and what makes the practice unique. These sections typically serve as an excellent home for financial literacy content and resources.


Financial education is a hot-button topic today for a reason. It is our society’s responsibility to help children understand money and the importance of proper financial management. As a financial advisor, you have the opportunity to make a difference with the families you meet. Leverage all the great technology available today, but never lose sight of why you are using it.


Originally published in the Fall 2013 issue of The Wealth Channel Magazine, It's All About Family. 

Family Matters: Providing Answers for Times Like These

Tom Hegna CLU®, ChFC®, CASL®

Tom is the President of TomHegna.com and the author of the book Paychecks and Playchecks. He is a former Senior Executive Officer of a Fortune 100 Company and has spoken main platform at Top of the Table, MDRT, SFSP and NAIFA. tom@tomhegna.com

It has been more than 30 years since the song, “We Are Family,” reached No. 1 on the charts, but the sentiment still rings true. In the age of volatile markets and diminishing corporate and government benefits, it has never been more important for families to come together and care for each other. As a financial professional, you must help your clients put a plan in place to provide for their loved ones. The products you offer have the answers to help them thrive, regardless of the challenges they may encounter.

Currently, 78 million baby boomers are heading into retirement. They may not know that they face numerous risks to themselves and their families, including

·         Market risk

·         Inflation risk

·         Deflation risk

·         Long-term care risk

·         Order of returns risk

However, the No. 1 risk by far is longevity risk—the risk that someone outlives his or her money. Longevity risk is actually a risk multiplier, because the longer a person lives the more likely he/she is to be impacted by one or more of the other retirement risks, any of which can have a devastating effect.

For example, if a person retired at age 65 and died at 68, it would not matter if the stock market declined 40 percent. It also would not matter if a retiree withdrew 10 percent from his portfolio annually. From a financial standpoint, his retirement would most likely be a success because he would not have lived long enough to be truly affected by various risk factors. However, if that same person lived to the ripe old age of 90, both the withdrawal rate and stock market volatility could easily ruin that individual’s retirement. This affects the financial security of the entire family. Who is going to take care of dad when all his money is gone?

I recently interviewed top advisors around the country who are using some of the retirement solutions I have been talking about for years. These advisors have realized that insurance companies are the only industry that can truly solve the retirement crisis. Stocks, bonds, mutual funds and money managers cannot remove longevity risk; only some form of an annuity can. Consequently, we are the only ones who can offer clients the security of a guaranteed paycheck for life and for the lives of future generations of family.

Advice from retirement income masters

As John Schwan, president of Schwan Financial Group says, “No one’s ever come to me in the last 30 years and said, ‘John, please make sure I’m destitute and broke for my last 15 years,’ or, ‘Please make sure that I pay as much income, gift and estate taxes as humanly possible.’” The lifetime income annuity, also known as a single premium immediate annuity (SPIA), can help solve some of these concerns. Beyond the advantage of the guaranteed income and removal of market risk, the payouts from annuities are tax advantaged because they are part principal, interest and mortality credits.

The unique composition of this investment creates a high tax exclusion ratio for nonqualified money in which only 5 percent to 25 percent of each payout is subject to tax. For comparison, imagine a mutual fund that generated a return of $20,000 annually. The entire amount is subject to tax, which at 25 percent translates to $5,000. However, if the money is invested in a lifetime income annuity that pays out $20,000, that same tax would be reduced to $1,000, assuming an 80 percent exclusion ratio. Furthermore, the exclusion ratio reduces the amount of provisional income, which determines what percentage of Social Security benefits are subject to tax. This exclusion ratio continues until 100 percent of the premium has been paid out in income.

It is vital to make clients aware of this incredible tax benefit. When creating a plan to enhance wealth and reduce taxes, “net worth actually has very little to do with the strategy,” says Schwan. “It’s primarily about creating a steady and guaranteed cash flow.”

Bob Hartman, a New York Life agent, has had numerous cases where lifetime income annuities have made a real difference. One of his wealthy business clients was relying on traditional fixed income investments for his retirement income. He had a maturing $100,000 CD and simply wanted some ideas from Bob on what to do with the money.

After learning about the lifetime income annuity, the client decided to exchange the CD for a single premium fixed annuity. While initially skeptical, he fell in love with the product after he began receiving the monthly benefits and invested additional funds. The client became such a fan that he even stipulated in his trust that his 16 beneficiaries must purchase lifetime income annuities with their inheritance—he didn’t want them to ever run out of money either. These annuities were to be purchased through Bob Hartman or his successor. This was an incredible change of heart for a client who initially disliked the concept of annuities.

John W. Homer, CLU®, of the Oxford Financial Group, works with high net-worth clients and has simple advice for other advisors: “Think bigger, not smaller.” From a tax perspective, moving $100,000 or $150,000 out of an estate will have a relatively minor impact. With the federal estate tax exemption at $5.25 million, moving $1 million or $5 million out of the estate can have a huge effect.

One way that Homer has been able to do that is to use income from a lifetime income annuity to purchase permanent life insurance, which is excluded from estate taxes if held in a trust. The money put into the lifetime income annuity is immediately removed from the estate upon death. However, an even higher tax-free death benefit springs up in an irrevocable life insurance trust. It can save the children or other beneficiaries from paying a hefty 40 percent federal estate tax on amounts over the limit. It can also save on state inheritance/estate taxes in states that have such a tax.

“The more you remove from the estate, the more tax you eliminate,” Homer continues. “Likewise, if you are trying to increase cash flow, getting an extra few hundred dollars is not as exciting as getting an extra $10,000 or $100,000. So propose numbers that are big enough to excite people and give them a reason to want what you offer.”

“These are the only strategies about which I know where people purchase large amounts of life insurance and have better cash flow after the purchase than before,” he added.

Providing guaranteed income

If you ask 50 different advisors you will receive 50 different opinions on how to retire optimally. However, based on math and science, the bottom line is that clients need enough guaranteed income to at least cover their basic retirement expenses. Social Security and pensions count towards this goal, but whatever the income gap is, strong consideration should be given to covering that gap with an income annuity. By guaranteeing that the person won’t outlive the money, the family will be on its way to having peace of mind.

Talk to your clients about the risks in retirement and ways to protect against longevity risk, provide peace of mind, reduce taxes and create a legacy for their children. Despite today’s retirement challenges, the insurance industry is built for markets like the current one. You have the tools to help clients put family first and to live both happy and secure.

Originally published in the Fall 2013 issue of The Wealth Channel Magazine, It's All About Family. 

Sound Strategy for Intrafamily Mortgage Loans

Michael Kitces, MSFS, CLU®, ChFC®, CASL®, CFP®, RHU®, REBC®

Michael is the Director of Research for Pinnacle Advisory Group, a private wealth management firm located in Columbia, Md. michael@kitces.com

In the ongoing difficult borrowing environment, some potential homebuyers have found the best way to finance a purchase is not from a major commercial bank, but from an intrafamily loan through the “family bank.”

Intrafamily loan strategies
The basic principle of an intrafamily loan is fairly straightforward. Rather than borrowing money from a bank, a family member in need borrows money from someone else in the family, such as a child borrowing money from his/her parents. The benefits of doing so are significant:

·         More flexible lending terms

·         IRS-required Applicable Federal Rates that are still lower than commercial mortgage rates

·         Potential to deduct mortgage interest payments for the borrower

·         Avoidance of origination and many other mortgage transaction fees

·         All interest and principal payments ultimately stay in the family

For instance, in today’s marketplace the parents could loan money to their child for a 30-year mortgage at 2.8 percent, which is much less expensive than a 30-year, fixed-rate mortgage at 4.5 percent+ (or higher, depending on loan-to-value, the size of the loan and the borrower’s credit score). The parents still generate interest at 2.8 percent; while meager, that’s better than what they’ll likely get from CDs (although notably, lending money out as a mortgage is far less liquid for the lender). In addition, if the mortgage loan is actually secured against the residence the child purchases and is properly recorded, the child can still deduct the mortgage interest paid to the parents. (Of course, the parents will have to report the interest received on their tax return just like any other “bond” interest.) The loan can be structured as interest-only to reduce the cash flow obligations to the child, although not amortizing the loan principal also decreases the cash flow payments to the parents.

An added benefit of intrafamily loans, especially as a mortgage for purchasing a residence, is that some of the constraints of traditional loan underwriting are no longer an issue. For instance, family members don’t have to charge more for a child with a bad credit score and can freely provide loans up to 100 percent of the purchase price without requiring a down payment. The loan could be for a primary purchase, a refinance or a renovation, and can even be structured as a second or third lien against the house. One popular strategy is for children to borrow up to 80 percent using a traditional mortgage for a new home purchase but borrow money from parents to fund the down payment for the remaining 20 percent (recorded as a second lien on the residence).

The caveat: Engaging in such strategies does create a genuine risk for the lender that the borrower will not fully repay loan interest and/or principal. (There’s a reason why banks require higher rates to compensate for greater credit risks and smaller down payments.) So the family-member-as-lender should be cautious not to lend funds in a manner where a partial default by the family borrower could actually create financial distress for the family. Similarly, the family-member-as-lender must be cautious not to get stuck in too illiquid a position. Although it’s always possible to put a demand provision into the family loan, the risk remains that the borrower won’t be able to refinance or pay back the note in whole in a timely manner.

A loan, not a gift
To be respected by the IRS, intrafamily loans really must be loans and not gifts.

The tax code permits individuals to gift up to $14,000 (in 2013) to someone else each year without incurring any gift tax consequences; this amount is called the annual gift tax exclusion. While $14,000 is a lot of money for many families, others would actually prefer to transfer even more money at once to someone else in the family. Unfortunately, though, larger gifts begin to use up the individual’s lifetime gift tax exemption, potentially increasing future estate tax exposure.

Consequently, one strategy used in the past to avoid this limitation was to transfer money as a loan and then simply forgive a portion of the loan interest and/or principal every year until the borrowed amount was extinguished. However, the IRS has scrutinized many of these transactions over the years, often with adverse results. After all, if $100,000 was transferred, no interest was actually paid, and the lender just forgave interest and principal every year for eight years until the loan was gone, that amounts to the lender gifting $100,000 outright in the first year, and the transaction should be (gift) taxed accordingly. In addition, for family loans greater than $10,000, the IRS assumes that interest was paid but forgiven as a gift, which means not only does the lender have potential gift tax reporting to do, but he/she must report on the tax return the imputed interest from the loan as well. (Note: Some imputed interest exceptions apply for loan amounts between $10,000 and $100,000; see IRC Section 7872(d).)

Over the years, the tax code and case law have been woven together to formulate some guidelines about how to manage an intrafamily loan so it is truly respected as a loan.

Intrafamily loan requirements
The IRS will honor intrafamily lending treated as a bona fide loan, including loan terms at a market rate of interest, proper payments of interest and/or principal, and, ideally, the formalities of proper documentation (although documentation is not strictly required).

To apply a market rate of interest, the loan terms should specify an interest rate at least as high as the Applicable Federal Rates (AFR), which the IRS publishes on a monthly basis under IRC Section 1274. Table 1 of the AFR guidance includes three rates: short-term, mid-term and long-term. The short-term rates are for loans with a term of three years or less; the mid-term rate is for loans longer than three years but shorter than nine years; and the long-term rate is for loan terms of nine years or longer.

Notable, though, is that while the Applicable Federal Rates are considered market rates to the extent that paying intrafamily loan interest at these rates avoids gift treatment, they are still remarkably favorable rates. In recent months, the short-term rate has been only one-fourth of 1 percent, the mid-term rate just above 1.2 percent and the long-term rate only 2.8 percent. By contrast, the national average for a 15-year mortgage is about 3.5 percent (at the time of this writing), and a 30-year mortgage is almost 4.5 percent.

Implementing intrafamily mortgage loans
One of the biggest challenges for many families considering intrafamily mortgages is the administrative work and requirements to properly complete the loan. The loan must be correctly recorded against the residence for the borrower to deduct the interest. Clear loan documentation is also required if the lender ever wants a tax deduction for amounts not repaid in the event the borrower defaults.

Some families actually prefer a more formal loan arrangement. Parent lenders often want to be certain that their children respect the arrangement appropriately and learn some financial responsibility. Alternatively, if the money is being lent from a family trust, the trustee will likely wish the loan to be properly documented and recorded to substantiate that fiduciary obligations to manage the trust corpus responsibly are being fulfilled.

An interesting new solution in this space is National Family Mortgage, a company that functions as the middleman to help process and maintain intrafamily mortgage loans, handling everything including:

·         Drafting the promissory note between the parties

·         Documenting the deed of trust that pledges the property as collateral and recording it in the proper jurisdiction

·         Establishing electronic funds transfer arrangements for loan payments (including escrow for homeowners insurance and property tax, if desired)

·         Sending out payment notices and balance statements

·         Issuing the proper IRS reporting forms (Form 1098 to the borrower for mortgage interest paid and Form 1099-INT to the lender for interest received)

If the loan is structured as interest-only, the National Family Mortgage service can also help arrange for a portion of the loan to be forgiven annually — which is far less likely to trigger IRS scrutiny when interest is being paid, loan documents are recorded and all other transaction formalities are being respected.

The cost for the service is a one-time fee of $725 for the loan documents (far less than the origination fee for a traditional mortgage), an additional recording tax paid directly to the state/county for jurisdictions that require it, and ongoing loan servicing costs $15/month (slightly more for larger loans, and with an additional $15/month charge for escrow services).


Intrafamily mortgage loans are still a fairly niche strategy requiring some significant financial wherewithal for the family to afford the loan to children or other family members in the first place. Nonetheless, services like National Family Mortgage make the process significantly easier and cost-effective to implement and administer. And today’s Applicable Federal Rates provide significant opportunity for parents to help children or other family members make home purchases more affordable, even while generating what is still a reasonable return given today’s low-return environment.

Originally published in the Fall 2013 issue of The Wealth Channel Magazine, It's All About Family. 

Health Exchanges Bring Cautious Optimism for Many; Concern for Brokers

Adam S. Beck, Esq.

Adam S. Beck, Esq. is Assistant Professor of Health Insurance at The American College, where he teaches courses on the Affordable Care Act. An attorney, he has worked in private sector consulting and for the federal and state governments. Adam.Beck@wcinput.com

The American College sits just a few miles outside Philadelphia, home to the Reading Terminal Market, a large and historic public market where thousands of locals and visitors daily peruse fresh produce, meats, fish, baked goods and almost any specialty food you can imagine. It is a bustling place with long lines at lunch and low prices on basic goods, attracting shoppers from all walks of life. The market makes comparison shopping a dream; customers scout the lowest price for the same items merely by walking a few feet. It also provides a great backdrop for explaining the health insurance exchanges that are now open as full implementation of the Affordable Care Act (ACA) moves forward.


The individual and small group exchanges created by the ACA opened on October 1, and plans purchased through the exchange are active beginning January 1, 2014. Many people—insured individuals, employers, insurance agents and the uninsured—have questions about what happens now, including how many people and what demographics will actually seek coverage through the exchanges. Attempting to give conclusive answers to such questions would be like attempting to say definitively how much apples will cost at the market next summer; nobody can say for certain, but both past models and critical analysis give us some good clues.


A virtual, varied experience

First, each exchange is unique, including different names and operators. Some states run their own exchanges, some have joint control with the federal government and other states have left everything to the feds. Private insurers have the option of whether to participate, but all plans available must meet certain minimum qualifications and comply with federal regulations. Many are participating now and many are waiting to see what happens. For the 19 states where the federal government is running the exchanges, more than 120 private plans applied to participate, and the White House anticipates that 90 percent of exchange customers will have at least five insurance companies from which to choose. The nation’s largest insurance companies—household names such as Aetna and UnitedHealth—are participating in many exchanges but proceeding with caution, joining only a fraction of the 51 exchanges now enrolling customers. In turn, new insurance companies are emerging to take advantage of being placed side-by-side on a screen next to established giants.


Beyond the different names and insurance providers participating, each exchange has its own appearance and functionality. These are all online exchanges (although mail-in and in-person options are available). Expanding on the allegory, rather than walking from one produce vendor to another, consumers will be able to compare plans on their screen and select different options to find the right fit. Think of the exchanges as an Expedia or Priceline.com for health insurance. The eventual goal is to create exchange sites that are user-friendly, easy to navigate and rely on graphic interfaces, but many state exchanges have been pressed for time and today offer only a bare-bones version of the ultimate vision. Once on the site, consumers can enter information about themselves—their age, household size, how much they earn, where they live—and then view and select tiered plans that include bronze, silver, gold and platinum levels.


Opportunities for small businesses and the uninsured

The federal government expects 7 million Americans to purchase plans through the exchange next year, increasing annually to 24 million by 2023. That’s a lot of people, but the latter represents only 8 percent of the population, so a relatively small portion of the market. Those who earn up to four times the poverty level will qualify for premium subsidies to make their plans more affordable. Regardless of any subsidy, many exchange plans have lower premiums than nonexchange plans. 


Those lower-priced premiums and greater competition are also meant to attract small businesses, which will be able to purchase plans for their employees through a small business marketplace exchange. The law considers small businesses to be those with up to 50 employees, although certain states are including those with up to 100 employees. For the next two years, if a small business purchases plans through an exchange, it can also claim a tax credit for 50 percent of what it spends on premiums. The cost of health insurance also remains tax deductible.


Rewards for insurance companies; real risks for insurance brokers

While the prospect of lower premiums for millions of Americans, lower costs for small businesses and more customers for insurance companies may seem like a win-win scenario if all goals are met, the exchanges pose real risks for insurance brokers. For the insurance companies themselves, the increased competition that will drive down premium costs will also result in decreased revenue. This negative impact may be offset by the increased company value for large insurance companies. The brokers who sell their product could find themselves going the way of the travel agent. When consumers log on to the exchange websites, they will find not only price comparisons, but answers to frequently asked questions and will have the ability to tailor plans to meet their needs, replacing many of the tasks now performed by brokers. In theory, brokers could choose to become “navigators” who educate and provide enrollment assistance to those purchasing individual or small business plans through an exchange. However, they could only be compensated by navigator grants, as a navigator cannot receive any compensation from an insurance provider.


The larger concern for insurance agents is the potential loss of small group clients, as the portion of the population purchasing through the individual exchange will be relatively small. Take New York State, for example, where 88 percent of small group coverage is purchased through brokers, leading to nearly $700 million annually in commissions. States may set up their exchanges to allow brokers to enroll both individuals and small businesses in plans, and New York is one state that has said it wants to protect brokers and keep them involved in the process. The state has set up guidelines through which licensed brokers can enter into agreements with the exchange. The specifics of how, exactly, that will play out remain unclear. Experts who have looked at two existing exchanges believe there is hope for agents and brokers to retain their small group clients—and perhaps even to expand, particularly for those knowledgeable about the law. Insurance brokers have not gone by the wayside in either Massachusetts or Utah, where exchanges have existed for years.


Time will tell

For most people, the opening of the exchanges is not likely to do anything except perhaps drive down the cost of premiums, even for those with nonexchange-based plans. Most Americans will continue to get employer-based coverage outside an exchange or benefit from a government program such as Medicare or Medicaid. A tremendous opportunity, however, exists for small businesses to find plans with lower costs and receive tax credits, not to mention for the self-employed to have access to a wide range of affordable plans. The greatest risk on the horizon is for insurance brokers and agents facing reduced commissions if not obsolescence, but the influx of new small group customers could offer hope. Above all, with the open enrollment period only days old and many exchange websites still troubleshooting page errors, the health insurance exchanges ushered in by the Affordable Care Act now present high ambitions to the unpredictable nature of the free market.


Much like at the Reading Terminal Market, some will go home with delicious and fresh produce at a discount, but someone will inevitably bite into a bruised apple. 

Originally published in the Fall 2013 issue of The Wealth Channel Magazine, It's All About Family. 

Easy Ways to Reframe Rejection

Rosemary Smyth

Rosemary is an author, columnist and an international business coach for financial advisors. She spent her career working at leading investment firms before pursuing her passion for coaching. She lives in Victoria, BC. Visit her website at www.rosemarysmyth.com.

The financial industry is rife with rejection and some advisors deal with it better than others. How do they deal with it? By building up their emotional strength to handle it and not taking it personally. Indeed, it is possible for advisors to desensitize themselves to rejection and become like Teflon. However, if your days are filled with calls and meetings that are going sideways, it’s a good time to consider what you want to start doing differently so you can get better results.

There are essentially two schools of thought when it comes to prospecting. One school considers it a numbers game. The other thinks prospecting is all about quality. For the numbers group, you a certain number of calls, which turns into a certain number of meetings,  which lands you one client. The ratio of calls and meetings to clients is what motivates you to keep playing the odds.

The school concerned with the quality of prospecting claims, you have control over your sales calls with your attitude and are constantly looking for ways to develop communication skills as well as refine your definition of your perfect prospect.  This group spends more time qualifying prospects by asking questions so that each time they contact a prospect, they are continuing to build rapport and trust.

There are countless sales training programs and books on how to handle rejection out there.  Most of them focus on ways to handle the usual objections, such as “I’ll think about it,” or “I’m too busy to talk right now.” It’s great to be prepared and have responses available so you can handle the call professionally.

In the meantime, here are some easy ways to reframe rejection:

  1. It’s about who would be a good fit for you.

Once you have clearly identified who your perfect prospect is, then you can stop wasting valuable time connecting with those who don’t fit your profile. If you know who it is that you’d like to connect with and you have a solution to that person’s biggest problem, then you have a basis for a conversation. Remember, they aren’t turning you down. You are just looking for a specific person and that it isn’t them.

  1. Determine where you are in the process.

If the overarching goal is to make a prospect into a client, (your sales funnel), where are you in that process? Was the goal of the call to build rapport and see if they want to meet for coffee or to qualify them by finding out what is their biggest concern? By focusing on the process, you are essentially eliminating the less-than-ideal prospects from your sales funnel and making room for the right prospects to move through it. This shift in attitude puts you in the driver’s seat and gives you control over which prospects you are focusing your time and efforts on.

  1. Close the expectation gap.

Part of the reason for calls or meetings that don’t land clients is that there is gap in what advisors expect from prospects. For example, if a prospect agrees to a “second opinion meeting” and says they are happy with their current advisor and thanks them for the second opinion, then the meeting for the prospect was just that, a second opinion. However, if the prospect was unhappy with their current advisor and really wants to know if they can get better value somewhere else, then the goal is very different as they are looking for a new advisor. Advisors need to ask themselves, what is the goal for that meeting/call and is that expectation aligned with the prospect?

The next step is to evaluate the call or meeting with some basic questions:

Ø  Did I listen more than I talked?

Ø  Did I follow the agenda?

Ø  Did I have a realistic goal?

Ø  Did I qualify the prospect thoroughly enough before the first meeting?

Ø  What could have worked better?

Ø  What question did they ask that I didn’t know the answer to?

By taking time after each meeting or call to do some self-reflection, you can then start to implement these lessons learned and enhance your prospecting process.

Additional Tips

1. Don’t allow pride or ego to create a high need for approval in you.

2. Resist the temptation to say or write derogatory things about prospects that refuse.  Making them feel guilty that they haven’t taken you up on your offer to make them a lot of money does not make them wrong or stupid.

3. Don’t tell prospects that they are “really hard to get a hold of.” It sets a bad tone for the call.

4. End calls or meetings on a positive note with prospects as they will remember that more that how the meeting/call started.

Small Business Owners Face Realization and Retirement Risks

Peter Klein

Peter Klein is director of Advanced Markets and Underwriting at Secor Advisors Group, LLC. His more than 25 years of experience in capital markets, securities and banking encompasses both public securities and alternative asset classes, including life settlements. Peter.Klein@wcinput.com

According to the Small Business Administration (SBA), in the U.S. economy, small businesses account for nearly half of all private sector employees and pay 43 percent of total U.S. private payroll. Over the past 17 years, they have generated 65 percent of net new jobs and have created more than half of nonfarm private GDP. Overall, they are responsible for hiring 43 percent of high tech workers (scientists, engineers, computer programmers and others).

For many small businesses, the days of slow-moving changes and long-term business niches are over. Even Fortune 500 companies are looking over their shoulders. Imagine being a large public retailer such as Macy’s or Target and in the unenviable position of competing against a high-tech retailer such as Amazon, with no bricks and mortar, whose stock is trading at an all-time high and yet has never made a profit. This means that reliance of small business owners on selling their business to achieve an exit and some sort of a windfall to recover their investment is increasingly becoming an unrealizable event.

Gallup Poll’s survey of small business owners

A Gallup survey of small business owners was taken in the fall of 2011, some two years after the collapse of the economy. Gallup defines a “small business” as a business with less than $20 million in annual sales or fewer than 200 full-time employees. It asked business owners to list and prioritize their challenges. At the top of their list were government regulations; 22 percent of small business owners in the U.S. listed complying with government regulations as their most important problem, followed by consumer confidence in the economy (15 percent) and lack of consumer demand (12 percent). A corresponding 2014 Index of Economic Freedom report reveals that the U.S. has dropped out of the top 10 freest economies in the world. In 2008, the U.S. ranked sixth. Now it ranks 12th.

Approximately one in three small business owners say they are very or moderately worried about going out of business. About the same number are worried about not being able to compete with large or global competitors, not being able to hire the number of employees they need and not being able to pay their employees. Thirty percent worry they will have to reduce their number of employees. On a personal basis, 67 percent of small business owners are worried about not being able to put enough money away for retirement, while 49 percent are concerned about not being able to spend enough time with family or pursuing personal interests.

When asked what they need to see their business thrive, the nation’s small business owners indicated they want a better economy: 15 percent said growth in sales, 14 percent said job creation and 12 percent said fewer government regulations. Small business owners’ outlook continues to be weak; it is down substantially from years prior to 2008-2009.

Bank credit

Compounding their situation is tight bank credit. Prior to 2007, credit was available to fund small businesses, but getting access to credit to purchase a small business is now a far greater challenge. Most small businesses are too small to attract the attention of private equity players while roll-ups (service sector consolidation of small businesses to form a national footprint), which were fashionable in the mid 1990s to early 2000s, have lost their luster and proven to be largely unworkable. The remaining option of selling to the individual buyer is problematic because individuals tend to be undercapitalized, requiring bank credit to complete the purchase. Banks are simply not lending to undercapitalized players. Small business owners face a realization and future liquidity crisis.

Operating in a highly competitive economy places great demands on the business owner. Continued weakness in the economy has amplified competitiveness. In fact, more than 170,000 small businesses closed between 2008 and 2010, according to an analysis by the Business Journals of U.S. Census Bureau data. Competition forces an all-in commitment on the part of the business owner. Whether it’s personal capital, personal guarantees or allocation of time, competitive pressures will impose a total commitment by the owner/operator.

Small business owners face the ongoing challenge of a sole proprietorship. They have to provide the bulk of the seed capital, but given the small size of the private business and the illiquidity factor, they cannot sell an interest in their business to get more cash as needed. If they decide to commingle business and personal assets, they effectively risk more of their worth on the business with no guaranteed rewards.

Asymmetrical and evolving risks

Small business owners face five major asymmetrical or evolving risks:

  • The risk of litigation is always present, but there is no way to anticipate how one’s assets will be exposed to potential court judgment. Business litigation can easily take on a life of its own and ultimately become a personal liability. Consequently, owners don’t risk just the money and assets invested in the business. If anything goes wrong and a suit is filed, the owner is the sole person responsible for damages. Purchasing appropriate general liability insurance and industry-specific coverage can limit some exposure.
  • The risk of unwittingly failing to satisfy a federal, state, county or municipal regulation is omnipresent, while the breadth of state regulations alone can be challenging—licensing and registration requirements, employee labor regulations, safety, insurance requirements, vehicle transport rules, product handling, taxation, environmental, building codes and waste disposal. Federal and state agencies have enormous latitude in assessing penalties and fees for failure to comply, not to mention the legal fees incurred in defending the business from federal and state agencies.
  • The risk of bank covenant violation increases with a poor economy. Fifteen years ago, a bank that required a personal guarantee on a commercial loan was the exception, but not today. Consequently, there can be significant personal exposure to business credit risks.
  • Statistics show that the disability risk for a 25-year-old is a 30 to 50 percent chance of experiencing a disability before age 65 that will keep one out of work for 90 days or more. Most entrepreneurs have the perspective that almost anyone can do what they do, but they make the fatal assumption that their innate knowledge of the business and market is widely known or easily transferable, which is not the case. Given a small business’s typically limited capitalization, the loss of an active owner-operator will likely result in its collapse.
  • The exit strategy for a small business owner has become problematic in the last four years. As discussed earlier, the option to sell a business today is limited. Furthermore, transitioning from running one’s own business to getting a job with a large corporation can be a daunting challenge. On the surface, one would think that an individual who has business ownership experience wouldn’t have much trouble finding a position elsewhere, but many large companies are loath to hire entrepreneurs, believing they may not be team players or fit into a corporate hierarchy.

How can small business owners protect themselves from these risks?

Property casualty insurance can only provide protection to a limited extent to business risk but typically can’t do much to address these asymmetrical risks, including protecting retirement savings.

Accessing a defined benefit plan or defined contribution plan can allow for tax-deferred buildup of retirement savings. The problem is that the tax code requires that tax-qualification retirement plans be designed to treat the business owners and employees the same. In the context of profit-sharing and 401(k) plans, the code prohibits contributions that discriminate in favor of highly compensated participants. Given the cash flow restraints of most small businesses, the sharing requirement of these qualified programs can be insurmountable.

The other problem with conventional retirement accounts such as IRAs, 401(k) and qualified annuities is that once the required withdrawal date is reached, an individual must withdraw a minimum amount from these accounts, known as requirement minimum distribution (RMD). Distribution amounts can be determined by varying methods, including annuity method and life expectancy method. Alternatively, when the owner dies, the income tax liability is passed on to the beneficiaries of a 401(k) or IRA. The beneficiaries must pay income tax as they receive the payments. This is known as income in respect of decedent (IRD). The recipient (beneficiary) must declare the money as IRD for any year in which income is received.

Alternatively, business owners and self-employed individuals can have access to tax-deferred saving opportunities typically not available to employees who do not have an ownership stake. Specifically, owner-employees and the self-employed can adopt and fund retirement plans that, in many cases, offer additional opportunities to put money into deferred retirement accounts over and above what is possible under a 401(k) plan or simplified employee pension (SEP) plan.

Alternative tax-advantaged programs utilize life insurance inside the retirement plan itself. The life insurance inside the plan can be funded with before-tax dollars, which means that funds used to acquire the life insurance come from tax-deductible contributions. A business owner plan participant who acquires life insurance inside his or her plan frees up personal cash flow by the amount of the premium less a very modest income tax amount.

Small business owners or the self-employed should evaluate whether an alternative tax-advantaged plan will allow them greater tax deductions than can be achieved with just a 401(k)/profit-sharing plan or SEP. A qualified advisor familiar with these plan designs can guide the small business owner. The advantage of a life insurance-embedded plan is that the policy and cash value are in a bankruptcy remote entity protected from court judgment and court seizure. The policy can still provide income replacement protection in the event of death and provide funding of the business for succession planning purposes. As a retirement tool, the policy can be moved out of the plan in a transfer in kind transaction with some exposure to taxes and later fund retirement by borrowing against the policy’s cash value tax free.

The “Soft Stuff” Is the Hard Part: Working with a Family Business

Lawrence L. Grypp, CLU®, ChFC®

Lawrence L. Grypp, CLU®, ChFC®, is president of the University of Cincinnati’s Goering Center for Family and Private Business and Co-founder of the Center for Executive Transitions. Larry.Grypp@ wcinput.com

Michael A. Hirschfeld, JD

Michael A. Hirschfeld, JD, is a partner in Graydon Head & Ritchey, LLP, with over 37 years practicing law and counseling hundreds of family and closely held businesses. He was named Best Lawyer and Cincinnati Lawyer of the Year for both corporate and mergers & acquisitions, among other recognitions. He graduated from Kenyon College and the University of Virginia. Michael.Hirschfeld@wcinput.com

Family businesses represent great opportunities for financial and other professional advisors. The Small Business Administration has estimated approximately 90 percent of American businesses are family-owned. They generate approximately 50 percent of the U.S. Gross Domestic Product, according to Forbes Magazine. Experts estimate family businesses valued at approximately $10 trillion will be transitioning over the next decade, representing the largest such transfer of wealth in the history of our country. How can professional advisors best assist their clients to ensure that these transitions go successfully?


A recent study indicated less than 10 percent of unsuccessful generational business and wealth transfers were the result of poor tax or estate planning, while 85 percent of such failures resulted from either inadequately prepared heirs or the breakdown of communication and trust within the family unit. In short, the planning is good, but the implementation is not. One cynical conclusion that could be drawn is that attorneys, accountants, insurance and other professional advisors are doing a great job, but their clients are not! It appears that family business leaders tend to devote more time to preparing their business and wealth transition documents than they do to preparing their heirs for the impact of those documents. Simply executing a will and a funded buy/sell agreement does not alone create a successful succession. Like all strategic planning, the success of a plan is ultimately dependent upon its effective acceptability, implementation and adaptability. These all rely more on the qualitative, rather than just the quantitative, elements of the planning process.


Both family members and their advisors should look at successful succession in a family business as a holistic process, thoughtfully and purposefully integrating the overlapping and complex issues of leadership, ownership and family. They should ensure the family members understand and willingly accept the plan and its rationale. The key players must be properly prepared and willing to implement the plan when necessary. By understanding and accepting the underlying principles of the plan, they are also prepared to adjust to any changes that may be subsequently made, either deliberately or as a result of evolving circumstances. Good estate planning and wealth transfer documentation is necessary but insufficient on its own. To increase the probability of a successful result, professional advisors need to go beyond their normal planning and documentation activities, and encourage a family leader to devote his or her primary efforts to three key elements:


Key 1: Understand the varying roles played

A family leader needs to properly prepare intended successors for not only ownership, but also leadership and management in both the business and the family. Can successors differentiate between the three and adjust to the appropriate role they may be playing at any time? Do they have the right attitude toward work and the family business, i.e., do they perceive being an owner as their birthright or as a privilege? A true owner understands the stewardship aspects of ownership, appreciating both its rights and responsibilities. Do intended successors have the proper training and skill sets to understand business in general and to manage others effectively in the culture of the business? Managing is getting other people to do things right. Most important: Can intended successors be real leaders for the future of the business? Are they able to think strategically and take the business to new levels in the face of a rapidly changing environment? Unlike managing, true leadership is not just helping people to do things right, but to do the right things.


Key 2: Communicate effectively

A family leader needs to communicate effectively, both within the business and within the family. Good communication creates alignment and accepted common action among varying groups. Effective communication requires all participants in the conversation to be clear, direct, open and consistent in their interactions. A family leader must model such communication techniques to avoid leaving listeners wondering what was really meant. To ensure good communication, regular opportunities for interaction should be scheduled along with agreed-upon processes and protocols to facilitate communications at such gatherings. “Family business” meetings, involving just those members of the family active in the business, can be held to discuss the business and its impact on the family, including management and succession issues, and to make collective decisions about such issues. Broader “family council” meetings can be called, including other family members, to educate those members of the family not active in the business about the business, and to provide them a forum to express views on family issues affecting the business. Guiding principles for family members in their personal, business and family relationships should be adopted and clearly communicated to reduce the potential for future conflicts. Each family must develop its own set of such principles, but examples include “When one person is talking, all others will listen without interrupting” and “No one can be hired into the family business without working elsewhere for at least three years.” Being open and direct in such interactions is not always easy, particularly with family members, but such communications can be delivered respectfully and in a constructive manner, which ultimately benefits both the receiver and giver.


Key 3: Build trust

A family leader needs to work on building trust, primarily among family members but also with nonfamily senior management, suppliers, customers and other key stakeholders. Trust goes beyond just respect and is the foundation for both the fulfillment of one’s respective role at the time and successful communication. A family leader builds trust by focusing on and modeling the three primary components to a trusting relationship:


1.      Reliability: Do you do what you say? 

2.      Sincerity: Do you mean what you say?

3.      Competence: Can you accomplish what you say?


Only when all three of these building blocks are in place can a mutually trusting relationship exist.


How can we as advisors best assist our family business clients in developing these three key elements to optimize the probability of the successful achievement of their goals? It is critical to help clients think beyond the technical details of the tax, estate, insurance and legal aspects of planning, and to also consider the “softer side” issues, including communications, leadership, interpersonal relationships and the involvement of family and nonfamily management in the business. Is it a family business or a business family — is the priority to build the family to last or the business to last? Which is the ultimate goal: preserving the business or growing the family wealth (measured not only in dollars, but also in more intangible ways)? Does the family understand each generation must be able to stand on its own and grow (or at least preserve) its wealth, or the family and its wealth eventually will vanish? Maximizing the wealth to be transferred is often not the ultimate answer — what happens to that wealth and the people who receive it are the critical questions.


A competent advisor helps the client gather data, identify goals, consider alternative courses of action, analyze risks and develop documentation to best accomplish the chosen path. But these actions alone do not ensure success. The more effective advisor goes beyond these traditional activities to aid the client in developing the processes that will best prepare the rest of the family, including future generations of ownership, management and leadership, to appreciate and accept these transfers and the responsibilities that accompany them.


As independent advisors, we are often in the best position to raise questions and challenge assumptions. This requires some difficult conversations with the client. We all have had clients say, “My kids know what I want to have happen when I’m gone,” but when asked, the kids don’t have a clue. Even more tragic are the clients who say, “When I’m gone, it won’t be my problem.” Our role as advisors is to help optimize the probability of successful legacies, which often means raising the tough questions and assisting clients in preparing for the potentially difficult decisions and conversations they may have with family and others. Remember, “Clients don’t care what you know until they know that you care.” Helping the client appreciate the breadth and depth of the planning process, and assisting them in preparing for its successful implementation, including the “soft stuff,” is the best way to demonstrate that you truly do care.

Planning Retirement in a Rising Tax Environment

Francis J. Lojewski, MSFS, ChFC®, CLU®, LUTCF, AEP

Francis J. Lojewski, MSFS, ChFC®, CLU®, LUTCF, AEP, is a partner in Atlas Advisory Group, LLC, a member firm of M Financial Group. Frank specializes in tax-favored lifetime income planning, IRA/401k distribution and wealth transfer strategies. Frank.Lojewski@wcinput.com

If your clients are among the many planning to leverage their retirement accounts or proceeds from the value of their business for retirement income, the challenges and obstacles in today’s uncertain environment can be overwhelming. More often, it adds complexity to one of the most important financial issues your clients will face in their lifetimes: Will their money outlive them or will they outlive their money?

To seriously address this issue and take proper planning steps, we must first fully understand the other challenges retirees already face:

·         Inflation – Even at a low 3 percent rate, living costs could increase by approximately 150 percent over the next three decades. In addition, if real inflation rates increase to as much as 7 percent, living costs could easily increase by more than 650 percent over the same three decades. Given that the Federal Reserve printed over 1 trillion dollars each year from 2009 through 2012, and interest rates have been kept at historically low levels (much like holding a beach ball under water), it will always be important to determine if your clients are still protected against a future rise in living costs.

·         Health care costs – Fidelity Investments updated its annual calculation in May 2013 and estimated that a typical 65-year-old couple will need $220,000 today to pay health care costs in retirement. In addition, according to the U.S. Government Accountability Office, Medicare spending, which had grown to more than $400 billion in 2009, is also on pace to exceed $600 billion by 2018 (usgovernmentspending.com). When you also consider the uncertainly surrounding the Affordable Care Act and its potential expansion to Medicaid, it appears these costs could rise significantly, requiring advisors to seriously ask if their clients are prepared to handle rising health care costs throughout retirement.

·         Market volatility – Despite the historical success of properly diversified long-term equities over long-term market cycles (i.e., based on Ibbotson study from 1926 – 2012, the S&P 500 averaged a positive 4.7 percent after taxes and inflation), the sequence of returns during the initial retirement phase has shown a potentially negative impact on many clients’ invested retirement assets. This is true even when their average long-term returns exceeded their withdrawals. According to a recent Dalbar Study from 1992 – 2012, average investors performed 4.25 percent on their actual investments compared to the S&P 500 Index, which performed 8.21 percent over the same period. This gap is further evidence of typical investor behavior, which is to more often buy when the market is higher and more comfortable and to sell when the market is lower and less comfortable. Therefore, advisors must also determine if their clients’ investment allocations are carefully positioned to avoid overreacting to market volatility.

If your clients are fortunate to have a proper plan to address these challenges, you may very well be better positioned to prepare for what many financial experts today consider the most dangerous challenge of all: a rising tax environment.

Doug Endorf, director of the Congressional Budget Office (CBO), recently conceded, “Taxes will have to be raised (including the middle class) substantially if we are to have any chance of successfully addressing our budget deficits.”

Consider this: 10,000 boomers will retire each day over the next 15 years. Approximately 119 million people currently receive government benefits, but there are only 104 million full-time workers. Government entitlements now represent 62 percent of the federal budget, and the future increases along with interest on debt will likely consume our entire budget by the end of the decade. More than likely, we will see increasing debt levels, more people receiving government benefits and more people paying higher taxes. Indeed, your clients may be faced with an increasing tax burden throughout their lifetimes. (Sources: U.S. Department of Labor, U.S. Government Accountability Office, U.S. Congressional Budget Office, The Heritage Foundation (2013)

While the U.S. financial climate can initially appear grim for many of your clients, I believe these problems will only be devastating to those who take no action to mitigate the challenges now.

The following five basic steps could prove very valuable to your clients and professional practice:


Step 1: Prepare for changes

Prepare for changes to come sooner rather than later. Among the list of tax breaks already considered for elimination are:

·         Tax exclusions for health insurance

·         Capital gains

·         State and local tax deductions

·         Mortgage interest

·         Reduced charitable deductions

·         Pension caps

·         Reduced qualified plan contribution levels

Also being discussed on Capitol Hill and addressed with our top professional associations is how to tax or reduce some of the benefits associated with many of our industry’s most tax-advantaged products and solutions, potentially including:

·         Limits on 401k balances

·         Limited deductible 401k contribution (e.g., only 28 percent of contributions would be deductible for anyone in a tax bracket higher than 28 percent)

·         Elimination of inherited IRAs for nonspouses

·         Limits on Roth IRA contributions and conversions

·         Tax on portion of future tax-deferred buildup of nonqualified annuities

·         Partial tax on portion of future paid life insurance death benefit beyond a specified amount

Lawmakers may also consider other possibilities, and any changes could happen sooner rather than later.

Step 2: Consider taxable income distributions

Consider clients’ taxable income distributions in relation to their current tax tables. For a couple over the age of 65, in 2014, their standard deduction will be $14,800, and they will each receive a $3,950 personal exemption. This means they can make $22,700 in addition to their Social Security before they pay any taxes. Their next bracket is the 10 percent bracket. That is $18,150. If you add $18,150 and $22,700, that is $40,850 of taxable income. Tax on that is $1,815. If you divide $1,815 of tax by $40,850, that is 4.4 percent.

Finally, the 15 percent tax bracket adds up to $96,500. The tax on $96,500 is $10,163. That is 10.5 percent.

A thorough understanding of each client’s lower tax rates for each year is extremely important to properly manage the taxable and nontaxable portions of your client’s distributions, which could otherwise be exposed to higher marginal tax rates.

Step 3: Consider combining annuities

Retired clients with especially large amounts of taxable assets sitting in CDs or savings accounts may want to consider strategically combining tax-deferred and immediate lifetime annuities as additional asset classes. Doing so also offers some of the following tax advantages:

·         Under the regular annuity rules of IRC Section 72(b), higher guaranteed withdrawals are typically available from lifetime annuities, which often use an exclusion ratio and treat a larger portion of withdrawal as tax-free return of principal, up to the age of a client’s life expectancy.

·         Depending on which tax-deferred annuity is best for your client, you may have the ability to reposition, exchange or transfer any balance and deferred gains for other opportunities potentially inside the deferred annuity.

·         The ability to target a specific period for withdrawal from the deferred annuity in any chosen taxable year.

·         You may further reduce your client’s taxable estate using immediate annuities and possibly leverage higher withdrawals as gifts or even purchase additional tax-free life insurance.

·         Gains from deferral are not factored in calculation of actual tax on Social Security benefits.

Any advisor who may need to safeguard their clients’ overall portfolio in response to a rising tax environment should give serious consideration to properly designing the most appropriate deferred and immediate annuities for even greater retirement and tax optimization.

Step 4: Consider a Roth IRA

For clients with a higher portion of holdings in qualified retirement accounts, consider converting all or a portion of their balance into a Roth IRA. Doing so may reap some of the following advantages:

·         Taxes are still temporarily at historically low rates.

·         Creates a tax-free environment with potential growth of tax-free gains.

·         Helps remove some of the uncertainty of future tax rates.

·         Can reduce exposure to the new investment income and health care taxes.

·         There are no required minimal distribution requirements for the original account owner.

·         It may provide a tax-free legacy to future generations who are even more likely to experience the effects of rising taxes.

Clients also have flexibility to recharacterize their Roth IRAs by the tax due date of the year they converted. This can be helpful if investment returns were negative after conversions, or if the client had a sudden need for the liquid assets used to pay their original taxes for the conversion. Lastly, if your clients are disciplined and properly allocated based on longer-term goals, they will likely face higher tax rates and have a longer life expectancy—converting to a Roth IRA could potentially be an opportunity of your client’s retirement lifetime.

Step 5: Consider leveraging permanent cash value life insurance

Consider leveraging permanent cash value life insurance as an additional asset class to your clients’ retirement and estate plan. Cash value life insurance can be positioned safely with higher long-term returns and more liquidity—all while providing a leveraged death benefit and, potentially, additional financial and estate benefits such as: 

·         Increased credit worthiness

·         Confidential beneficiary designations

·         Creditor protection

·         Probate avoidance

·         Long-term care

·         Critical illness and terminally ill benefits prior to death

In addition, cash value life insurance (treated under IRC section 7702) can also potentially provide even more amazing tax benefits to clients, including:

·         Death benefit for family as income replacement or a wealth bequest

·         Transfer of business ownership among other owners, employees or family members

·         Charitable bequests

·         Liquidity of cash values, including any gains

·         No IRS reporting requirements as long as the policy stays within modified endowment limits

·         Retirement income generation with potential to customize policy and reduce major retirement risks including market risk and negative sequence of return risk.

·         May pledge as collateral as opposed to any IRA or defined contribution plan, which is normally taxed as a withdrawal when pledged to a lender for a loan.

·         Easier ability to move death benefit outside client’s taxable estate

·         Ability to reallocate cash values for potentially higher tax-free earnings, depending on type of policy.

With many of the aforementioned benefits, it should be no surprise that renowned industry retirement tax expert Ed Slott, CPA, said, “The tax exemption for life insurance is the single biggest benefit in the tax code.”

In a time when some clients have a limited amount of money for protection, savings and retirement, a leveraged product like life insurance can still fit the bill—it is one dollar that can do the work of many tax-free dollars.

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

Answering the Outrage: the Truth about Life Insurance

David F. Woods, CLU®, ChFC®

David F. Woods, CLU®, ChFC®, an MDRT member since 1970, received the John Newton Russell Memorial Award in 1997. He appears weekly on The Wealth Channel®. David.Woods@wcinput.com

Forty years ago there were 250,000 career and captive life insurance agents, traditionally those whose contract and compensation systems rewarded life insurance sales. Today there are 150,000, a 40 percent drop.

According to LIMRA International, in 2011, 58 million households said they did not have enough life insurance. Fully one half, or 29 million households, said they were likely to buy life insurance in the next year. Yet, in 2012, the American Council of Life Insurers (ACLI) reported only 10 million new policies were issued.

The U.S. Census Bureau reports that during the past 40 years the number of households increased by 80 percent while the number of married couples grew by 35 percent. However, the number of policies sold dropped by 41 percent, as illustrated in Table 1.


Number of Households

Number of Married Couples

Policies Sold













Percent Change





During that same period the number of policies sold per agent decreased by 40 percent, as shown in Table 2.


Number of Households

Number of Married Couples

Households Per Agent

Policies Per Agent












A number of these households no doubt cannot afford even a minimum amount of life insurance, and some may be uninsurable. Yet, while in 1970 we sold life insurance in more than 26 percent of the households, by 2010 that number was under 9 percent.

This is an outrage. Affordability and insurability have only improved in 40 years, so the obvious question is: Why did all the people who said they needed more life insurance not buy?

I divide the reasons into four categories:

1.      A changing marketplace in which consumers, while acknowledging the need for life insurance, are more concerned with planning for retirement.

2.      The demutualization of many of the major life insurance companies put the focus on quarterly earnings, not on recruiting new agents and life insurance sales, both of which immediately hit the bottom line.

3.      Life insurance compensation systems that make it unprofitable for advisors to sell life insurance to any but the more affluent. Agent contracts in career companies give increasing credit for accumulation product sales.

4.      With a full array of available products, advisors, both career and independent, naturally gravitate to those that are easier to sell, e.g. accumulation products.

So what can be done to meet our industry’s social obligation to provide financial security at death? I recently did “A Word With Woods” video segment on this subject for The Wealth Channel. I received several dozen responses from people in all sectors of our industry. Here’s a compilation:

§  Find, develop and adequately fund a life insurance Suze Orman type who is in her or his 30s or 40s, is telegenic, charismatic, articulate, creative and passionate. This experienced industry professional would be aggressively promoted as the public face and voice of the life insurance industry with a mission to establish its essential role in all financial plans.

§  Change compensation systems and incentives in the field and home offices to adequately reward the sale of life insurance in all markets.

§  Encourage and support new field distribution models, such as multispecialty practices, social media marketing, etc.

§  Require an understanding of and commitment to the principle of adequate life insurance as essential to a sound financial plan for all degree and certificate designations and continuing education requirements.

§  Make proper recommendations about life insurance a requirement of a financial advisor’s suitability obligation or, if appropriate, fiduciary responsibility.

This is very idealistic, I know, but traditional “work harder” changes won’t solve the problem. After 53 years as an agent, I know of no surviving family members or business partners who said, after the death of the family breadwinner or business partner, they wished the deceased had saved more for retirement. However, I have many retired clients who now say they wish they had bought more life insurance, particularly permanent life insurance.

Our products have tax advantages unknown to any other financial product. However, if those products aren’t used to provide basic financial security to the American people, Congress, in its drive to close budget deficits, will soon believe they are of no value to their constituents and remove those advantages.

We have a professional as well as a social responsibility to help the American people understand that a solid life insurance program is as essential to the security of their financial plans as a solid foundation is to the stability of their homes. Only when they put first things first with life insurance can they ensure their financial security plans won’t die when they do.

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

AG 38: A Need-to-Know Issue for Advisors

David Szeremet, JD, CLU®, ChFC®

David Szeremet, JD, CLU®, ChFC®, is second vice president of advanced marketing at Ohio National Financial Services. He is responsible for the advanced sales team that provides estate planning, executive benefits, business insurance and life insurance planning. David.Szeremet@wcinput.com

Pete Whipple

Pete Whipple is senior vice president and chief corporate actuary at Ohio National Financial Services. Pete is responsible for the actuarial portion of statutory and GAAP financial reporting at the company. Pete.Whipple@wcinput.com

Actuarial Guideline 38 (AG 38) goes far beyond actuarial minutiae. It is a trending issue that impacts the life insurance industry from both product and advanced planning perspectives.

A brief history

Actuarial guidelines are developed by the National Association of Insurance Commissioners (NAIC). A NAIC task force develops actuarial guidelines to assist state insurance departments where the application of a state statute or regulation to an insurance product has resulted in ambiguity. The goal of an actuarial guideline is to reduce state-by-state variation, creating uniformity across the insurance industry. The need for an actuarial guideline (AG) often arises when innovative, new products enter the marketplace.

AG 38 governs statutory reserves on universal life with secondary guarantees, also known as guaranteed universal life. The intent of AG 38 was to apply the same reserve principles that apply to traditional term insurance to universal life secondary guarantee (ULSG) insurance, for which paying the minimum premium normally produces little or no cash value.

Most life insurance company insiders believe that statutory reserves for traditional term insurance are redundant—i.e., more than is reasonably needed to satisfy policyholder obligations. Because of the inflexibility of traditional term insurance, there is little companies can do by way of product design to lower the calculated reserve. Instead, many companies seek capital solutions to finance redundant term reserves.

Insurance companies have been creative at lowering the calculated reserve for ULSG products without affecting the guaranteed premium paid by the policyholder. Since its inception in 2003, AG 38 has undergone a series of modifications by regulators to close perceived loopholes.

The most recent chapter began in 2010 when the New York Department of Financial Services (NYDFS) questioned reserving practices on ULSG products that use a multiple shadow account design. In response, the National Association of Insurance Commissioners (NAIC) added two new sections to AG 38: Section 8D required enhanced asset adequacy testing on in-force ULSG business, and section 8E tightened up the rules on new business starting in 2013.

The 2013 changes to AG 38 did affect the ULSG market, though not to the extent many predicted. One or two companies exited the market completely. More common responses were modest premium increases or shorter guarantee periods, such as age 90 or 95. The biggest price increases were to survivor ULSG and single premium ULSG. The low interest rate environment is another reason companies cited for these price increases, which makes it difficult to determine how much of the price movement was due to AG 38.

In September 2013, the NYDFS surprised many in the industry when it allowed its adoption of the revised AG 38 to expire. The NYDFS noted that it had expected larger reserve increases under the new 8D than it actually had seen. The full impact of this decision on life insurance companies and the national implementation of AG 38 is still to be determined.

The twists and turns surrounding AG 38 are seemingly endless. Layer on a depressed interest rate environment and you have product uncertainty. In the long run, for larger life insurance purchases, is ULSG the best product solution? Whole life? Current assumption universal life? Equity indexed universal life? The life insurance advisor may take a lesson from investment professionals and consider diversification.

Particularly for large life insurance purchases where the death benefit may exceed $5 million, diversification is an important concept.

Product diversification

Product diversification is best explained by way of an example. Suppose your client’s plan calls for a significant amount of death benefit protection, let’s say $10 million. While term insurance provides the lowest cost for a given death benefit, it is temporary and may not satisfy your client’s long-term insurance needs. In contrast, ULSG locks in a guaranteed death benefit, usually at the lowest possible premium level for a permanent policy. ULSG has tradeoffs. With ULSG the death benefit is not inflation protected—it is fixed. Also, most ULSG policies are designed to have little to no long-term cash value.

Whole life, equity index universal life and current assumption universal life generally require a greater premium commitment than ULSG. However, they can be structured with an increasing death benefit to serve as an inflation hedge. They can also be funded to generate significant cash value creating an exit strategy.

The lesson to be learned for large life insurance purchases is that it may not always be in the client’s best interests to consider one, and only one, life insurance product. By combining multiple types of insurance policies, a client can achieve a healthy balance of affordability, inflation protection and cash value. Life insurance product selection does not have to be winner-take-all.

Carrier diversification

Spreading risk among multiple life insurance carriers is another form of diversification worth considering for large life insurance purchases. With an uneven application of reserving requirements among carriers, it may be a good practice to consider purchasing life insurance from multiple carriers. After all, some of the reserving issues may not come home to roost for 20, 30 or 40 years (or longer).

As an advisor, you would like to be sure that your affiliated carrier(s) will be there to deliver on their promises many years into the future. But unless you are a reserving expert and privy to a carrier’s reserving strategy, you cannot be certain. Carrier diversification may help you. Highly rated carrier diversification dilutes reserving risk. For captive insurance advisors, partnering with an independent insurance advisor or organization to achieve carrier diversification may be possible.

Planning concepts in light of AG 38

AG 38 reminds us that we do not work in a static industry. Change is constant and uncertainty is more than a buzzword—it’s our reality. With product and carrier diversification in mind, examples of appropriate planning concepts abound.

·         Spousal lifetime access trust (SLAT): With today’s historically high estate and gift tax exclusions ($5.34 million in 2014), an irrevocable trust to provide tax-free liquidity (think death benefit) combined with a spousal lifetime access provision (think cash value) provides a flexible solution for clients with moderate estates ($5-10 million). A SLAT removes the death benefit from a grantor’s estate while giving the trustee discretion to make distributions of cash value to the trust beneficiary’s spouse. It’s no wonder SLATs have been one of the most popular advanced planning techniques in recent years. By pairing whole life and ULSG products, a balance of affordable death benefit and accessible cash value can be achieved.

·         Special needs trust. The planning market for individuals with special needs is exploding. As just one example, consider autism. The latest research on autism is monumental: 1 in 88 children born is within the autism spectrum, according to the Centers For Disease Control and Prevention (CDC). Clients who have dependents with special needs will immediately understand the need for death benefit protection to replace both the breadwinner’s income and the caregiver’s support. What they may not readily see is the potential for life insurance cash value to supplement lifetime needs, such as the purchase of adaptive equipment or the payment of un-reimbursed therapy. When properly structured and paired with a special needs trust, cash value is tax-advantaged and will not interfere with government programs. In cases where a family is stretched financially, term insurance combined with universal life may be the best option.

·         Business continuation. Despite our uncertain national economy, small business (fewer than 100 employees) continues to drive new employment. Small business is the lifeblood of the American economy, but it is an underserved life insurance market. According to the latest LIMRA survey (2009) of small business owners, 76 percent of business owners understand the importance of succession planning, yet only 35 percent have created a succession plan (31 percent for family-owned businesses). Most business owners will live long enough to retire if they choose and will need the funds to do so. This is where cash value life insurance excels. For newer businesses, a healthy dose of convertible term insurance is placeholder protection with the opportunity to convert to cash value life insurance and begin building equity.

Pairing appropriately designed and rationally priced insurance products with sound planning techniques remains the recipe for success. Advisors who keep this in focus will continue to best serve clients and will never have to apologize for their recommendations.

The bottom line

AG 38 is not a niche issue of interest only to actuaries. It has already started to impact the life insurance product menu by way of company exits, price increases and reduced guarantee periods. The menu will continue to change as the issue evolves.

Insurance advisors who keep pace with AG 38 developments will be in the best position to adapt their practices. As a trusted advisor, you owe it to your clients to seek out reliable information concerning this crucial issue.

The final resolution to AG 38 and its progeny is uncertain. Fortunately, we are in the uncertainty business. It’s the very essence of insurance—for a reasonable price we take risk and uncertainty off people’s shoulders and exchange it for certainty and guarantees. The authors are confident that the U.S. life insurance industry will ultimately achieve the proper regulatory balance with AG 38 and continue to provide products that help people manage risk, as it has since its inception.

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

Getting the Family Business Ready to Sell

David K. Smucker, MSM, CFP®, CLU®, ChFC®

David K. Smucker, MSM, CFP®, CLU®, ChFC®, has been in advanced consulting and sales with Nationwide for 24 years, working in executive benefits as well as business and estate planning. Prior to that, he was an IRS auditor for seven years and a practicing CPA for 15 years. He frequently writes for professional journals. David.Smucker@wcinput.com

Consider the following case study, which represents nobody in particular and is meant only to illustrate a point. 


Owners of family businesses have a tendency to retain profits within the business, using them to expand. They see the business as an expression of themselves; they want to see it grow and prosper. In the process, the business can become 80 to 90 percent of their estates, and they often neglect saving much for retirement. Therefore, at retirement they face two problems:

·         How can they keep the business in the family?

·         How do they fund their retirement?

The following case study, based on a family farm, illustrates the problem and presents a possible solution.

Bob and Donna Jackson own a farm in the Midwestern United States. It is mostly a row crop operation, but they also have a hog feeder system. They have three children, Tom, Dick and Harriett. All three are happily married with families.

Tom helps Bob with the row crop operation and wants to take it over someday. Dick’s interest is in the hog operation; he currently runs it and would like to take it over someday. Tom and Dick are both on Bob’s payroll. Harriett is a physics professor at a West Coast university. She enjoyed growing up on the farm but is not interested in running or owning any part of it. Bob and Donna want all three children to be treated equally, but they also want to be sure Tom gets the farming operation and Dick gets the hog operation. They also want to keep things together so they can pass the estate to the next generation intact.

The details on Bob and Donna’s estate are as follows:

Row crop operation


Hog operation


Other assets

$   400,000




Much of Bob and Donna’s estate is land—800 acres valued at $8,000 per acre. The hog operation takes up 100 acres, while the row crop farming takes up the remaining 700 acres. In addition, the row crop operation rents and farms another 2,000 acres.

Fortunately, based on the 2012 exemption of $5,000,000 per person and inflation adjustments, a federal estate tax liability is unlikely. However, given the composition of their estate, it will be difficult to treat all three children equally and still get the operations where they need to go. And there’s still the question about how Bob and Donna will generate a retirement income.

As to dividing the estate, they could simply leave an undivided one-third of each estate asset to each child. That would force Dick and Harriett to become Tom’s partners and Tom and Harriett to be Dick’s partners. Harriett and Dick could gang up on Tom to change the direction of the row crop operation and possibly even force the sale of the farm. Tom and Harriett could gang up on Dick to the same end. That solution certainly would be equal and just as certainly not equitable, and it would be rife with potential conflicts.

Something is needed to equalize the bequests, but what will it be? The solution might be in an option to buy, funded with $3,200,000 of joint and survivor life insurance on Bob and Donna, owned by Tom.

For example, assuming that Bob passes away first, Donna’s will could leave the row crop equipment and some of the land (total value $2,800,000) to Tom in a specific bequest and grant him an option to buy the rest of the row crop land for $3,200,000. Tom would have funded that option with the $3,200,000 from the joint and survivor life insurance on Bob and Donna, assuring him of the funds to exercise the option at Donna’s death.

Tom would exercise the option, buying the remainder of the row crop land, thereby acquiring 100 percent of the row crop land and equipment.

Having $3,200,000 cash in hand, the estate would then have the resources to:

·         Distribute the $2,000,000 of the hog operation’s land, equipment and livestock to Dick, along with $800,000 cash

·         Distribute the $400,000 of other property to Harriett, along with $2,400,000 cash 

The net result: The three children receive equal treatment, Tom and Dick keep the operations they wanted and the estate is passed on intact—all three children are not only treated equally but equitably. An added benefit is that the land will get a stepped up basis as it goes through Donna’s estate, and it will work the same as if Bob were the last to pass away.

What we have not dealt with is Bob and Donna’s retirement income. Fortunately, the answer is simple: They become landlords. Let Tom and Dick take over the row crop and hog operations and become the owners of those operations, probably forming limited liability companies (LLCs) to house them. To generate their retirement income, Bob and Donna can charge Tom and Dick rent for the land and whatever else (e.g. buildings, trucks, tractors and other equipment) they use. Tom and Dick can start buying their own equipment as Bob’s existing equipment wears out or becomes obsolete. Bob could even give them the obsolescent pieces of equipment (perhaps using his annual gift tax exclusion) to use as trade-ins for new equipment purchased by Tom and Dick’s separate operations. Finally, until retirement Bob can work for Tom and Dick and be on their respective payrolls.

All in all, this would make for a smooth, relatively inexpensive transition.

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

Seven Habits of Highly Mediocre People: Why Accountability Counts

Mark W. Sheffert, MSM

Mark W. Sheffert, MSM, is founder, chairman and CEO of Manchester Companies, Inc., a Minneapolis-based board governance and management advisory firm. Prior to founding Manchester, Mr. Sheffert was president and chief operating officer at North Central Insurance Company and then president at First Bank System (now U.S. Bank). Mark.Sheffert@wcinput.com

Could your organization be suffering from the disease of mediocrity? You wouldn’t be alone. It is a highly contagious condition that’s easy to catch and spreads quickly. It’s present in epidemic proportions in businesses today. The symptoms are finger-pointing and blame-gaming, excuses and justification for disappointing performance, vague responses, lack of teamwork, political games and lots of time wasted on complaining. Unfortunately, these symptoms, if left untreated, can become habits that shape an organization’s culture over time.

The good news is that these habits can be broken and eradicated with an antidote called accountability. Let’s review the seven habits of highly mediocre people that make up highly mediocre organizations:

Habit 1: Don’t take initiative
Procrastination is the mediocre person’s best friend. These individuals ask, “Why do something today that can be put off until tomorrow?” They won’t initiate change or improvement; rather, they wait for someone to direct them, train them or make the task more enjoyable or easier for them. They believe deadlines are for other people who have to deal with really big consequences.

Habit 2: Forget about mission
Mediocre people suffer from tunnel vision, think that their job has no correlation with anyone else’s job and rarely think about the organization’s mission or reason for existence. They only show up every morning to collect a paycheck every two weeks. It doesn’t matter if customers are served well or satisfied, let alone delighted.

Habit 3: Blame others
When something goes wrong, mediocre people are like Teflon®—nothing sticks to them. It’s never their fault. Excuses spill from their lips at lightning speed. Blaming superiors who didn’t give them enough time, training or resources, or co-workers who don’t work as hard is a common rationalization.

Habit 4: Promote self-interest
The mediocre wonder, “What’s in it for me?” (WIFM) before anything else. These people only volunteer to take on a project if it will benefit their career goals; they do favors only if they know their actions will be rewarded or repaid.

Habit 5: Don’t listen to others
This trait is found in people who refuse to consider new ideas or different ways to solve a problem. They think, “We’ve always done it this way,” or insist on doing things their way. Their biggest fear is being told that what they are doing is no longer productive and that they might have to change.

Habit 6: Be deceitful
When a mistake is discovered or evidence of bad teamwork is brought to light, mediocre employees lie to cover up the truth. They might be little white lies to justify a situation, but these can grow into whoppers (just ask clients of Bernie Madoff).

Habit 7: Don’t learn anything new
People comfortable with mediocrity are afraid to learn new skills or new processes. Admitting they need training or knowledge means admitting to shortcomings and weaknesses. It’s easier to keep living in “denoidance”—the ugly combination of denial and avoidance.

If you are ready to forward this article to all of your employees and pin a printout to your manager’s wall, stop right now. This message isn’t for them; it’s for you as the leader!

We cannot break these bad habits by blaming others, but only by examining our own leadership and behavior in our organizations. The cure for mediocrity is accountability—for our performance, our failures, our vision and for our willingness to change. It’s not easy; I confess that I often exhibit these habits of mediocrity. That’s why I thought a reminder about leadership accountability would be a refreshing topic.

Recently, I read an excellent article on this subject “What Ever Happened to Accountability?” by Thomas E. Ricks (Harvard Business Review, October 2012). Ricks, who has written five books about the American military, highlights his research into the management effectiveness of the U.S. Army from World War II to today. By studying the effects of institutional mediocrity, he provides insights and outlines implications and ways to instill accountability for business leadership.

According to Ricks, the pinnacle of modern Army leadership was during the days of General George C. Marshall, chief of staff at the beginning of World War II. Marshall was a transformational leader, says Ricks, because he insisted on accountability. He set high standards and then rigorously upheld performance against those standards.

Marshall insisted on getting the right people in the right jobs and the wrong ones doing something else. From spring 1939 through 1941, he eliminated 600 officers whom he considered deadwood and replaced them with more energetic and vigorous officers held to high standards of performance. The result was a military operation able to make good decisions, quickly adapt to changing battle situations and eventually win the war.

By contrast, Ricks’ analysis of the Army’s leadership during the wars of Korea, Vietnam and Iraq/Afghanistan shows it as rife with political gamesmanship, institutional self-interest and a lack of focus on the overall mission. He labels it “the lingering cost of mediocrity” and gives specific examples of how losing accountability led to major errors in strategic thinking and damage to morale and performance. He calls for all of the Army’s generals to be held accountable. Business leaders should learn from these examples to win their own battles in the marketplace.

Mediocrity can easily become institutionalized. But you can restore accountability by having the courage to move the right people into the right jobs and to remove obstacles to achieving your objectives. Measure performance against the standard of a clear mission, and reward those marching in line with it. Failing to do so simply enables bad habits of mediocre people and risks mediocrity taking root in your organization’s culture. 

2014: 1H Market Outlook

Kenneth Polcari

Kenneth Polcari is director of NYSE Floor Operations for O’Neil Securities, Inc. He is also a regularly featured market commentator on CNBC’s Power Lunch with Sue Herera and Tyler Mathisen and Taking Stock with Pimm Fox, among others. Kenneth.Polcari@wcinput

Welcome to 2014. After 2013, many are wondering what is in store for the markets and for the investor as we move from all the handholding to allowing the markets to possibly stand on their own merits. Investors have some decisions to make about what they are saving for, their financial goals and concerns, etc. Then they must create their plan, eliminate the noise and concentrate on the future. After last year’s impressive return for the S&P, many wonder, “Can I expect that again?”

Don’t bank on it. And should you be paying attention to all of the prognostications? Maybe, but remember, trust your instincts. In January 2013, the consensus for the market was a relatively modest view—though most predicted a positive year, none predicted an outstanding year. If you had listened to most, you would have expected a 5 percent to 7 percent return for stocks, which is the norm really, but was not the case in 2013. By year-end 2013, the market delivered a whopping 30 percent return—clearly one for the record books, but one that investors should not expect again in 2014.

Much of what I say and discuss is about getting individual investors back into the market, restoring their confidence and understanding of the market and the role it plays in the longer-term plan. Many small business owners are first and foremost concerned about their businesses—as they should be. But after they have settled in and can concentrate on providing for the future, a balanced, diverse portfolio should be part of that plan—and a good financial advisor is worth his weight in gold.

Many are concerned that the market’s 30 percent increase in 2013 means that it can’t go up further in 2014. Not so, but the market will have its challenges, at least in the first half of the year. We have a new Fed Chair, Janet Yellen, the debt ceiling debate and we had a mixed earnings season, which has left many to wonder when earnings will improve due to top line revenue growth versus cost cuts and buybacks. And we had the market test technical levels, both on the upside at 1850 and the downside at 1800. Herein lies the dilemma: How do investors begin? Where do they begin? One must create the plan, outline the goals and then stick to them.

Analysts predict the beginning of a return to normalcy, though many question, “What is normal?” With rates so artificially low and continued mixed macro and micro data, it can be confusing and frustrating. So here is where the plan becomes helpful. Expectations for 2014 include:

·         A solid 3 percent gross domestic product (GDP) growth

·         Steadily declining unemployment rate

·         Reduction of Fed stimulus

·         An improving European economy

·         Stabilization in Asia

·         Normalization of U.S. interest rates

If all of this comes together, then a return to normal does not feel so farfetched. But do not expect it to be a straight line—so much can happen.

Since the beginning of the year the market has churned, not making a move higher or lower as it tries to assess what the future looks like. We entered earnings season with high hopes, and we saw many companies beat the expectation while others continue to struggle. Top line revenues continue to be a challenge for so many. Earnings continue to beat lowered expectations as companies cut costs and initiate stock buybacks. They are not yet growing top line revenues, and this is the challenge. Investors expect (and rightly so) that companies will start producing real top line revenues that produce real earnings growth, allowing for larger profits that will flow to dividends, capital spending, buybacks and possibly more acquisitions.

Among all of this bullish talk, many call for a correction. Some are so bold as to call for a 20+ percent correction. That I do not see, but one must prepare for an eventual correction of some sort. The question is will it be 5 percent, 10 percent, 20 percent? No matter what it is—and I think no more than an 8 percent to 10 percent correction going into the spring—it will clearly take some of the fluff out of equity prices and allow the market to reprice based on developing macro data points. If the data continues to struggle, expect a swifter correction, but if the data shows stabilization, investors and markets will be forgiving and any correction will be met with natural buying interest.

The months ahead will be full of Fed discussion. Will the taper stay status quo for a bit, or will they try to increase the taper with each month? If so, do investors support this move? What will happen to bonds and long-term rates at the height of the spring selling season? If the Fed loses control of rates, then expect housing to come under some pressure—exactly what they do not want to happen in an election year.

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.


This market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O’Neil Securities, Incorporated or its affiliates.

Ten Reasons Why the 4 Percent Rule Is Too Simplistic for Retirement Planning

Wade D. Pfau, Ph.D., CFA

Wade D. Pfau, Ph.D., CFA, is a professor of retirement income in the new Ph.D. program in financial services and retirement planning at The American College. He is also an active blogger on retirement research and was a 2012 selectee for the InvestmentNews Power 20. Wade.Pfau@wcinput.com

William Bengen’s seminal study in the October 1994 Journal of Financial Planning, “Determining Withdrawal Rates Using Historical Data,” helped usher in the modern era of retirement withdrawal rate research by codifying the importance of sequence of returns risk. The problem he set up is simple: A new retiree makes plans for withdrawing some inflation-adjusted amount from his or her savings at the end of each year for a 30-year retirement period. What is the highest withdrawal amount as a percentage of retirement date assets that, with inflation adjustments, will be sustainable for the full 30 years? He found that with a 50/50 asset allocation to stocks and bonds, the worst-case scenario experienced in U.S. history was a 1966 retiree who could have withdrawn, at most, 4.15 percent. It is from these origins that the idea of the 4 percent safe withdrawal rate developed as a basic rule of thumb for retirement income planning.

Naturally, as this is a rule of thumb, it does not necessarily mean that 4 percent is an appropriate withdrawal rate for every new retiree. Here are 10 reasons (some of which suggest lower withdrawal rates, while others suggest higher withdrawal rates) why advisors and their clients should think more deeply about whether 4 percent is the appropriate solution.


The U.S. historical experience is not sufficiently representative to provide a clear idea about the safe withdrawal rate. The 4 percent rule has not worked as well in other countries, and new retirees today experience a market environment that has very little precedence in the U.S. historical record. This is because bond yields are so low at the same time the stock markets are significantly overvalued, according to Robert Shiller’s cyclically adjusted price earnings ratio. This represents a clear challenge to the continued sustainability and viability of the 4 percent rule for recent retirees.


The 4 percent rule is based on an assumption that investors earn the underlying indexed market returns with annual rebalancing. Investors who pay fees or otherwise underperform the indices, because of either poor timing or asset selection decisions, cannot rely on 4 percent.


The 4 percent rule is based on a tax-deferred portfolio. For those withdrawing from a taxable portfolio, taxes will play a bigger role than one may expect. Not only are taxes paid on withdrawals, but taxes must also be paid on reinvested dividends, interest and capital gains when they accrue and even if they are not withdrawn. This limits the chance for the portfolio to earn compound growth on those removed tax payments.


The 4 percent rule assumes a retiree has no desire to leave a bequest or to build in a safety margin. In the worst-case scenario, wealth depletion can be expected. This causes the retiree to play a game of chicken as wealth plummets toward zero. Building in an additional safety margin further reduces the sustainable withdrawal rate.


The 4 percent rule is based on a planning horizon of 30 years. Those with other planning horizons must adjust their withdrawal rate accordingly, as increasing planning horizons will cause a further decline in the sustainable withdrawal rate.


The 4 percent rule assumes only a few asset classes. What matters for sustainable withdrawal rates is the interaction of portfolio returns and volatility. Including more asset classes can allow for different portfolio characteristics, and, potentially, a portfolio with better return/volatility characteristics can be found. Advisors who implement strategies that reduce some of the downside volatility for client portfolios through the use of financial derivatives or other strategies can also find justification supporting a higher withdrawal rate.


The 4 percent rule assumes constant spending in inflation-adjusted terms throughout the retirement period. Two questionable aspects about this may or may not be related. First, actual retirees tend to reduce some of their discretionary expenditures as they age and spend more time at home. On the other hand, health expenses tend to rise with age. Different assumptions about how spending evolves with age have an impact on sustainable withdrawal rates. Second, because survival probabilities decrease with age, it is somewhat natural to plan for a reduced spending pattern over time. Otherwise, one sacrifices too much by cutting spending in early retirement to allow for the same spending much later on when the probability of survival is quite low. One would need to be extremely inflexible with regard to their spending decisions or extremely averse to outliving their wealth to prefer a strategy of constant spending over retirement. And with such inflexibility, it would be odd to try to manage all of this longevity and market risk on one’s own without branching out to consider various strategies that incorporate guarantees.


The 4 percent rule assumes withdrawals are taken from a portfolio invested with a total returns perspective. But there are many other options available to retirees building income strategies, such as fixed and inflation-adjusted immediate annuities, variable annuities (with and without guarantee riders) and bond ladders. Retirees may seek to build an income floor to make sure their basic needs will be met. A time-varying strategy of withdrawing more before age 70 and less after may be appropriate, as it is often beneficial to delay claiming Social Security. A complete strategy will involve a process that seeks to combine different income tools to best balance between one’s goals and risks to those goals. 


Optimal retirement income strategies involve changing one’s spending in response to evolving market returns and their impact on wealth. The constant inflation-adjusted withdrawal strategy from a volatile portfolio without guarantees is inferior to other strategies, no matter the types of evaluation measures or retiree circumstances.


The 4 percent rule is based on an evaluation measure that seeks only to minimize the probability that financial wealth will be depleted at some point before death. It ignores the potential magnitude of failure (that is, how much time at the end of retirement will be spent without wealth), and it ignores other resources that may be available to the retiree in the event of wealth depletion. A more complete picture of retirement income resources may suggest, in some circumstances, that retirees can be more tolerant about later financial wealth depletion as it will allow them to enjoy a more satisfactory early retirement period. This more complete picture would also account for when, precisely, financial wealth is depleted.

The 4 percent rule and the probability of running out of financial wealth are just one piece of a much larger puzzle that needs to be solved to help clients fully enjoy their retirement. Retirement income planning is quite distinct from pre-retirement wealth accumulation, as clients must determine how to disburse their assets to maximize their spending potential without running out of income before running out of time. New designations, such as the Retirement Income Certified Professional (RICP) designation from The American College, are now available to help advisors strengthen their understanding and to better implement the strategies needed to help their clients enjoy a successful retirement.

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

Disability Insurance—More Than Cash Flow Protection

Thomas R. Petersen, RHU®

Thomas R. Petersen, RHU®, is vice president at Petersen International Underwriters, a Lloyd’s coverholder specializing in specialty disability, international life and medical plans and also kidnap insurance in the U.S. Tom is a frequent writer and trade association presenter, including for MDRT. Thomas.Petersen@wcinput.com

Robert was a scuba instructor who was building a successful business. He taught all levels of scuba diving, had a small dive store and led groups on trips around the world. Robert built a great following. His well-trained staff made each dive a great adventure for students and seasoned divers alike. Robert earned his good reputation through hard work and was in great demand. Robert was on top of his game.

In his mid-20s, Robert had plenty of life insurance but felt no need for disability insurance (DI). After all, he swam every day, was in great shape and, with no family history of illnesses nor any prior health issues, what could go wrong?

The drunk driver who plowed into his car, however, set in motion a lifetime of issues. The most immediate problem was the need to learn to walk again. Major soft tissue and joint injuries meant that his bone structure was intact but muscle relaxants and painkillers were essential. As for his business, mid-summer is NOT the time to stop classes and trips related to the ocean.

It took about 30 days for lesson referrals to cease and about 30 more days until he had to start liquidating the dive store. Rent and utilities are blind and unsympathetic toward an accident. The business that took Robert more than seven years to build was gone in less than 90 days.


Like many couples who were recently married, Kathleen and Darren both worked and both saw their lives as “happily ever after.” Part of the picture in their minds included the home with the proverbial white picket fence. They worked hard, saved and finally found their dream house. Escrow was to close December 1. Their family (siblings and parents) decided to take a family vacation to Hawaii over Thanksgiving. Kathleen and Darren would go on the trip and return to sign papers a few days later.

On the first day of the trip, Darren and Kathleen decided to explore the red sand beach area near Hana on Maui. On the walk down to the beach, the trail collapsed under Kathleen’s feet and she fell 40 feet to the sand below. The broken leg and ribs were not as severe a problem as the broken L5 vertebra. It would take weeks or months to know if the broken back was going to cause a permanent disability.

As Kathleen recovered at Maui Memorial Hospital, Darren faced another concern—the dream house. They knew it was going to be a financial stretch for them, but they were both working. Darren called the loan officer to see how the loss of one income would impact getting their home. Thirty years later, Darren still remembers his conversation with the loan broker: “Does Kathleen have disability insurance?” his broker asked.

“Yes, she does,” Darren replied.

“Then there is no problem.”

We forget that disability insurance is not about terms and conditions, but about saving the dream house or keeping the business going until you are ready to take the helm again. It is asset protection.

Both of these stories involve an accident. Neither was permanent. However, the absence of DI destroyed one dream and its presence saved another.

Personal disability insurance

A sizable income is not a reason to ignore the need for disability insurance. “Sizeable” is a subjective term. Until a thorough analysis of options is explored and a suitable alternative is found, disability insurance should be a cornerstone in all of our clients’ financial protection plans, regardless of income.

Numerous third-party resources— financial journals, books and surveys conducted by such entities as the U.S. Bureau of Labor Statistics, as well as the insurance industry—ALL agree that two-thirds of an individual’s income is an adequate amount of replacement protection.

Historically, the insurance industry has taught that disability insurance is cash flow replacement. However, asset protection can be a much more important reason to have DI. During a period of disability, regardless of duration, a person must spend money to pay bills, such as a mortgage, transportation fees, etc. Hard assets, such as a home, cannot pay these expenses.

In the absence of DI, a reserve of cash will have to be used and perhaps depleted. The next phase is to liquidate assets to pay for living expenses. Higher-income individuals do not have less need for disability insurance; they have more need, as they have more expenses and more at risk.

In Robert’s case, personal DI would have helped cover his living expenses. For Kathleen and Darren, having DI meant they still closed on their dream house.

Business disability insurance

Personal DI (whether individual or group) is the most commonly talked about disability insurance product. However, the business sector should not be ignored.

Every business owner in the U.S. has business insurance, which includes business interruption insurance—protection that pays expenses in the event you cannot open your doors Monday morning due to a fire, theft or vandalism. But, what if the reason you cannot open the door Monday morning is because you cannot open the door? Business DI should be looked at as an add-on (albeit essential need) to business interruption insurance.

Robert had to liquidate his entire business. He might have been able to make a comeback, but the cost to keep everything outweighed the short-term expenses that needed to be paid.

Key person insurance (life or disability) is often thought of only when larger companies are involved. However, every business, regardless of size, has a key person. It may be the owner or the top executive or account representative, or it could be someone who makes the critical operations work. Even a small business owner may be a key person for the success of his or her company (in fact, he or she may be the company’s only employee).

Most insurance professionals and legal advisors also make sure businesses with more than one owner have in place a buy-sell agreement. A disability buy-sell is equally, if not more, important as the life insurance. When an owner dies the process is clear. The voice of the deceased owner is silent. When a disability occurs, the disabled owner still has a voice and expenses that were not there before—and now is in survival mode.

A small business owner may do well to heed the advice that a buy-sell is necessary for legal, tax and business purposes. A buy-sell disability and life plan is needed to help fund the financial impact that occurs when a disability disrupts the company, regardless of size.

We forget what insurance is. It is not about terms and conditions. It’s about peace of mind and financial salvation when the need arises. DI can protect both personal and business assets. It can mean the difference between achieving the white picket fence and losing everything.

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

Now, What Are You Going To Do With It?

Gary A. May, CLU®, ChFC®

Gary A. May, CLU®, ChFC® is a 14-year home office veteran in the financial services industry currently working in Agency Sales Support for Nationwide Financial in Columbus, Ohio. Gary.May@wcinput.com

“Well, that’s the news from Lake Wobegon, where all the women are strong, all the men are good looking and all the children are above average.”

Fans of public radio’s weekly program A Prairie Home Companion will instantly recognize that quote as the closing line to Garrison Keillor’s monologue about happenings in that fictitious rural Minnesota town. If you have recently finished a designation or degree from The American College, or are close to achieving this goal, you could qualify for honorary citizenship in Lake Wobegon. Only a limited number of professionals in the financial services industry complete an advanced degree or recognized designation related to the industry. Welcome to that elite club!

When you finished the requirements for your designation or degree, you probably breathed a huge sigh of relief. And then you celebrated. Maybe you even had the opportunity to attend, or are planning to attend, The American College’s biennial Knowledge Summit. And once you marked all of that off of your to-do list, you moved on to the next thing. Not so fast.

Let’s hop a time-travel machine and set it for when you started the introductory classes for your designation or degree. Those classes set a foundation for you as you accumulated expertise in the specialized area of your study. An absolute bedrock of that foundation is The American College Code of Ethics and the Professional Pledge and eight Canons therein. I encourage you to visit alumni.theamericancollege.edu/who-we-are/code-of-ethics and spend time to reflect on the ethical responsibilities placed on you.

Thinking back to my studying days for my Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations, one of the eight Canons always stood out: “Participate in building your profession by encouraging and providing appropriate assistance to qualified persons pursuing professional studies.” I was fortunate to study for my designations at the same time as several of my Nationwide Financial colleagues, so we helped each other through the tough parts. Since I gained my designations, I’ve had the pleasure of helping colleagues prepare for some of those same classes. (My advice: Never tackle the Time Value of Money concept by yourself!)

The importance of giving back was reinforced many times as I attended the 2013 Knowledge Summit. First and foremost, it was modeled by employees of The American College as they staged the event. Many of them worked tirelessly to make the Summit a world-class event, and it showed. Top-flight experts presented on topics critical to the financial services industry today; you just don’t run across learning opportunities like that. The Summit’s quality embodied the staff’s work ethic; it wasn’t just an event, but something that affected the careers and mindsets of financial service professionals throughout the country.

The 50th anniversary of the assassination of President John F. Kennedy occurred during the Summit. The American College presented a retrospective video that included a segment from Kennedy’s 1961 inaugural address. Some of the most famous words in all of history echoed in the room, “And so, my fellow Americans, ask not what your country can do for you — ask what you can do for your country.”

Giving back was a scarlet thread running through the commencement ceremony as well. During her address, Caroline Feeney, CLU®, ChFC®, president, Agency Distribution for Prudential, asked a simple but profound question of those earning their degrees and designations: “Now, what are you going to do with it?” She continued to drive home the point, tailoring her remarks to home office employees, field management and financial advisors, outlining the responsibilities each had now that they’d earned their designation or degree. Believe me, it was a long list of responsibilities for each. Feeney left her listeners with this thought as she closed: “Never forget the value of what you can do with your education, and never stop in your quest to use your knowledge to help others.” By the determined looks on the faces of those in the audience, her admonition hit home.

Susan Cooper, CFP®, CLU®, ChFC®, CAP®, of State Farm, was the student speaker. She echoed the tone set by Caroline Feeney, putting this challenge out to her fellow graduates: “As leaders, it is our responsibility to learn new and better ways to lead our organizations, work to enhance the lives of our clients and customers and, most importantly, always be seeking that next mountain to climb.”

Do you see a common theme emerging here? As you tackle the challenge of earning a degree or designation from The American College and advance through that process, it becomes less and less about you and more and more about your clients, your colleagues and your industry. Put some serious thought into what you can do to advance their interests by giving back your time, your talents and your energy.

If you need further inspiration, recall some encouraging words you may have heard from a colleague or a supervisor as you poured through a textbook to prepare for another exam. That was just the thing you needed to push you through to the finish. Imagine the boost you can provide to colleagues going through the same thing as they study for their degree or designation. Maybe an executive at your company is a tireless advocate for the value of The American College, as so many industry executives are. Consider stepping alongside him or her and modeling the virtues set forth in the Code of Ethics.

Completing the requirements set forth by The American College earned you a coveted designation and a certificate or diploma. That’s a good thing. Remember, though, you also assumed the responsibility of giving back to your clients, your colleagues and your industry by accepting that certificate or diploma and putting the designation behind your name. “Now, what are you going to do with it?”

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

Leadership Perspectives From a New MSM Graduate

Tia Nichole McMillen, MSM

Tia Nichole McMillen, MSM, is an officer of the U.S. Navy and recent graduate of The American College, which she attended through a scholarship awarded by the Penn Mutual Center for Veterans Affairs. Tia.McMillen@wcinput.com

I am very thankful to The American College for granting a scholarship to a young woman who may not have been the typical applicant. When I started the program, I knew nothing about the financial services industry. My financial principles included paying everything in cash, never being in debt and forcefully investing in my future. It was this forward thinking that brought me to The American College.


In the Navy, officers’ responsibilities are to carry out the day’s mission and to support their shipmates. Holding responsibility for others’ lives both frightens and invigorates me. The leadership—educators and classmates associated with the Penn Mutual Center for Veterans Affairs, through which I am a scholarship recipient—have enabled and encouraged me to analyze my leadership style and humbly strengthen my weak traits. As a result, I am more suited to lead the outstanding men and women who serve our Navy. I take this task very seriously and want to consistently be the best I can be for the great Americans who answer the call to serve.


Throughout the Master of Science in Management (MSM) program, I found myself taking notes on what I consider “Big Leadership Lessons.” I define these as the lessons most relevant to leadership in general—those particularly relevant to where I am in my leadership journey and those that transcend any line of work. The petty officer entering the Admiral’s office for the first time, the artsy aspiring writer prepping for his/her first interview, the field manager in the midst of change, the CFO’s secretary studying to be an elementary school teacher—each can effectively use these Big Leadership Lessons where he/she is right now.

Ethical decision-making

Ethical decision-making begins with a more-than-sound understanding of self. It’s developing a thoughtful personal mission statement, a personal vision statement, a personal brand statement and a detailed plan of execution. It’s conducting a thorough Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis and acting upon discoveries.

Here is the checklist I use:

·      Are my actions godly? My life is founded on God, family and country. It is imperative to who I am to know that my decisions are ethical and based on faith.

·      How does my decision reflect my brand statement? My personal brand statement is to take harder, better, faster and stronger to the next level through active learning, steadfast faith, serving the community and leading others by example. If my brand statement is who I claim to be, my actions need to reflect that.

·      What does my decision say about my character? What perceptions can be garnered as a result of my action? Who I am and who I am perceived to be is important to me. One is only as great as his/her reputation.

·      What are the pros and cons involved in my decision? This is when pure logic plays a role in my decision-making process. How are these pros and cons weighed by importance?

·      Have I sought an outside, unbiased but faith-based perspective? This is when I bring my decision to a trusted mentor. My mentor is an excellent example of someone who is ethical, just and compassionate. She is the perfect sounding board for these questions. She knows my son and me well and is aware of both of our strengths and weaknesses. She provides sound advice with situational awareness and outside perspective—a hard blend to find in someone.

·      Do I need to reconsider my decision? Part of my decision-making process occurs after I choose a path. I reassess that path to determine if I made the right decision. If not, I go through the process again and try to make a better one.

Understanding that this process is fluid, I have found it quite helpful for making ethical decisions. This decision-making process proves most effective when combined with self-regulation, or the ability to control one’s emotions and actions.


Emotional intelligence plays a key role in the success of any leader. As part of the MSM program, we addressed our individual strengths and weaknesses, and I learned that my greatest emotional intelligence weakness is self-regulation. As a result, I approached this problem in three ways with the goal to always respond with intelligence and compassion instead of judgment.

1.      The first is very simple: Apologize when I am wrong. My grandfather always told me, “A man (or woman) is not a failure until he blames his failure on others.” We fail as leaders when we do not accept blame, sincerely apologize and learn from mistakes. By taking due blame on yourself, you’ll earn respect and be wiser in future actions.

2.      Remove what you hear and replace it with truth. So often we turn simple statements into pointed negativity. Assess what is actually being said instead of what you think you are hearing. Actively listen and clarify.

3.      Journal—with a twist. Writing down negative thoughts helps one visualize the petty issues that get in the way of success. Pull these negative thoughts from your mind and put them on paper. Then shred it.


Lastly, a major threat to leadership arises from a desire to be liked and accepted. It’s called conformity and it’s a creativity killer. To fix it, create a nonconformity conclave. Create an environment where discussion is encouraged. For example, take your team out of the office, order light refreshments, and provide whiteboards, flip charts and other visual aids to appeal to visual learners. Videotape the session to appeal to both visual and auditory learners. Encourage each member to step forth and share a high and low of the process. What works best? What needs improvement? Write down all answers and have a forum to further discuss them. Break into smaller groups to tackle improvements. Use random selection, free association and/or brainstorming to tackle issues. The most important thing here is to encourage the right environment for discussion and ensure everyone’s ideas are relevant and heard.

These Big Leadership Lessons consistently push me to be a better person and, in turn, a stronger leader. Sometimes as leaders, we work with other leaders and are able to help them succeed in their careers. As a protocol officer for a two-star Admiral, I’m lucky to be surrounded by leadership. One of the most profound things I have learned through on-the-job training is the difference between leadership styles and how that influences how I want others to view me. I leave you with this:

It is one thing to be admired by the masses. It’s another thing entirely to be loved by the people who work directly for you. The people who primp your uniform, tire over poignant phrases, drive hours through the night—those who follow you because they are courageous and have full faith and trust in your leadership.

My friends, strive to be the second kind of leader. 

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

Help Clients Think Beyond Themselves

Mitchell Kraus, CFP®, CAP®, CLU®, ChFC®

Mitchell Kraus, CFP®, CAP®, CLU®, ChFC®, is a registered representative with, and offers securities through, LPL Financial, Member FINRA/SIPC. He has been helping clients plan for their financial future since 1993. He and his father, Arthur, established Capital Intelligence Associates in 2003 as a comprehensive resource for independent, unbiased advice and trusted financial guidance. Mitchell.Kraus@wcinput.com

After looking at their inward needs, the next area most clients are concerned with is their immediate family. Most planning software and training programs look at life insurance needs. They look at college funding and estate taxes, but few really address family money dynamics. It’s one thing to make sure your kids get to college, but it takes another level of planning to ensure clients pass on their values along with their financial wealth.


Money isn’t a comfortable conversation for some American families. Because of this, each generation must learn its own lessons. As a financial professional, you are uniquely positioned to help parents teach financial literacy. It can be as easy as recommending books for them to read, and tons of seminars on the subject are available. One of my favorites is Yes, You Can! Raise Financially Aware Kids. The authors have a turnkey kit with workbooks, seminars (available at yesyoucanonline.info) and a book you can give to your client. Another option is to ask your clients their biggest financial mistakes and help them create solutions so their children hopefully don’t make the same errors.


For clients with older children and grandchildren, in addition to safeguarding their financial legacy, encourage them to share the lessons they’ve learned about money and life with future generations. Work with them to create an ethical will and perhaps even a video of their insights. We have a client with a fascinating life story. He’s done it all. We put him in touch with a documentary filmmaker to capture his story. Other clients will collect questions from their grandchildren and record the answers using an iPad.


As our baby boomer clients’ parents get older, their financial concerns also focus on the generation ahead of them. Sometimes it’s about helping this generation live the last years of their lives with dignity. We worked with a widower client to purchase a long-term care (LTC) insurance policy that splits the premium four ways. The widower and his three kids each paid one-fourth of the annual premium. He felt relieved that he was taking steps towards reducing the financial burden on his three children, and the children appreciated knowing their father had long-term care coverage.


In addition, many resources are available to assist clients who wish to help aging parents or to explain the steps to take when one of them passes away. I find the best resources are often the insurance companies with which I work. They have great brochures and articles that you can hand to clients. While not much more work, this extra service shows you care.


For many clients, planning for family is just the beginning. Their goals extend out to the community. This is your client’s chance to think globally by acting locally. Welcome to the world of philanthropy. Based on the number of advisors I see volunteering alongside me, I know that philanthropy is important to them. What are you doing to help your clients with their philanthropic desires?


A good place to start is to ask them about their vision for a better world. Ask to whom they donate money and to what causes they volunteer their time. Look for ways to leverage their giving. For example, they could donate highly appreciated stock or change the beneficiary on an old life insurance policy the family doesn’t need anymore. Perhaps you could look at their estate plan and use advanced planning techniques such as charitable gift annuities, charitable remainder trusts (CRTs) or other split-interest gifts.


Get to know your local community foundations. They’re an excellent resource for helping clients make intelligent philanthropic decisions. They know the local charities. They know all the legal intricacies of charitable giving. They can fill in any holes in your expertise and even help your clients choose the ultimate beneficiary for their funds.


Finally, if clients are thinking on an even bigger scale, look at matching their investments to their beliefs. The roots of socially responsible investing (SRI) trace back to our country’s founding when certain religious orders refused to invest in companies that participated in the slave trade. Today there are funds and managers that invest based on everything from religious convictions to environmental concerns; from women’s equality to governance issues.


When I started in this business 20 years ago, most studies on SRI concluded that clients were giving up return to invest with their conscience (for example, those who decided not to invest in high-flying tobacco stocks in the ’80s due to the health risks associated with smoking cigarettes). But that has changed. According to a GMI, Inc. review of dozens of studies on SRI, “The general consensus is that, on average, responsible investment methods perform on par with conventional techniques, neither outperforming nor underperforming them on a regular and reliable basis.”


While most advisors ask if clients are comfortable investing in certain asset classes, such as international stocks and illiquid investments, few ask if any investment types go against their values. While many clients show no preference, those who do show real passion. One client couldn’t stop thanking me for asking. She was very concerned about women’s rights in the world and kept reading negative reports about companies whose stock she owned but was afraid to bring it up with her previous advisor. Another client called after getting his first statement to thank us for making sure he didn’t have any big banks in his portfolio; he felt they were responsible for the Great Recession.


Another client found us on the web through an SRI trade group. He knew there were companies in his portfolio to which he was morally opposed. He didn’t want to avoid any specific industry, but wanted to ensure that morality played into the stock picking decisions. We chose some third-party money managers, and every quarter we go over his portfolio’s performance and the rationalization the managers used to pick the stocks. Of course the performance of his portfolio matters to him, but his true satisfaction comes from the time we spend during these reviews detailing the process for social screening each stock.


The possibilities of helping your clients think beyond themselves are endless. Look at the potential big picture: Help your client set up a family foundation or a donor advised fund. Put their children (and grandchildren) on the official or unofficial board. Help them learn about finances by reviewing the investments. Help them learn about community by deciding which charities are the ultimate beneficiaries of the funds. Teach them about social responsibility by reviewing the SRI components of the underlying investments. Get creative and you can combine the power of a positively changed family, a positively changed community and a positively changed world.


An old saying imparts, “We do not inherit the Earth from our ancestors; we borrow it from our children.” As financial advisors, we have the opportunity to give those children the world that our clients want for them. It just takes adding a little extra to the great work we’re already doing.

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

Social Media’s Secret Sauce and Other Recipes for Success

Keith Hickerson, MSM

Senior Strategy Consultant at The American College, Hickerson, MSM, previously served as Vice President of Marketing at The College and, before that, at Unum Corporation.

One of the great things about working at The American College is the opportunity to explore new courses and content as they’re released. If you believe in ongoing education, it’s a “kid in the candy store” moment every time the latest material is ready for review. The other day I sampled the new interactive, self-paced module on Social Media for Financial Services Professionals that’s part of the Financial Services Certified Professional™ (FSCP™) program, and it’s a winner.

Here’s the thing about FSCP™ modules and classes: You can take any of these courses by themselves even if you’re not pursuing the designation. For anyone in financial services, regardless of the role you’re in or your time in the business, you won’t want to miss this social media module in particular.

The module’s training is practical: How do you set up an effective LinkedIn presence? How do you create profiles of your target clients or connections to better build your social media strategy? How do you allocate your social media time well, where do you start and how do you measure your success? If you’re new to social media, you’ll now have a roadmap to follow. Even if you’re a regular user of social media, think about the value of having an expert show you, section by section, how to think differently about the way you build your online presence.

The module provides instruction from an expert throughout, videos of other advisors explaining what they do, interactive screens where you can enter your approaches and the ability to click on features of social media platforms to learn more. There’s also an understanding of how compliance works, FINRA rules and other must-know information for using social media in the financial services world.

Other FSCP™ modules cover top-of-mind topics. You can learn the constantly changing ins and outs of the healthcare reform law as it’s being implemented. There is new valuable content on divorce planning, too: One module covers financial issues relative to divorce, and the other covers emotional issues that a planner needs to understand. New modules are being added every quarter.

The other point to remember about FSCP™ is that all of the courses (both live local and online webinars) that companies and advisors have long valued in The College’s training programs are all still available. FSCP™ is literally the best of proven material as well as new content and delivery methods.

The importance of career-long learning isn’t a myth. I’d argue that in our increasingly interconnected world, it’s more important than ever that we mitigate complexity with knowledge. There’s no better way to start than with the FSCP™ Social Media for Financial Services Professionals module. Enjoy!

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

Letting Go of Less-Than-Ideal Clients

Rosemary Smyth

Rosemary is an author, columnist and an international business coach for financial advisors. She spent her career working at leading investment firms before pursuing her passion for coaching. She lives in Victoria, BC. Visit her website at www.rosemarysmyth.com.

Some advisors hold onto clients that they consciously know are bad for them instead of taking one bold step that could improve the quality of their business. The challenge of letting go is tough for some people especially if they see their business situation as not so great but are more afraid of the unknown. It’s been said that the unknown is where your professional potential lies and that choosing the discomfort of change will reveal to you a whole new world of possibilities. It’s all about making that one courageous decision and leaving the status quo behind.

For advisors, there comes a time in the maturity of the business where the number of clients can be overwhelming.  The trigger may be a missed meeting, a forgotten call or a day with a series of very small transactions that take up hours. Suddenly, their top client needs to see them and they can’t fit them in. Wham! That’s when it hits them. Things need to change.

The trigger forces the advisor to look at their client list and decide who is going to be let go. The path of letting go of small or less-than-ideal clients is different depending on the firm but try to highlight the positive for both yourself and the client. Moving on to a national call center, a rookie, or perhaps the successor can hopefully be an opportunity for those clients to be serviced with more vim and vigor.

Obviously, the benefits for advisors include; better service for their top tier clients, less stress, more time for events and appreciations, more enjoyment of their revamped schedules and being more productive overall with their time.

The tough part for advisors comes when they see the names of their very first clients on the list. They’ve had them for years and they were the ones that trusted them with their small amount of money when they were just starting. However, the intention of letting go of less-than-ideal clients that no longer fit the business model is about creating a new client experience with noticeable value and benefit that the advisor can be proud of.

To make sure unbiased decisions about segmenting client lists are made, follow a structured process.

Step #1 Create a selection criteria list

The selection criteria will mirror the list of your ideal clients. For example, you enjoy working with them, they give you referrals, their household recurring revenue is in your target range and they are willing to accept your recommendations. Once you set the list, prioritize it and decide how many of the items on your list are going to have to be checked off for you to classify them as ideal clients. If you are stuck for criteria think about your favourite clients and what makes them your favourite.

Also, consider if you divide last year’s income to an hourly rate and calculate how many hours that you would be spending over the year with that client. What revenue would have to be the baseline for you to cover your time?

Step #2 Go through your client list

With the selection criteria now established, carefully go through your client list. Be sure to tag family households together so you don’t happen to miss a relative that has a different last name. Take your time doing this and, if you have an assistant, work on it together as you both will be able to share your experiences that you’ve had with each client.  Try to split this task into smaller chunks, so that you can complete it accurately and are confident with your final decisions.

Step #3 Take action

Once you have the list of the non-ideal clients and have decided where they will be going, put some time limits on when you will take action and how you will let the clients know. Some advisors like to do this quickly and do it all at once like ripping off a Band-Aid. Others need to gradually get used to the idea. Whether it’s calling the clients or sending them a letter introducing their new advisor or new situation, frame the conversation as to why this change is good for the client and be clear what’s in it for them.

The reality is that, every year you need to be bringing in new assets and by going through this process of letting go; you will have to bring in more to reach your goal. The hope is that all your existing clients fit your ideal criteria and you will have more time and energy to prospect and follow up on those referrals. 

Secrets to Longevity

Erin Gazica

Erin is the communications consultant in the Advancement Division at The College.

Orem Robbins, CLU®, ChFC®, RHU®, turned 99 years old on February 5, 2014, but the former insurance executive is mysterious about his secret to longevity. When asked what has kept him going for so long, he jokes: “Well, a pacemaker, for one.”

Robbins, who founded Security Life Insurance Company of America in 1956, still exercises for 30 minutes a day. He also admits, “I like a lot of napping.” But perhaps his tricks to living a long life are ingrained in his positive, life-affirming personality more than in a healthy diet, adequate rest or vigorous physical activity.

“My best advice is to put the other fellow ahead of yourself,” Robbins says. “That way, the both of you will always come out ahead. I’ve lived my whole life that way.”

Robbins, whose parents both died by age 67, has outlived three wives. He has nine children and stepchildren spread across the country, though he remains in Minneapolis where he was born and raised. He graduated from the University of Minnesota in 1936 and began his professional career as a business office representative and service engineer for Northwestern Bell Telephone Company. He served in World War II as an Army officer assigned to the Navy. His service was mostly stateside, but occasionally took him overseas, including to the Philippines. For a time he served under Lt. Col. James Roosevelt, II, the eldest son of U.S. President Franklin D. Roosevelt.

After a successful military career, Robbins resumed his professional life at Northwestern Bell and then moved to the Savings Bond Division for the State of Minnesota. By 1948 he had earned his law degree and by 1956 he had founded the first publicly owned life insurance company in Minnesota. He served as president of Security Life for 24 years and became chairman of the board in 1980.

Robbins borrowed against his GI life insurance policy, a 30 pay-life plan, to start the company. Before he knew it, the 30-year period was up. Then 60 years has passed. A check for $60,000—the face amount of the policy—arrived in the mail. He had outlived his life expectancy.

“It reaffirmed the whole value of life insurance,” says Robbins. “It’s about living, not about death benefits.”

Needless to say, Robbins has seen incredible changes in the industry. When he first started, he was authorized to write up to $600 on any one life. He began by selling one-on-one, but soon had the advantage of group selling small policies on a large number of people through organizations or companies. Security Life grew by being a “different kind of company,” Robbins says.

“There are certain things you have to do to be successful in insurance,” says Robbins. “You might be one of many who come and leave the business. But if you want to succeed you have to work at it one client at a time and say, ‘What can I do to help this person as much as possible with the means that they are capable of?’”

Robbins was active in pursuing education at The American College, earning his CLU® in 1953. He went on to earn his ChFC® in 1982 and his RHU® in 1983. He has given generously to The College’s One Person Campaign, focusing on an initiative that he is passionate about—The Cary M. Maguire Center for Ethics in Financial Services.

The College’s founder, Dr. Solomon Huebner, made an impression on Robbins beginning with his belief in human life value. Robbins still has a framed photo of Dr. Huebner that was signed with a personal inscription.

“I sold quite a bit of insurance, and all those people were helped,” says Robbins. “If you always put the client before yourself, you will always find that there is a light at the end of the tunnel shining down and leading your way.”

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

A More Practical Way to Self-Insure Long-term Care

Shawn Britt, CLU®

Shawn Britt, CLU® Shawn is Director of Advanced Sales with Nationwide Financial in Columbus, Ohio. britts@nationwide.com.

When it comes to long-term care (LTC), affluent individuals often feel they can afford to self-insure their LTC risk. But is self-insuring the most efficient use of their assets? After all, one important goal in estate planning is preserving wealth—and LTC expenses can put a large dent in an estate when not properly anticipated.

Self-insuring LTC in a typical fashion may not be the best solution for many affluent individuals. For the client to self-insure, in practicality, it helps to have assets available that are liquid and accessible inside his or her estate in the event he or she encounters an LTC situation. Let’s assume this client sets aside $1,000,000 for this purpose. If the client actually needs LTC and spends most or all of the $1,000,000, then the self-insure plan worked well enough. However, if the client needs little or none of the assets set aside for LTC services, and assuming a 2014 estate tax rate of 40 percent, taxation of the $1,000,000 could result in a tax bill of up to $400,000. Fortunately, there is a potential way to avoid this pitfall by insuring the long-term care risk with an indemnity-style linked benefit LTC policy owned by an irrevocable life insurance trust (ILIT).

What is linked benefit LTC coverage?

Simply put, an asset is repositioned to be leveraged for LTC coverage on a policy linked to life insurance. The primary purpose is insuring LTC, but there is also a death benefit on the policy, which ensures cost recovery should the policy be little or never used (assuming no withdrawals or loans). In addition, the return-of-premium feature included with the policy keeps the asset on the client’s net worth statement. While most of these policies are paid with a single premium, there are premium schedules available up to 10 years.

Why indemnity?

Only an indemnity-style LTC benefit can work within a trust because the LTC benefit is sent directly to the owner of the contract, which in the case of trust ownership would be the trust/trustee. The insurance policy essentially funds the trust with cash via payment of an accelerated death benefit. There is no reimbursement of actual LTC expenses on behalf of the insured. It is important to note the insured (grantor) must never have the LTC benefit directly in hand, nor can he or she have claims against the trust for such monies.

Efficiently fund LTC needs

An ultimate life insurance trust (ULIT) may be appropriate for clients who don’t want to lose total control of trust assets, fearing they may need funds in the future. A ULIT is a type of ILIT that may allow the grantor/insured or grantor/insured’s spouse access to trust assets.

The trust is written to allow for arm’s length, fully collateralized loan provisions. The loan is secured by property pledged by the grantor/insured. The loan must be legitimate with collateral pledged, interest charged and an agreement to fully pay back the debt. Collateral can be anything that covers the debt: a house, artwork, coin collection, etc. The interest rate charged should be at least equal to the interest charged on the life insurance policy (although in this concept there will be no loan taken against the policy itself, this is good fiduciary practice). Keep in mind, the higher the interest the better this concept works, but it still must remain reasonable. In most cases, the loan interest is allowed to accrue. Ideally, the loan interest should be paid back prior to the death of the grantor/insured to avoid taxation as income to the trust. Some plans set up interest to be paid on a periodic basis to hedge against the risk of all interest being taxable at death, though this will impact the accrual of the debt (which in this case is an advantage as you will shortly see). Principal can be paid back after death with no tax liability.

The process of taking the collateralized loans

When using a ULIT type ILIT for the purposes of getting long-term care rider benefits from the trust, you may do the following:

·         File a claim for the LTC benefit.

·         After a 90-day elimination period, a monthly check will be sent to the trust (as contract owner).

·         The grantor then borrows money from the trust upon pledging property as collateral.

·         These funds can be used to pay LTC bills.

·         Interest is allowed to accrue to purposely increase the debt—but ideally paid back just prior to death to avoid taxation.

·         At the grantor’s death, the loan principal and any unpaid interest is paid to the trust and is then deducted from the estate assets for taxation purposes, leaving a smaller estate tax liability.

Doing the math

Our hypothetical example will assume our client is a 55-year-old female nonsmoker and qualified for a couple rate. She will gift $207,517 to her trust by using part of her lifetime exemption. The trust will purchase, own and be the beneficiary of an indemnity-style linked benefit LTC policy that provides a six-year benefit of $1,080,000 in total LTC benefits. There is a guaranteed death benefit of $360,000 if LTC is never needed and a guaranteed minimum death benefit of $72,000 if LTC is needed. The monthly LTC benefit amount paid to the trust will be $15,000 per month. The trust will include loan provisions needed for this concept using an 8 percent interest rate.

Upon making an LTC claim, the grantor borrows funds from the trust over a six-year period of time equaling $1,080,000. It may be wise to borrow funds in a manner that doesn’t align exactly with the payment of LTC benefits to the trust. Consult an attorney for proper lending processes within the ULIT. Interest on this loan will accrue to a total of $309,582. At the grantor’s death, the minimum death benefit is paid to the trust equaling $72,000.

The results

The principal can be repaid after death with no tax consequences. However, if the loan interest is repaid just prior to death, the $309,582 interest payment is moved from the estate to the trust and is spared from estate taxes (and possible income taxes), saving the beneficiaries $123,833. In addition, when you add the death benefit of $72,000 to the $123,833 in tax savings, the beneficiaries net an extra $195,833. The cost of the policy was $207,517. The policy paid out $1,080,000 in LTC benefits borrowed from, now repaid to and residing tax free in the trust for the beneficiaries. Thus, the potential net cost of purchasing a policy paying a net amount of $1,080,000 for LTC benefits and helping to protect the beneficiaries’ inheritance by the same amount was only $11,684.

While every situation is different and must be individually considered, a financial advisor may want to consider the effective use of an indemnity linked benefit policy to enhance the amount of inheritance a client could potentially leave to loved ones.

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

Uses of Life Insurance for Small Business Owners

Richard Baier, JD, CLU®, ChFC®, AEP®, CFP®, CAP®

Richard Baier, JD, CLU®, ChFC®, AEP®, CFP®, CAP®, is corporate vice president in case development with The Nautilus Group®, a service of New York Life. He joined the company in 2010 as a case consultant in the business and estate unit. Richard is an attorney with more than 37 years of financial, estate, business, charitable and benefits planning experience. Richard.Baier@wcinput.com

Every business owner has problems to solve. What most business owners do not realize, however, is that cash value life insurance can be one of their better problem-solving tools. Life insurance can be a cost-efficient way to help accumulate capital, reduce expenses, retain key employees, fund a buy-sell agreement or nonqualified supplemental executive retirement plan and compensate the business for unexpected financial loss. Business life insurance can be owned by the business, or the business can sponsor, or pay for, a policy owned by a business owner, employee, director, contractor or trust for their benefit. Following are some common uses of life insurance by a business owner or business.


Company-owned life insurance (COLI) can be used to:

·         Reduce or eliminate financial loss due to death of a key employee, contractor or owner

·         Retain key employees by providing executive benefits in the form of deferred compensation or death benefits

·         Provide business continuation funding for an entity redemption

·         Diversify the company’s investment portfolio as an asset that does not correlate with market-based assets

·         Provide security for a loan

·         Secure a construction bond or other regulatory cash or bond requirement

Company-sponsored life insurance is often used to provide:

·         Group term life insurance

·         Personal life insurance death benefits for key employees or owners

·         Retirement benefits for key employees or owners

·         Cross-purchase funding for a buy-out agreement between the owners

·         Split dollar life insurance arrangements

Following are some common problems that business owners can solve in whole or part with company-owned and company-sponsored life insurance.

Financial loss due to death of key person

Businesses often insure their buildings and equipment against catastrophic financial loss. Why, then, do they not also insure their key people? Of course many do, but perhaps not enough.

In computing the cost of a key person’s departure, the basic variables to consider are the individual’s contribution to profits and the time required to locate and train an equivalent replacement. Key person life insurance is used to fill the void left by the loss of an indispensable member of the organization. It can help:

·         Provide funds to establish a replacement

·         Replace lost profits

·         Provide cash to pay off company loans

·         Pay a tax-deductible death benefit to the key person’s family

·         Ensure ability of customers, creditors and employees of the business to carry on

Capital accumulation and balance sheet strength

Certain businesses need to keep a strong balance sheet to satisfy security requirements of creditors, customers and regulatory agencies. Some businesses purchase a surety bond for this purpose. However, many use cash value life insurance with its easy access to cash values as a means to accumulate working capital and strengthen the balance sheet, while simultaneously providing a death benefit that can be used for such purposes as key person insurance or employee death benefits.

Key employee retention

Key employees can be incentivized to stay with an employer in a variety of ways: salary, bonuses, stock options, enhanced job responsibilities, work recognition and nonqualified executive benefits. Of these methods, life insurance has the greatest application to nonqualified executive benefits, including nonqualified deferred compensation and executive bonus life insurance.

·         Nonqualified deferred compensation: A nonqualified deferred compensation plan that provides supplemental retirement income for key employees can be informally funded with employer or employee dollars, or both. Any such plan would need to meet the requirements of IRC §409A to avoid immediate taxation to the employee when funds are deferred by the employee or the employer’s unsecured promise to pay the benefit vests.

·         Deferral plan: Under an employee-funded deferral plan, the employee would elect to defer salary or bonuses in the year prior to when the deferral is made. The informal funding medium would typically be a permanent life insurance policy owned by the company. The employee would not have to pay income taxes currently on the amount deferred, but would pay income taxes when future benefit payments are received. The company would not take a deduction for compensation expense until the future benefit payments are made.

·         Supplemental executive retirement plan: Under a supplemental executive retirement plan (SERP) using employer dollars, the company may informally set aside assets to fund a benefit at the employee’s retirement and/or fund a benefit to his or her heirs at death. Again, the informal funding medium could be a permanent life insurance policy owned by the company. At the participating employee’s retirement, the company will pay income to the retired employee for a period of years. The company can use policy cash values to pay the employee’s retirement benefits by withdrawing cash value from the policy up to basis and then switching to policy loans. Loans against the policy accrue interest and decrease the death benefit and cash value by the amount of the outstanding loan and interest. Withdrawals to basis followed by policy loans will generally not create taxable income to the policyowner, provided the policy is not a modified endowment contract (MEC).


A SERP generally would require that the employee stay with the business for a specified period, usually until his or her retirement date. If the employee were to leave early, he or she may forfeit all or part of the money in the plan as set forth in the SERP agreement. To preserve the income tax-free nature of the death benefit from the company-owned life insurance for the employer, the parties must comply with the notice, consent and exception requirements under IRC §101(j) and the reporting requirements under IRC §6039I.

·         Executive bonus life insurance plan: An executive bonus arrangement, also sometimes referred to as a “Section 162 Bonus Plan,” is a benefit arrangement in which an employer pays bonus compensation to selected executives in the form of premium payments on the executives’ personally owned life insurance policies. It is most easily described as employer-funded personal life insurance. Although premium payments are currently taxable to the employee, policy cash values grow tax free, and he or she can access cash values on a tax-advantaged basis at retirement through withdrawals to basis followed by policy loans.

Business owners have myriad ways to use life insurance to solve problems that arise in their businesses. This article addresses but a few. Because of its unique characteristics of tax-advantaged cash value growth and death benefits, life insurance is often the best solution.

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

Pick Your Business Partners or the State Will Pick Them for You!

Kevin M. Lynch, CFP®, CLU®, ChFC®, RHU®, REBC®, CASL®, CAP®, LUTCF

Kevin M. Lynch is an assistant professor of insurance and The Charles J. Zimmerman Chair in Insurance Education at The American College. Kevin.Lynch@wcinput.com

As most of us know, if you fail to execute a personal last will and testament, the state has intestacy laws that will dictate how your estate will be disposed of.

What about your business? What happens if you enter into a business relationship with one or more partners and fail to formalize the manner in which the business will continue should one of the partners die or become incapacitated? Without proper planning, you may awake one day to find your former partner’s spouse now has a say in the management and day-to-day operations of your business. Is that something you would want?

The form of business organization you choose when organizing your business will have an impact on the manner in which you formalize the agreements that cover the death or disability of one or more business owners. In the event your business is a sole proprietorship, the options are limited. Traditionally, sole proprietorships tend to be inherited or purchased by a family member. As an alternative, sole proprietorships are sometimes purchased by a senior employee or a group of employees. Under a partnership arrangement or under an incorporated form of business, however, options are more numerous.

In the event a member of a partnership dies, legally, the partnership ends. How does the partnership compensate the deceased partner’s beneficiaries? Without a formalized, written agreement, the partnership would have to reach an understanding as to the value of the business and then determine the portion owed to the deceased partner’s estate. Once this is accomplished, the focus changes to how to raise the dollars needed to fund the payment to the estate. If the legal representative of the estate disagrees with the determination the remaining partners make, a lawsuit is the logical result.

How do you develop a formalized, binding agreement? Many businesses successfully use an insured buy-sell agreement. Barron’s Insurance Dictionary defines a buy-sell agreement as, “Approach used for sole proprietorships, partnerships and close corporations in which the business interests of a deceased or disabled proprietor, partner or shareholder are sold according to a predetermined formula to the remaining member(s) of the business.”

Using a formalized buy-sell agreement, members of the partnership negotiate the value of the business while all members are living and able to come to an agreement on the businesses value. The buy-sell agreement locks in the value for compensating the deceased partner’s estate and, for tax purposes, provides a basis for establishing the taxable value of the business. To guarantee the availability of the funding needed to implement the buy-sell agreement, an insurance policy (or a series of policies) is used.

In an article published on the Small Business Resource Network (sbrn.org), Bruce R. Glassman, JD, CPA, PFS, identified what he calls, “The Eight Ds of Buy-Sell Agreements.” The article identifies why a buy-sell agreement is essential for the smooth transition of ownership should any of a number of common business occurrences happen. The Eight Ds include:

·         Death of a shareholder

·         Disability of a shareholder

·         Departure of a shareholder

·         Divorce of a shareholder

·         Deadlock among equal owners

·         Disagreement among owners

·         Default by one or more shareholders

·         Determination of value

(Note: The term shareholder, associated with corporations, is interchangeable with the terms owner or partner, which refers to sole proprietorships and partnerships.)

Glassman suggests that when a business decides to have a buy-sell agreement prepared, using the Eight Ds might serve as a useful checklist.

In another article discussing buy-sell agreements, morebusiness.com provides a buy-sell agreement template that business owners can use as a checklist as they consider what provisions to include in their businesses’ buy-sell agreement. This template includes questions dealing with:

·         Applicability

·         Type of agreement

·         Establishing the buyout price and determining the time(s) when buyout would be appropriate

·         Funding sources

·         Need for security and suitable forms of security

·         Loan provisions

·         Covenants not to compete

·         Other considerations specific to the business

Hopefully, your business owner clients will take your advice and choose to fund their buy-sell agreement with a suitable life insurance policy. If the company buys a single policy to handle the buyout of any of the members of the partnership, the company is the owner of the policy. This type of buy-sell is referred to as a redemption or entity buy-sell agreement. On the other hand, if there are five or fewer owners, each owner could cross purchase insurance policies on each of their other partners. This will result in multiple polices owned by each partner. This type of buy-sell arrangement is called a cross purchase agreement.

How about designing a buy-sell agreement for the owners of a corporation? Is the process as easy as it is for a partnership? It depends on the type of corporation. For large corporations with thousands of shareholder owners, the need for buy-sell agreements is not the same as it might be for smaller, closely held corporations with a limited number of shareholder owners. Larger corporations with thousands of stockholders do not have the same issues facing them upon the death of a major stockholder. The deceased stockholder’s estate would retain ownership in the corporation, and the corporation’s ability to continue as an ongoing business would not be impaired, as is the case with a sole proprietorship or partnership.

For small, closely held corporations, the entity buy-sell agreements are often used for the same reasons as they are used with partnerships.

As with most business decisions, there is a cost associated with deciding to put a properly drafted buy-sell agreement in place. Many insurance and accounting professionals will advise you, however, that the cost of needing a buy-sell agreement and not having one far outpaces the cost of having a properly drafted and funded buy-sell agreement. In another article published on Forbes.com entitled, “In Business? Get a Buy-Sell Agreement!” the author advises, “If you own all or a part of a business—any business—you should know about buy-sell agreements. Unless you plan to be lucky forever, you better have one.”

The article goes on to say, “Without it, a closely held or family business faces a world of financial and tax problems on an owner’s death, incapacitation, divorce bankruptcy, sale or retirement.” Interestingly, these six possibilities mirror six of the Eight Ds.

By now, assuming you are a business owner, I trust you have come to realize the importance of having a buy-sell agreement in place. If you are an insurance professional, I trust that you see the importance of providing this valuable product to your clients.

Buy-sell agreements, like many legal documents, will require the services of an attorney and, in many cases, a CPA. There are advantages and disadvantages to the various forms of buy-sell agreements, and you will need the services of these affiliated professionals to assure your business owner client of having the right product in place when the time for its use presents itself. By presenting this need to your client and securing his or her agreement as to the importance of taking your advice, you serve not only your business owner client, but also attorneys and CPAs in your community. The opportunity to create a cadre of affiliated professionals better positions you to serve your client’s needs and to become a value-added resource to other business professionals.

I started this article with the admonition that if you fail to execute a personal last will and testament, the state has intestacy laws that will dictate how your estate will be disposed of. In a manner of speaking, a buy-sell agreement can be thought of as a business’s last will and testament. In like manner, when the day comes that a business is faced with its demise, the lack of a properly drafted buy-sell agreement will put your business at the mercy of state contract law, and the state will choose with whom you will be in business going forward, or if you will be in business at all.

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

The American College Launches the NEW ChFC®

Christopher P. Woehrle, JD, LLM

Christopher P. Woehrle, JD, LLM, is an assistant professor of taxation and The Guardian/Deppe Chair in Pensions and Retirement Planning at The American College and a subject matter expert on and champion of the ChFC® program.

Last year, The American College surveyed Chartered Financial Consultant® (ChFC®) students and designation holders to learn how this program can most effectively meet the needs of today’s advanced financial planners. Supported by an internal advisory group of faculty and other program experts, extensive work has gone into reshaping the ChFC® curriculum to address practical planning applications for business owners, special needs clients, and nontraditional, divorced and blended families. In response to survey results, new content will be added emphasizing estate planning, retirement income planning, ethical practices and behavioral finance.

The significant ChFC® curriculum enhancement, which launches later this year, focuses on helping professionals grow their expertise and their practices. Increasingly, planners are choosing ChFC® as their preferred planning credential, and The College is committed to building a comprehensive designation program that continues to put the needs of planners and their clients first. So, what did the survey results and the work of the advisory group reveal?

Planners perceive the ChFC® program to be rigorous, an advanced financial planning credential that goes beyond the CFP® designation, and want the opportunity to differentiate more clearly the additional knowledge and skills a ChFC® provides For example, over half our survey respondents deemed knowledge about the topics of divorce and family planning, behavioral finance, business owner planning, portfolio planning for retirement income and a few others as “highly relevant” in a financial planning practice.

As a result, the two new required offerings that will replace current elective courses focus on practical applications of financial planning for specific audiences and needs. ChFC® professionals will now gain all of the fundamentals of planning and will be able to apply that knowledge to enhance their practices and client relationships.

Current ChFC® requirements mandate nine college-level courses, representing 450+ hours of study. Seven of its required courses mirror the fundamental financial planning curriculum offered by the competing Certified Financial Planner® (CFP®) certification mark and satisfy the educational requirements for that certification. ChFC® students choose an additional two electives from four current offerings: The Financial System in the Economy (HS 322), Estate Planning Applications (HS 334), Executive Compensation (HS 342), and Financial Decisions for Retirement (HS 352).

Students can obtain the financial planning fundamentals from either the CFP® certification program or the ChFC®. Where the ChFC® will be different, however, is in the practical, client-focused content contained in the two new required courses replacing the electives.

Applications in Financial Planning I will cover:

·         Business planning

·         Planning for nontraditional families (including LGBT topics)

·         Planning issues for divorced and blended families

·         Planning for special needs


Applications in Financial Planning II will cover:

·         Retirement income portfolios

·         Behavioral finance

·         Estate planning

·         Ethics, standards and professional practices


Both courses are scheduled for rollout later in 2014 and directly address feedback The College received from ChFC® graduates and current students about the strengths and opportunities of the program.

Companies, planners and regulators are striving for the right balance between rigor and enforcement, as well as practicality, and the ChFC® program has the opportunity to lead in this area. The College believes only ChFC® will extend knowledge to the full range of practical, specialized applications that working planners encounter every day.

The best candidates for the updated ChFC® program remain financial services professionals working as planners in advanced markets, especially with closely held businesses and professional, higher-income clients. We believe these candidates and their practices will benefit from the more in-depth coverage of the subject matter described in Financial Planning Applications I and II.

The American College is dedicated to the professional success of the individuals who pursue our credentials and degrees. If you have questions on the changes to the ChFC® designation, please contact Christopher Woehrle via email at: Chris.Woehrle@wcinput.com.

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

The Impact of New Health Care Funding Taxes on Business Owners

Ted Kurlowicz, JD, LLM, CLU®, ChFC®, CAP®

Ted Kurlowicz, JD, LLM, CLU®, ChFC®, CAP® Ted is the Charles E. Drimal Professor of Estate Planning and a Professor of Taxation at The American College.

The federal income tax treatment of business income for both the business and its owner is a complex topic. Tax minimization, of course, is an extremely important goal when selecting the form of business entity and determining the type of operations. This article is not a comprehensive discussion of income taxes but focuses on the impact on business owners of two new tax provisions provided by the Affordable Care Act of 2010 (ACA). With limited exceptions, only a C corporation is a separate taxpayer. In this instance, the business’s net income is taxable at corporate rates and does not have an immediate impact on the corporation’s shareholders. In the case of a closely held corporation, many or all of the shareholders will also be treated as statutory employees. For proprietorships, partnerships (including LLCs) and S corporations (greater than 2-percent shareholders), the owners of the business will be treated as self-employed. All income of such pass-through entities is taxed directly to the owners.

Two tax burdens were enacted to partially fund the ACA and took effect beginning with 2013 income. The 2013 tax preparation will be the first time business owners will see the burden of these taxes.

Additional Medicare tax

The first ACA funding provision affects earned income from self-employment and wages for statutory employees. An additional .9 percent Medicare tax was imposed on earned income for higher earners. No additional tax is imposed on the employer. Essentially, this makes the Medicare tax 3.8 percent for earned income over the threshold, without a ceiling on earnings. For stockholder-employees of a regular corporation, this would apply to wages above a threshold amount (provided in the table). For owners of pass-through entities, this would apply to self-employment income over the threshold amount. Because the threshold amounts are not indexed for inflation, more and more taxpayers will be affected as time goes on. The business has a compliance burden to withhold the tax for earnings above $200,000. The business only considers the employee’s income and not that of his or her spouse. Adjustments for over- or under-withholding would be made on the individual tax return.


Table: Threshold Earning Amounts for the New Affordable Care Act Provisions

Married filing jointly

Modified Adjusted Gross Income (MAGI) over $250,000

Single taxpayer

MAGI over $200,000

Married filing separately

MAGI over $125,000


Tax on net investment income

The ACA imposes a 3.8 percent tax (Medicare contribution tax) on net investment income (NII) for taxpayers above the threshold amounts, which are identical to the thresholds for the .9 percent additional Medicare tax. The key to understanding the impact of this tax on business owners is the definition of items included (or excluded) from the definition of NII. For this purpose, NII includes:

  • Interest
  • Dividends
  • Annuities
  • Royalties
  • Rents (Note: exception for self-rented property discussed later)
  • Gains (Note: exception for gains on property held in a trade or business that is not a passive activity)

Items that are excluded from the definition of NII include:

  • Trade or business income
  • Income treated as self-employment income
  • Sale of a partnership, LLC or S corporation by an active participant
  • Distributions from IRAs and qualified plans
  • Build-up amounts in life insurance and deferred annuities
  • Income tax exempt under the Internal Revenue Code
  • Charitable trusts

The 3.8 percent tax applies to the lesser of the NII or the taxpayer’s MAGI in excess of the applicable threshold amount, for example:

A shareholder-employee of a closely held corporation (filing status: single) had $400,000 in wages, $150,000 in dividend income and MAGI of $550,000 in 2013. The taxpayer would be liable for $1,800 in additional Medicare tax on his or her wages ($400,000 wages - $200,000 threshold amount, multiplied by .9 percent) and $5,700 on unearned income ($150,000 NII multiplied by 3.8 percent), for total additional taxes of $7,500.

There are many tax implications for a variety of business owners.

Owners of a closely held corporation

Because the closely held corporation is a separate taxpayer and shareholders who provide services can be treated as statutory employees, the tax treatment is fairly straightforward. Reasonable salaries are deductible by the corporation and create wage income for the employee. This income will be included in MAGI and subject to the additional .9 percent Medicare tax once the shareholder-employee is above the threshold. Dividends distributed to shareholders are NII and subject to the 3.8 percent tax for affected taxpayers. Gains from the sale of stock will be included in NII.

Owners of pass-through entities

For sole proprietors, partners, members of an LLC or S corporation shareholders, income that is treated as self-employment income is subject to the .9 percent additional Medicare tax but not the tax on NII, once the taxpayer reaches the MAGI threshold. There is a small caveat here: Some income items of the business, such as rental income, interest and gains or losses, might not meet the definition of self-employment income and will be treated as NII. Hence, income or gains on working capital of a pass-through could expose the pass-through owners to the tax on NII. For an S corporation and perhaps an LLC, not all income is necessarily treated as self-employment income. Certainly, wages to the shareholder-employee of an S corporation will be self-employment income. However, it is also possible to shift income to “passive” investors of the S corporation, and such income is a dividend or NII.

Sales of an interest in a pass-through should avoid the definition of NII if the seller was an active participant in the business. An exclusion from NII is provided by the statute and regulations for net gains on the sale of the interest as if the property were sold by the partnership, LLC or S corporation.

Self-rental activity

This article intentionally does not address the complex rules in the regulations concerning the potential treatment of a real estate investor to avoid the passive activity rules. However, the regulations address the issue of self-rental of real estate and provide an important exception for such rental income from NII. This is important because it is fairly typical for the owner of a closely held business entity to lease one or more buildings (owned personally or in a controlled entity) to his or her closely held business or professional practice. Rental income in such instances avoids the definition of NII if the taxpayer leases the building to a business in which the landlord materially participates. For example:

Tom operates his law practice in an S corporation. He personally owns a building that is leased to the S corporation. The net rental for the lease avoids the 3.8 percent Medicare contribution tax.

Real estate professionals

The treatment of rental income as NII is one of the more complex areas in this law. The final regulations address this and had to re-address the regulations under the passive activity rules, which have not been examined since the 1980s. Rental income will be exempt from treatment as NII if the taxpayer is either a real estate professional (who participates more than 500 hours in the activity or has participated in more than 500 hours in the activity for five of the last 10 years) or rental income is derived from an active trade or business (as described in IRC section 162). The final regulations are also quite flexible with respect to individuals who have multiple real estate activities. If the taxpayer has pieces of real estate and meets the active participation test with respect to some but not others, the activities can be grouped together, and the taxpayer will be treated as meeting the material participation requirement with respect to all real estate activities in the group. Beginning in 2014, a one-time regrouping of activities can occur in the first taxable year that the taxpayer would be subject to tax on NII.

Selected strategies for avoiding the tax on NII

Many possibilities exist for mitigating the impact of the 3.8 percent tax on NII. Each business owner’s position is unique and strategies will involve complex planning and implementation, such as the following:

  • Rebalance portfolios to favor investment in assets that do not produce NII, such as municipal bonds, rental real estate (that meets the real estate professional definition), permanent life insurance and deferred annuities.
  • Maximize contributions to qualified retirement plans and IRAs.
  • Give consideration to a Roth IRA conversion.
  • Make gifts of business interests to family members: Shift income to junior generation family members and reduce the senior generation’s MAGI. Shift passive income to family members under the income threshold.
  • Make or increase charitable contributions to reduce the business owner’s MAGI and shift NII to a nontaxable charity.

The new taxes enacted to partially fund the ACA are little known and much more complex than they first appear. Audiences in professional groups have seemed somewhat shocked when I’ve presented my analysis of these taxes. Business owners are going to become painfully aware of these taxes when returns are filed this April 15. Hopefully, this article provides a quick introduction to the implications for planning to mitigate these taxes.

Originally published in the Spring 2014 issue of The Wealth Channel Magazine, Open for Business.

How Advisors and Clients Demonstrate Trust

Aaron Hoos

Formerly a stockbroker, insurance broker, and award-winning sales manager, Aaron writes for the financial and real estate industry as an educator and marketer. His first book, The Sales Funnel Bible, helps advisors master their sales funnel.

Rosemary Smyth

Rosemary is an author, columnist and an international business coach for financial advisors. She spent her career working at leading investment firms before pursuing her passion for coaching. She lives in Victoria, BC. Visit her website at www.rosemarysmyth.com.

Trust can mean different things to different people. Trust is also a function of both character and competence. To demonstrate trust, we need to see it in action. For some advisors, establishing and extending trust can be accomplished quite quickly. If there is trust between an advisor and a client, you’ll see more effective communication and collaboration and of course, having a reputation of trust is priceless.

Consider the following 10 ways advisors can demonstrate trust to their clients:

  1. Respecting confidentiality.

Financial and insurance forms can include a considerable amount of private information about clients and usually much more than they care to reveal. Clients understand that advisors respect the confidential aspect of the information and won’t share it with others. By keeping information confidential, advisors are proving their integrity. Top advisors work to create a safe environment for clients to express sensitive information.

  1. Being generous.

Advisors who are generous volunteering their time on non-profit boards, for example, share their talents with others and show clients they care.

  1. Being humble.

Everyone makes mistakes, so advisors admitting when they are wrong and apologizing- shows humility. If clients see their advisor as prideful, they will start to question their judgement.

  1. Being honest.

Clients can sift through advisors’ charm and flattery and they can tell what’s real and what’s not. Giving less that truthful information is the fastest way to erode trust and the old saying that, “You are only as good as your word,” still rings true. Honesty and integrity has and will continue to be the hallmark of professional trustworthy behavior.

  1. Reaching clients’ goals.

By reaching the clients’ mutually agreed-upon goals, advisors demonstrate that they are doing quality work, being successful and putting clients first.

  1. Being empathetic.

Top advisors prepare for calls that are going to be challenging, especially if clients will be severely impacted by their news and they try to be understanding and as patient as possible. Showing empathy to clients and being sensitive to their feelings, especially when delivering bad news strengthens the client-advisor relationship.

  1. Being organized.

Clients feel at ease when they are in an office that is organized. Lost documents and files or missed calls send clients the message that their advisors aren’t reliable and lack organization skills. Top advisors have developed systems and processes so that their office is in order and looks tidy.

  1. Being dependable.

Advisors that are dependable do what they say they will do...period. When they make a commitment, they follow through. For example, if they said they would attend an event and have told clients that they will see them there, they’ve demonstrated their dependability by attending.

  1. Being open.

When advisors open up about themselves and share their travels, hobbies or interests, clients feel that they know them a little better. If advisors withhold giving away information about themselves, then it’s easy for clients to start withholding their info.

  1. Having savvy financial skills.

 Clients want well-researched recommendations and when they tell their advisor that they’ve really done their homework and to go ahead with the proposal, the advisor has proven his or her skills. It’s normal for clients to ask questions about recommendation, take time to think about major decisions and to make revisions if necessary, but at the end of the day, giving the nod to move forward is the sign of the advisor’s value as a trustworthy person.

Recognize which behaviours encourage and sustain trust and pay attention to how clients act around you. Apart from coming right out and saying that they trust you, clients usually demonstrate trust with their own behaviour.

A Foolproof Way to Hold People Accountable

Aaron Hoos

Formerly a stockbroker, insurance broker, and award-winning sales manager, Aaron writes for the financial and real estate industry as an educator and marketer. His first book, The Sales Funnel Bible, helps advisors master their sales funnel.

Rosemary Smyth

Rosemary is an author, columnist and an international business coach for financial advisors. She spent her career working at leading investment firms before pursuing her passion for coaching. She lives in Victoria, BC. Visit her website at www.rosemarysmyth.com.

If we consider a simple definition of accountability as, “the ability to account for your own actions”- it seems surprisingly straightforward.  But, accountability also involves having clearly communicated objectives, being granted authority over those objectives and having predetermined outcomes for either success or failure. Any ambiguity over outcomes, objectives and time-frames will affect your ability to be accountable. 
If someone asks you to hold them accountable or you are in a position that requires you to hold people accountable, there are a few key steps you want to take. The pros of accountability set clear, measurable and documented expectations that will keep the person focused and move them closer to achieving their goal rather than holding them accountable to do something, sometime and somehow. Start to think like those accountability experts and see yourself as a facilitator, enabler and supporter of the person that wants to be held accountable. Take pride in helping others and resist the temptation to jump in and complete the task for the other person.  Be candid, honest and have the intention to be supportive. 
To set the stage for holding someone accountable, create a clear plan that involves being able to answer the common questions of who, what, when and how.
A person needs to know what the task is that they are being held accountable for. If you are part of a team and a plan is being chunked down to smaller manageable tasks , be sure to attach a name to each task so there is no ambiguity about who’s doing what. For example, if you are planning a client event, assign names to who is designing the invite, sending the invites, booking the room, ordering the food etc.

Be crystal clear about what it is that the person is being held accountable for and ask them to paraphrase and confirm the task. For example, if they want to be more organized for your next meeting, explore what that means for them. Is it just reading the agenda or is it making sure the correct documents are available and presenting problems with suggested solutions? Once you have a commitment, write down the exact details and agree to move forward.
Some people use contradictory statements to explain what it is they are looking for. For example, “I want an actual performance report on how our marketing plan is doing and not just a few charts and raw data.”

We are fortunate that time is quantifiable and exact, so setting deadlines would seem very straightforward however, we use words and phrases like-“ASAP,””when you get a chance,”” late next week” and “sooner than later,” to describe our deadlines. In your accountability conversation, describe when by using exact time-frames like, “I need the website ready by noon PST next Wednesday, April 30.”
The process you choose to follow up with a person involves the trust you have in that person, how critical the task is and how competent they are in completing the task. If it’s a routine task with someone who is experienced and has a great track record, it may be just a check back on their progress.  Consider what your intention is to be following up with them before you choose the timing of your follow-up. Explain your reasons for the follow-up and be candid. Don’t be afraid to ask the other person if the timing suits them as some people may feel like they are being micromanaged if the frequency is too often. When you both agree to the follow-up you won’t be left wondering if you are too hands-off or too hands-on.
The follow-up
The goal of the follow-up is to see the current status of the task, if there are any barriers that are holding them back and if they are still committed to their task. The follow-up plan you choose can be formal or casual, and it can be based on the calendar date or the importance of the task. 
The two types of follow-ups are check up and check back and the one you use determines whether you are in charge or the other person is in charge of taking the lead. Use a check up when you’re giving a task and are nervous or have questions. If you have examined the person’s experience, the risks and their track record and are feeling tense, then you take the lead and be in charge of the follow-up. If it’s a risky task, then schedule follow-ups along the way to the deadline to ensure that it’s going well and that you have answered all their questions.
A check back is used when the task is straightforward and given to someone that’s reliable and experienced.  The other person is in charge and they will check back with you. They may suggest that they will follow up with you at the next meeting or touch base before the deadline.
Next time you have someone ask you to hold them accountable, remember your four basic questions and your follow-up. Then, you can feel confident that you are supporting that person in reaching their goal.

Add Value to Your Client Experience

Rosemary Smyth

Rosemary is an author, columnist and an international business coach for financial advisors. She spent her career working at leading investment firms before pursuing her passion for coaching. She lives in Victoria, BC. Visit her website at www.rosemarysmyth.com.

It’s still early in 2014 and now is a perfect time to consider what you can do to add value to your client experience. Chances are your competition is currently prospecting your top clients, so you can be sure that a few of them are wondering what value they’re getting from retaining you as their financial advisor. Since value is “perceived”- you need to focus on the client and see what value means to them.
Asking clients for feedback on how you are doing can be set up formally or informally- by just simply checking in or by means of a survey. Be sure to take the feedback as objectively as possible and make changes as you see fit. You may find that a few clients want newsletters in larger print or have quarterly meetings at their home instead of coming to the office. Try to customize your service to each client without having a wide range of additional services that make it difficult to maintain. Focus on the top tier clients first for feedback and make those changes first before moving down to the middle tier.
Below are four steps to jump-start your client experience- enabling you to feel confident about the value you are offering.
1. Review your current client service level
Client service levels for some advisors can be very random, so before you start adding a lot of new structures, examine what is currently happening. It’s important to see the big picture, so involve your team and lay out exactly what clients are experiencing. Look at all aspects of your business; marketing, communications, financial planning, firm events, seminars and lunches. If you haven’t already segmented your clients into top, middle and bottom tiers, take the time to complete that task. Then, look at each segment and examine what each tier is receiving. 
For example, your middle tier clients may receive: financial plans, a monthly newsletter, quarterly reviews and a small gift for making referrals while your top tier receives all of that plus  a client appreciation invite as well as quarterly lunches.
2. Analyze
Once you have completed your review of the current service level, do a simple analysis of how you are doing. Check in and see what’s working, what could work better and what’s not fitting into your budget. Once you have tweaked it and you’re happy, answer the following questions:
• Would clients see a noticeable difference in service if they moved from one tier to the next?
• Is there a sustainable level of service so that if the client base doubled, you would still be able to offer the same level of service?
• Is there a clearly written process for your service levels, so that if admin staff changes you can easily train someone new?
• Do your service level agreements resonate with what your niche market is looking for?
3.  Discover opportunities
Consider what your clients’ goals, wants and needs are and everything they hope to achieve. Match that with your new client service level and everything else you deliver such as products/services. If you find gaps, investigate and see how you can fill them.

For example, if you have a few top tier clients that are planning on selling the family cottage to their children and are not sure what to consider, make that a highlight in your monthly newsletter or offer a seminar that deals with that topic and bring in the experts to answer questions.

4. Get started

The key ingredient in any new plan is implementation. You may have a great idea of what your new service level will look like but getting the ball rolling always seems to elude you. Or worse you start for a few months and then stop. Think about what your resources and budget are for implementing this new service level. How do you plan to maintain it in the future to when your business grows?
If you have a team, decide who is responsible for certain tasks and create a file or binder that explains how each task is implemented and monitored.

During your meetings this week, start researching what clients are really looking for in terms of value and service from you and start to focus on how you can begin to add value to your client experience.

Rosemary Smyth, MBA, CIM, FCSI, ACC, is an author, columnist and an international business coach for financial advisors. She spent her career working at leading investment firms before pursuing her passion for coaching. She lives in Victoria, BC. Visit her website at www.rosemarysmyth.com. You can email Rosemary at: rosemary@rosemarysmyth.com and follow her on Twitter @rosemarysmyth.

Take Your Business to the Next Level with Referrals

Aaron Hoos

Formerly a stockbroker, insurance broker, and award-winning sales manager, Aaron writes for the financial and real estate industry as an educator and marketer. His first book, The Sales Funnel Bible, helps advisors master their sales funnel.

Rosemary Smyth

Rosemary is an author, columnist and an international business coach for financial advisors. She spent her career working at leading investment firms before pursuing her passion for coaching. She lives in Victoria, BC. Visit her website at www.rosemarysmyth.com.

As consumers, we have so much choice in the marketplace and marketing efforts don’t always effectively convince us to buy. The one type of “marketing” that holds the most sway over any decision we make is the enthusiastic referral of someone we know.
The same is true for financial advisors: Prospective clients have a lot of choice but a referral from one of your clients can help to convince the prospect to get in touch with you. Referrals are a great way to reach prospects because the relationship starts with a higher level of trust. Plus, it’s also easier to start conversations with the other person as you have something in common with them. Finding prospects through referrals is a powerful way to grow your business without using up your entire marketing budget.
Integrating a referral system in your practice starts with intention. You need to decide that prospecting by referral will one of your methods of client growth and you need to create a system that you feel confident using.

Create a Referral System

One of the biggest reasons that financial advisors do not get referrals – or the kind of referrals they want – is because they haven’t created a system that enables their referrers to refer effectively. Here are the components that need to be in place:

• Know who you want referred: Know who your perfect prospect is so that you can build an expert status that makes you attractive to prospects. Be able to explain who your perfect prospect is so that if someone is out a dinner party they would know if a person is a good referral for you.

• Communicate the value you offer in a way that your referrers understand: People rarely would know how many investable assets that their friends have but they would know if a friend just inherited money from a relative or if a family member just got a big payout on their retirement package. You are looking for a prospect that has a problem that you are an expert at solving so communicate what that problem is in a way that friends or family would recognize it.

• Have a client experience worthy of sharing with prospects. Clients will be more likely to refer you if they enjoy working with you and feel that you are an invaluable resource.

Implement Your Referral System

By having a system in place to follow, you eliminate the panicky uncomfortable situations where you could come across as needy and pushy instead of confident and processional. Your ideal referral system includes 1) Asking 2) Explaining your process 3) Following up 4) Saying thanks.

1) Asking- Your “ask” has to be proactive. For example, adding the words “Never too busy for referrals” in your email signature or footer is a good reminder but you want a personal conversation with your potential referrers. Your “ask” conversation needs to be timed so that it happens when clients are happy with your level of service and trust in your ability. Be courageous and ask clients for feedback on how you are doing and be willing to adjust your client experience. To be sure that you remember, add “Asking for a referral” as an item on your meeting agenda and then add a note to your CRM about the outcome, if any, from your meeting.

2) Explaining your process. Some clients may think that saying, “call my neighbour Bob, he’s rich”, is a referral. Be able to clearly explain who you want to be connected to and how you would like that connection to happen. For example, you may want your client to contact the person they are referring to get permission from them for you to contact them. Asking for permission to call prospects fits with the Do Not Call rules. Others may want to meet together with a client for coffee and just chat and get to know each other before you talk about their financial situation. Some give their clients a few of their business cards to handout and others prefer email introductions where they are cc’d and ask if is OK to follow up.

3) Following up. This is in two parts. First, you should follow up with the referral name and second, you should let your clients know that you have reached out to the referral. When people give you a name, ask about how they know them, what you could help them with, what kind of introduction would be appropriate and then ask for the contact information. Jumping right into “ Great I’ll give them a call” when they give you a name can put you in a tough spot especially when they tell you that every advisor has fired them and then you end up making an uncomfortable call. The more information you have about the person the easier it is to build rapport and also you have an idea of what products or services they might be looking for. Thank clients regardless of it being a great prospect and if it’s not a great fit you can say, “I’ll follow up with him later when the time is right” or “we talked about finding a better fit for them in the meantime.”

4) Saying thanks. Be appreciative and say thank you to clients with a call or a handwritten card. Some send small thank you gifts that are appropriate and suitable for that client.


Working With Centers of Influence

The system that you set up for clients can be replicated for Centers of Influence (COIs). The COIs, like clients, need to see you as referable, they need to have a referral mindset, they need to understand what your perfect prospect looks like and they need to understand your referral process.
Be clear about reciprocity and how you are going to follow up and thank them. Strive for a win-win business relationship with COIs and be willing to send them your marketing material about what you do and what services you offer.
If you are sending a COI a lot of business and not getting any referrals in return, have a conversation to see if they are willing to send referrals to you and, if not, you may want to choose a different COI that would be more willing to send business your way. It may be time to revisit your process if you are getting lousy referrals from your COIs to make sure you are communicating clearly what you are looking for in a prospect.
Some COIs feel that their client list is confidential and that they can’t give referrals. Have a conversation about how you can be a resource and collaborate on helping their clients in a way that respects their clients’ confidentiality.
Building a business based around referrals is an effective way to multiply your client-generating efforts without multiplying your marketing budget or the time required to prospect. Referrals can flood into your business and completely change your practice if you build an intentional referral system that encourages your clients and COIs to send the right referrals to you.

Advising Clients to Gift to their Children

Joan Sharp, CFP®, ChFC®, CAP®, MSFS

Joan Sharp, CFP®, ChFC®, CAP®, MSFS, is founder and president of Life Strategies, LLC based in Delaware.

If your client is lucky enough to be in a strong financial position, gifting is one way to approach the subject of their children’s financial well-being. Gifting opens the door for conversations about money between parent and child. You may discover that many of your clients are afraid to talk about money with their kids. This is probably because they don’t want to create a lazy mentality and give their children the feeling that they do not have to work to support themselves. Or perhaps your clients seek to avoid the topic altogether in an effort to create normalcy in their home. In this case, as their advisor you need to remind your client that when their child receives a windfall someday, they will not be equipped to handle their financial matters. Like lottery winners who discover the desire for unearned success, the majority of people who experience this windfall will squander the money.

My experience has shown that the best way to begin this client conversation is by urging clients to be honest with their kids. It is important to start talking about money issues when the kids are young. They never want money to become the driver of their lives.

Clients need to understand that with gifting comes the responsibility of managing money and striving to obtain a balanced life. While clients may have begun to talk about money with their kids, they have to show them that work provides a sense of identity and is not all about the money. Hopefully, your clients are involved in their communities, follow a passion or have explored undeveloped talents. Tell your clients that kids will often follow what their parents do. Urge them to lead by example.

Clients also need to become better communicators. As an advisor, you can help in this process. Suggest your clients give their children room to grow and share their strengths with the world. Encourage them to educate their children about money—talk about it, open accounts to manage and challenge them to think about spending and saving and how to use money to support passions and develop talents. One option is to open a donor advised fund and allow the children to make the grants. This helps prepare them for running family foundations and their own future charitable giving. Perhaps your client might even introduce their children to you, giving you the opportunity to reiterate some of these ideas.

Foremost, your clients need to create a reality for their children. If they open the door to gifting, it should be used as a vehicle to teach financial responsibility and as a way of educating their children about their money stories and family heritage. Your clients should embrace teaching moments so their children learn about the value of money. Perhaps every time your clients deposit money into their children’s account, they should have their children give back in some manner. Help your client feel comfortable developing their kids’ talents, work ethic or an interest in volunteering. And don’t forget to tell your clients that it is okay to let their children take charge.

In advising your clients that it is time to begin a dialogue about money with their children, consider providing these steps for them to follow:

1. Clients need to get over their fear of talking about money. It’s their issue. They shouldn’t make it an issue for their kids.
2. Have your clients show their kids what the bills look like, what things cost, how they choose to spend money.
3. Your clients should build a strategy as a family that is not based on money but rather on what is important to their family. Let kids make choices and decide which items are important and how much to give to different charities/the community.
4. They can gradually give their children more financial responsibility. Maybe participating in a family outing to Montana or Europe where their kids make some of the financial decisions would be a good exercise.
5. Show them how hobbies and interests could potentially become careers. This is a way in which they will learn to enjoy work not purely for money.

To have this conversation, you must understand your client’s money issues as well as their life priorities. Basically, you are teaching your clients to help their kids form a strategic vision, not a tactical vision.


Originally published in the Spring 2013 issue of The Wealth Channel Magazine, How Fast Can YOU Adapt?

“Hello” to “Yes”- Become a Professional Persuader

Aaron Hoos

Formerly a stockbroker, insurance broker, and award-winning sales manager, Aaron writes for the financial and real estate industry as an educator and marketer. His first book, The Sales Funnel Bible, helps advisors master their sales funnel.

Rosemary Smyth

Rosemary is an author, columnist and an international business coach for financial advisors. She spent her career working at leading investment firms before pursuing her passion for coaching. She lives in Victoria, BC. Visit her website at www.rosemarysmyth.com.

When you sit down with a prospect or a client, you probably open the conversation with a brief comment about the weather, followed by a discussion about families or work or a news headline. At some point, the conversation shifts and you discuss some aspect of the client’s finances or portfolio – perhaps listening to their ideas or giving advice from research you’ve performed.

To an untrained eye, this was just an advisor and a prospect or a client having a conversation. But look closer and you’ll discover powerful selling forces going on below the surface. And understanding these selling forces can help you convert more prospects to clients and can help you do more business with your clients.

The Three Objectives of Every Conversation

Every conversation you have with prospects and clients has three objectives:

• To build rapport
• To communicate information
• To persuade

Depending on the relationship you have with your client, and what you wish to achieve with the person in the long-term and in the time you have available at the moment, each conversation might have more of one objective and less of another.

Rapport-building: Conversations about the weather are mostly rapport building. There tends to be more rapport-building at the beginning of relationships and at the beginning of conversations, although rapport-building does continue throughout each conversation in a relationship.

Rapport-building conversations tend to be very “surface” conversations, seeking mild opinions on topics that are relatively well-known and where some agreement likely already exists. This is why you probably won’t use topics like religion or politics when rapport-building, unless you happen to belong to the same religion or political persuasion of the person you’re speaking to.

The goal here is to find further common ground. Some rapport-building will simply touch on topics that have no long-term significance (such as the weather) while other rapport-building will touch on topics that do have long-term significance (such as families).

Communicating information: Conversations should also communicate information. You communicate financial advice information to your client and they communicate back to you with their feedback of your ideas and with potential new ways that you might be able to serve them.

For example, conversations about family and work build rapport but, if you’re paying attention, they also communicate valuable information by hinting at opportunities that allow you to serve your clients further. Perhaps the birth of a new child or an impending retirement suggest ways that you can provide more helpful advice to your client.

The goal here is to ask great questions and to listen closely to the answer. You can build off of some of your rapport-building conversations but go deeper, asking about the future and the other person’s plans. And then listen actively to the response!

Persuading: Persuasion is part of your job, unfortunately the term “persuade” is often misunderstood to mean aggressive sales or pushiness. However, professional persuasion is how advisors grow their business: You persuade prospects to become clients and you persuade clients to take a sensible course of action by following your advice. (Of course they may choose not to become clients or to follow your advice but professional persuasion should present the best course of action for them so they know what you think they should do).

Persuading presents the best choice to make and outlines the reasons why someone should make that choice. Persuasion grows out of rapport-building and communicating information. If you haven’t built rapport and if you haven’t communicated the right information, your persuading will fall short.

Financial advisors’ practices are built around conversations. Master these conversations by understanding the three key objectives you strive for in every conversation and then prepare before each conversation to help you convert more prospects to clients and to help you work more effectively with your clients.

Action Steps

• List a number of topics that you can use to build rapport. Think of topics that you feel comfortable discussing that you probably share some mutual agreement with your clients.
• Memorize a list of questions that you can draw from to show that you take an interest in your prospect or client.
• Reflect on the ways that you have persuaded prospects and clients in the past. What results have you achieved with the persuasion methods you’ve used?
• We’ve simplified the concept of “selling” down to this one concept: Persuading presents the best choice to make and outlines the reasons why someone should make that choice. Prepare for your upcoming conversations by thinking of 2 or 3 specific prospects or clients you’ll be speaking to soon. Identify the best choice you’re going to recommend (i.e. become a client or invest in a particular investment) and then list as many reasons as you can for that person to follow that course of action.


The views expressed here are those of the author and not necessarily those of The Wealth Channel or The American College

Embracing the Serve First Philosophy

Frank W. Sarr, CLU®

Frank W. Sarr, CLU®, is founder and president of Training Implementation Services, Inc.

Decades ago, legendary agent and manager Stuart Smith conceived a philosophy of serving the client first and letting the financial rewards take care of themselves. Smith’s concept became an integral part of the culture at his company, and many disciples still practice it today. The essence of the “Serve First” credo is that:

• The focus is entirely on serving the client.
• No product or solution is recommended until the advisor understands all of the client’s financial and personal objectives.
• Despite the amount of work involved on the advisor’s part, there might be no sale.

An understandable reaction to this approach might be, “Are you kidding?” However, as those advisors who believe in and practice it could tell you, the Serve First way of life can be richly rewarding, personally, professionally and financially.

A dual foundation
This philosophy rests on a foundation of time and service. The advisor must be willing to invest the time required to thoroughly understand the client’s financial situation and must believe that service is their differentiating factor.

To appreciate the need to invest enough time, let’s look at this episode from the Seinfeld show:

After scalding himself with their hot coffee, Kramer sues a Starbucks-type chain. En route to the settlement meeting, Kramer’s attorney advises him to say nothing until they hear the defendant’s offer (which, viewers learn, includes free lattes for one year and $50,000). As soon as the defendant’s lawyer leads with free lattes, Kramer yells, “I’ll take it!” By not waiting to hear the full story, Kramer gains some lattes but loses out on the more lucrative settlement.

What about an advisor’s dialogue with a prospect? Does the advisor hear and consider the person’s entire financial situation before making recommendations? Or by jumping the gun as Kramer did, do they risk losing out on a much more substantial reward for both the client and themselves?

The Serve First philosophy also relies on the advisor’s confidence that their service is the differentiator. To illustrate this differentiation, here’s a true story:

A business-owner prospect told an advisor that he wasn’t interested in meeting him because he had just purchased a $50,000 policy. The advisor saw this as good news because he had been taught that the purchase marked this prospect as a buyer and, because it was probably a product rather than a Serve First sale, the policy amount was more than likely insufficient. The advisor persisted, got the appointment and gathered pertinent information. The advisor’s sales manager instructed the advisor to obtain some additional data from the prospect. This led to a recommendation of an additional $250,000 of life insurance. Upon hearing this (and confident that it would quash this ridiculous proposal), the prospect directed the advisor to meet with his accountant to discuss it. As a result of that discussion, the accountant was convinced that what the prospect actually needed was a $500,000-policy!

Lessons learned
What do these examples tell us about this sound sales philosophy?

• Time is money (or can be). It may require multiple steps, staff support and possible meetings with the prospect’s advisors, so be prepared to take time and do a lot of work.
• Go long. Go deep. Probing long enough and deep enough without any preconceived ideas as to the proper amount of insurance and/or products to be sold will not only uncover the facts of the situation, but even more importantly, the reasons that will induce the prospect to buy. Instead of worrying about the sale, the advisor should concentrate on gathering all the information needed to recommend a solution that motivates the prospect to act.
• Adjust for inflation. In the example, the sale was 10 times the amount of the original policy. If you start with a number ($50,000, $100,000, etc.) as the base product sale, there’s an excellent chance that the inflation ratio will hold up.

Orchestrating a Serve First culture
It always begins with recruiting. Today’s recruits seem excited about the Serve First concept. They want to be perceived as true professionals, capable of delivering total financial solutions to their clients and experiencing the financial rewards that will be generated for them. In the past, in the back of their minds, new recruits hoped “total financial planning” didn’t mean having to sell life insurance. In contrast, today’s recruits who are attracted by the Serve First concept recognize life insurance as the cornerstone of a sound financial plan, and a significant factor in the recommendations they make.

While a Serve First philosophy may motivate a recruit to join your agency, during their initial training new hires will constantly seek confirmation of whether you really walk the talk. It is imperative that your sales process reflects what’s required to communicate and implement this philosophy. For example:

• Does your initial interview script reinforce the philosophy’s tenets? This script is, in fact, the initial face of your Serve First philosophy to both the advisor and their prospects.
• Will the recruit’s initial training go beyond closing a single-need product sale and encourage and teach them how to gather the kind of in-depth information that builds understanding and trust?
• Is there a process to analyze and design a presentation that goes beyond a single-need sale?
• During joint work, does the mentoring sales manager or advisor model the philosophy?

A client’s financials can be a complicated tangle. In-depth fact-finding can uncover issues in which an advisor lacks experience. In the past, the cost of providing support when needed became prohibitive. Today, more and more Serve First-minded agencies are building alliances with outside professionals and/or teaming advisors with other advisors within their agencies to provide support in situations requiring specialized knowledge. This enables the agency to expand its services to their clients.

When gathering a client’s financial information, advisors might hesitate to ask questions about subjects they themselves don’t thoroughly understand. They can become immobilized by what they don’t know, as opposed to what they need to find out. Uncovering sufficient information to move the prospect to the next step is less about extensive book knowledge about a given subject than asking the right questions and listening to the prospect’s answers.

Think about how doctors and lawyers do their fact-finding. Asking the right questions signifies confidence and professionalism, not lack of knowledge.

New life for life insurance
A Serve First advisor needs to believe in life insurance as the foundation of what they do and embrace it as a viable solution for their clients. Given the unsettled economic climate in recent years, whole life insurance has weathered the storm so well that many advisors see it in a new light. From a secondary nice-to-have, a substantial life insurance policy is emerging as a vital must-have component in anyone’s portfolio.

Activity is key
While this philosophy can be both personally and financially rewarding for an advisor, the ever-present, offbeat elephant in the room is activity. An issue 70 years ago when Albert E. N. Gray penned The Common Denominator of Success, activity continued to be enough of an issue in 2010 to motivate Nick Murray to author The Game of Numbers.

As they’re learning to implement the Serve First philosophy, the need to invest more time to close a substantial case—especially when combined with low activity—can imperil the new advisor’s very survival.

The solution to this dilemma is a two-part approach:

1. Generate high activity by working on cases in which the need is evident and thus can be closed quickly.
2. At the same time, pursue the more sophisticated but time-consuming cases.

The good news is that high activity—regardless of the source—hones skills, grows confidence and generates needed income.

The important thing for the advisor to remember is that large or small, every case must be approached with the same focus, professionalism and Serve First mindset. Only by going long and deep can they reveal someone’s true financial picture. Thus, even when working on a perceived small-case situation, instead of making a $50,000 product sale, they might find themselves forging a $500,000 long-term relationship with the client.


Originally published in the Spring 2013 issue of The Wealth Channel Magazine, "How Fast Can YOU Adapt?"

Federal Wealth Transfer Tax Reform—Certainty for Now

Ted Kurlowicz, JD, LLM, CLU®, ChFC®, CAP®

Ted Kurlowicz, JD, LLM, CLU®, ChFC®, CAP® Ted is the Charles E. Drimal Professor of Estate Planning and a Professor of Taxation at The American College.

It’s been a long and very strange journey tracking the federal estate and gift tax laws since 2001. After many years without significant change, the federal estate and generation-skipping transfer taxes were statutorily phased out and repealed by the first of the Bush-era tax cuts. Although many prognosticators never thought full repeal was likely, estate owners fortunate enough to die in 2010 had the opportunity to pass their bounties without wealth transfer taxation. A two-year reform was passed at the end of 2010 giving us an indexed $5 million exemption for gift, estate and generation-skipping taxes with a 35 percent tax rate. This provision once again was scheduled to sunset at the end of 2012, followed by a return to the wealth transfer tax system that existed prior to June 2001. Some high net worth individuals rushed to make maximum gifts by the end of 2012, certain that Congress would permit the gift tax exemption to return to a mere $1 million. Even those gifts were made with trepidation because of the possibility of a clawback affect in the estate of those who made such gifts if the gift tax exemption was reduced.

Essentially, all of our estate tax planning for the last 11 years was based largely on guesswork due to the uncertain future of the wealth transfer tax system. With the American Taxpayer Relief Act of 2012 (ATRA), we finally have legislation reforming the federal wealth transfer tax system without sunset provisions.

Estate, gifts, and generation-skipping transfer tax provisions of ATRA
After debate and compromise, the rules moving forward are fairly simple. The key components of the legislation provide:

Tax rates. Congress compromised to set the tax rate of 40 percent. There are lower brackets in the table, but the maximum rate of 40 percent applies to transfers over $1 million. Hence, the first tax payable will be at 40 percent for transfers subject to gift, estate or generation-skipping taxes.
Exemption amount (applicable exclusion amount). The exclusion amount for all three wealth transfer tax systems will be $5 million indexed annually for inflation. Because inflation indexing already applied in 2012, the applicable exclusion amount for 2013 is $5,250,000.
Portability of applicable exclusion amount. The portability provision, which permits the surviving spouse to inherit and use the unused exclusion amount (DSUEA) of the deceased spouse is now a permanent provision. However, the portability provision is limited to estate tax and is not available for the unused GST exclusion. This provision appears to be a no-brainer at first glance, but some considerations in specific estates warrant further discussion (refer to next section).
Estate tax deduction for state estate or inheritance taxes. The deduction for state succession taxes paid is now permanent. This means that the federal estate tax credit for state death taxes paid is repealed. This provision is not much of a surprise because the old credit caused federal estate tax revenue to be diverted to the states.

Planning implications of the new wealth transfer tax provisions
That the ATRA provisions were made permanent and we can stop warning taxpayers about sunsets and clawbacks is certainly some relief. The higher exclusion amount seems to eliminate more than 99 percent of estates from the federal estate tax. The danger created by this simplicity is that the need for estate planning is more important than ever irrespective of wealth transfer taxes, and estate-planning issues will vary depending on net worth. Remember, there is no “one size fits all” estate plan, and it remains critical to be able to examine fact patterns carefully and explain the implications for alternative methods of transferring wealth.

Net worth up to $500,000
This marketplace has been largely underserved with respect to any significant estate planning. This is unfortunate because smaller estates need to be transferred efficiently. Many heirs might find their inheritances essential. It is estimated that somewhere between 60 and 70 percent of American adults do not have a will. Even if a will has been drafted and executed, it often has not been reviewed, and its implications are generally not understood. Individuals in this category of net worth are likely to be reluctant to spend significant legal fees to execute and periodically review their wills.

It is incumbent on the various members of the planning team to be able to explain and reinforce the provisions of the will. Individuals creating their wills are often unaware that only probate property is distributed by the provisions of the will. Unless the individual is single or a surviving spouse, it is unlikely that he or she will have significant probate if their net worth falls in this range.

Joint property will also create confusion. Married couples often title their property to pass automatically to the survivor or may reside in a community property state that has implications on the transfer of property. Joint property titling is also used by senior family members in lieu of a general power of attorney. If joint titling of financial accounts with survivorship provisions is used with next-generation family members, this can lead to confusion, disappointment and disputes. Estate planners should carefully explain the implications of jointly titled accounts.

Other transfers are often made by beneficiary designation. Often, the titling of property and beneficiary designations are decisions that are made quickly and without much advice concerning the estate-planning implications. Members of the planning team should be able to help these individuals with a beneficiary designation audit and determine how the individual has selected to answer the important who, how and when questions that should be answered by anyone transferring property. For example, is it possible that outright transfers have been planned to heirs who have not reached the age of majority (or better yet, the age of maturity).

The key to estate-planning momentum is an individual who is not comfortable with what would happen to his or her estate if they were not here tomorrow. Once the deficiencies of the current estate plan have been explained and addressed, it is possible to have discussions concerning appropriate asset allocation and problems that can be addressed with planning or products solutions such as retirement income planning, life insurance, disability income insurance, annuities and long-term care insurance.

Net worth between $500,000 and $5 Million ($10 million for married couples)
I selected this range somewhat arbitrarily to address individuals with significant amounts of wealth to transfer but who are unlikely to face any significant federal estate taxes.

Individuals in this category have the capability of paying for significant estate-planning advice but, in my experience, will often not see the need for this expenditure. They typically have accumulated this wealth in one generation, maybe enhanced by some modest inheritance. All too often, the federal estate tax has been the focus of too many planners in the past. The enhanced exclusion amounts coupled with portability of exclusion amounts would seem, at first glance, to indicate simple wills if the focus is primarily on the federal estate tax. Important estate-planning considerations for individuals in this range of net worth include:

Portability versus exclusion trusts. The surviving spouse can inherit the unused exclusion amount (DSUEA) of the deceased spouse. It is required that a Form 706 Estate Tax Return be filed for the deceased spouse to transfer the unused exclusion. We’ve had two years experience to tell us that this is often a difficult recommendation, particularly for people at the lower end of this net worth category. There is no Form 706–EZ and this would require a significant expenditure. There are numerous good reasons to continue to use what we used to call the “credit shelter trust” to use the exclusion immediately at the first death. First, it creates a freeze of the growth of the transferred assets exempt from tax. Second, an exclusion amount transferred to a surviving spouse is not indexed for inflation after the first death. Third, the GST exclusion cannot be transferred to a surviving spouse. The exclusion trust could perhaps be created during lifetime in the form of a spousal limited access trust  (SLAT). The earlier such a vehicle is created, the greater the freeze of the potential estate appreciation. A careful examination of each fact pattern is necessary to determine whether or not to plan for portability or create the exclusion trust.
Impact of appreciation. The estate of individuals in this category should be examined to determine the potential growth of net worth to determine if the individuals will potentially jump into the next category. Certainly many circumstances such as a family business, private investments, inheritances or even lottery winnings could indicate a change in the level of planning.
State estate or inheritance taxes. The impact of state inheritance or estate taxes should be examined because these could significantly shrink an estate. Some states (Pennsylvania, for example) have an inheritance tax that applies without many exclusions. In the worst-case scenario, the Pennsylvania inheritance tax rate is 15 percent. Many other states fall into the category of decoupled states and apply an estate tax as if the federal estate death tax credit was still in existence. These will have different exclusion amounts depending on the state. For example, New Jersey’s exclusion is only $675,000, while other states have the exclusion as high as the current federal level. It is important to note that the state tax will apply to the decedent in his or her state of domicile, and real estate located in other states is subject to succession taxes in the state where the real estate is located.
Gifting strategies. Individuals at the higher end of this net worth range should have the capability of making some significant lifetime gifts. Perhaps some of the family members have pressing immediate needs for a gift. Gift planning becomes more important as wealth levels near the federal exclusion amounts to prevent or reduce future estate taxes. Gifts will also be very effective if state inheritance or estate taxes are a concern because the vast majority of states do not have a state-level gift tax.
New or existing life insurance. Life insurance may be indicated for many estate-planning purposes irrespective of an estate or inheritance tax. Perhaps there are family members with special needs. Maybe there is a blended family and life insurance can help provide for specific beneficiaries, such as the new spouse or children from a prior marriage. Perhaps a family business must be transferred and the estate must be equalized between active and inactive children. Life insurance has always been a perfect liquidity tool in this situation. What about existing insurance, perhaps in an irrevocable life insurance trust (ILIT)? Even though the estate may no longer be subject to federal estate taxes, we certainly don’t want to terminate or defund an existing trust without careful consideration. First, we should consider how well the policy is performing. Terminating an effective policy would make no sense, particularly with the currently low alternate investment yields. We certainly could change the existing policy to a new policy or another investment. This might be indicated where there is a single life policy and the insured’s spouse is the income beneficiary of the ILIT. The ILIT might be useful for retirement income planning in this scenario.
Asset protection planning. Asset retitling and/or the use of trusts will be indicated if either the estate owner or any of the heirs have significant asset protection concerns.
Planning for nontraditional relationships. Planning for the circumstances would begin with a consideration of whether or not the relationship is a marriage. In many scenarios, couples will choose not to be married and the federal estate tax marital deduction will not be available. In this circumstance, federal estate taxes will be imposed on estates above the federal exclusion amount. A growing number of states have enacted statutes permitting marriage for same-sex couples. Traditionally, states have solely held the power to determine marital status. This presumably could get more confusing if a couple married in an enabling state moved to a state that statutorily refuses to recognize a same-sex marriage. The Federal Defense of Marriage Act (DOMA) provided that same-sex marriages would not be recognized for federal law. This presumably would include the federal estate tax marital deduction. It is expected that the Supreme Court will rule on this issue in the near future.

Net worth over $5 Million (over $10 million for married couples)
Planning for individuals or couples in this category must include the consideration of the potential federal estate and generation-skipping transfer taxes. Estate planning will invoke consideration of the traditional techniques to mitigate the effect of federal wealth transfers taxes. Again, the estate-planning process for these individuals should not be focused solely on taxes and should include much of the planning we have already described for individuals in the lower net-worth ranges with the addition of the following:

ILITs. This time-tested planning technique is particularly useful the higher the net worth exceeds the exclusion amount. I don’t particularly favor ILITs for marginal amounts of federal estate tax. But when the potential tax is significant, individuals or couples can use this technique to replace all the wealth lost to federal estate taxes. The new higher exclusion amounts certainly help us with the funding of the ILIT. High net worth individuals are often already using the annual gift tax exclusions. Even if the gift tax exclusion is available, $14,000 per beneficiary may not sufficiently cover all of the gifts to fund a significant premium. The $5,250,000 exclusion amount could be used to cover any otherwise nonexcluded gifts.
Low interest rate planning. Quantitative easing has provided us with historically low interest rates, and this provides the opportunity for high net worth individuals to transfer wealth with unprecedented leverage. Techniques that should be examined to take advantage of low interest rates and/or enhanced gift tax exclusion amounts include intrafamily loans, grantor retained annuity trusts (GRATs), charitable lead annuity trusts (CLATs), and sales to intentionally defective trusts. Through these techniques, the investment chosen for the invested principal of the gift and/or sale needs to exceed the historically low interest rates applicable to the technique. The greater the actual investment return, the more effective the transaction. The interest rate changes monthly and is different for specific techniques.

The future
Future legislation could, of course, alter the techniques used in estate planning. However, it should never alter the process of examining an individual’s situation and asking the important questions.


Originally published in the Spring 2013 issue of The Wealth Channel Magazine, How Fast Can YOU Adapt?

Don’t Let Health Care Costs Crack Your Nest Egg

Ryan E. Price

Ryan E. Price, CFP®, ChFC®, CLU®, CRPC, AWMA is the President of Price Financial Partners located in Irvine, CA. He has more than a decade of experience dealing with high net worth clients in the areas of investment, retirement, estate, insurance & business succession planning. In addition to managing his practice, Ryan is also Field Training Supervisor for a division of Lincoln Financial Advisors. Ryan currently serves on the board of Lincoln Financial Advisors Advisor Based Sales Division & is a member of LFA’s prestigious Private Wealth Services group. He is currently a member of the National Association of Insurance & Financial Advisors (NAIFA) where he serves on the membership committee and is on the Education Committee for the Financial Planning Association (FPA) of Orange County. He is a frequent lecturer on financial planning topics and has taught multiple courses at The American College, UCLA & UCI extension.

Escalating health care costs can undermine the best-laid retirement plans. One of the biggest risks lies in the cost of long-term care. Unfortunately, health care costs in general have been outpacing inflation, and this trend to may continue.

Even if you’re currently in good health, you can’t guarantee that it’ll continue in your later years. Not being prepared can be very expensive. According to AARP, the average cost is $5,566 a month for a semiprivate room in a nursing home, and $6,266 a month for a private room*. At that rate, it wouldn’t take long to put a sizable dent in the most solid of nest eggs.

Most people think of long-term care as nursing-home care, but, in fact, most of the people who need long-term care need it in their own homes or in assisted living. This means that nursing homes are only one part of the picture. About 60 percent of the population over age 75 will need long-term care for approximately three years2, whether in a nursing home, assisted-living facility or at home. The latter two alternatives – while usually less expensive than nursing-home care – are by no means cheap. Care in an assisted living unit costs $2,968 a month on average, according to AARP.* Round-the-clock care at home can also add up fast.

Insuring Against the Cost
Long-term care insurance policies are designed to defray the cost of nursing-home, assisted-living and at-home care –costs that are not covered by Medicare except in very limited circumstances. Today’s policies typically offer the same daily benefit for each level of care. Eligibility kicks in when an individual is unable to perform two out of six “activities of daily living.” These include toileting, bathing and being ambulatory.

If you have $10 million in assets, you may not need long-term care insurance. But $5 million may not be enough, as comfortable as it seems, especially if half of those assets are locked up in illiquid assets such as real estate or if you want to leave as much of your estate as possible to your heirs. The government adds an incentive in terms of partially tax-deductible premiums. For 2009, the yearly maximum deductible amount of $280 for those under age 41 rises to $3,530 for those over age 70.

But don’t wait to buy long-term care insurance until age 65, because premiums then could be very high. The most cost-effective purchase point is from the early 40s to the early 50s. Whenever you buy, be sure to buy a policy that increases benefits to keep pace with inflation. You can also keep costs manageable by electing a waiting period before benefits begin and by limiting the length of coverage to four or five years instead of a lifetime.


Beyond Long-Term Care
If you retire at age 65 or beyond, Medicare plus a Medicare Supplement policy should cover most of your medical expenses. If you retire earlier, however, you may want to purchase a personal health insurance policy. Either way, it’s crucial to select coverage that matches your lifestyle. For example, if you enjoy foreign travel, you may want to consider a policy that includes coverage outside of the United States.

Long-term care insurance is designed to be flexible where you can control the costs relative to the benefits you wish to receive. Long-term care policies offer various kinds of coverage. Some offer adjustments for inflation, others pay only for a stated number of days, and others offer a life-time benefit. When deciding on a policy, you should compare the benefits of different types of policies, the limitations and exclusions, the types of facilities the policy would cover, and the cost of the premiums.

*”What Does Long-Term Care Cost? Who Pays?” (www.aarp.org/families/caregiving/caring_help/what_does_long_term_care_cost.html), accessed April 2009.


Ryan E. Price, CFP®, ChFC®, CLU® is a registered representative and investment advisor representative of Lincoln Financial Advisors Corp., member SIPC, [18400 Von Karman Ave., Ste 450 Irvine, CA 92612 949-623-1788] offering insurance through Lincoln affiliates and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. The content of this material was provided to you by Lincoln Financial Advisors for its representatives and their clients.

CA Insurance License #0E10210

Top College-Planning Mistakes Parents Make

Ryan E. Price

Ryan E. Price, CFP®, ChFC®, CLU®, CRPC, AWMA is the President of Price Financial Partners located in Irvine, CA. He has more than a decade of experience dealing with high net worth clients in the areas of investment, retirement, estate, insurance & business succession planning. In addition to managing his practice, Ryan is also Field Training Supervisor for a division of Lincoln Financial Advisors. Ryan currently serves on the board of Lincoln Financial Advisors Advisor Based Sales Division & is a member of LFA’s prestigious Private Wealth Services group. He is currently a member of the National Association of Insurance & Financial Advisors (NAIFA) where he serves on the membership committee and is on the Education Committee for the Financial Planning Association (FPA) of Orange County. He is a frequent lecturer on financial planning topics and has taught multiple courses at The American College, UCLA & UCI extension.

Paying for your children’s college educations should actually be placed quite low on the totem pole of financial priorities. Why? There are several reasons for this, such as the availability of tools to pay for college, such as financial aid in the forms of student loans, grants and other programs where loans are forgiven in exchange for public service in low-income communities. But ultimately, it’s also because focusing too much on college savings can jeopardize a family’s overall financial planning strategy.

First Things First
Some family financial needs may be a good thing, like college for other children, or they can be tragic, like long-term care costs for the parents themselves or medical expenses for grandparents. Devoting too many resources to college savings can cut into preparing for inevitabilities such as retirement which—unlike financing college—can’t be funded by loans.

Since college costs these days are skyrocketing, how should parents prioritize their saving and investing plans? Consider adhering to the following priorities, in this order:

• Establish an emergency fund. It’s critical to establish an emergency fund with at least six months worth of living expenses. This is a key building block for meeting a family’s basic financial needs. After all, what if you have a job change or you get laid off? If you don’t have six months worth of expenses to fall back on, you can’t go into that 529 account and take money out without a penalty and taxes.

• Fully fund employer-sponsored retirement plans. A major mistake many people make is reducing contributions to their employer-sponsored retirement plan in favor of investments toward a child’s education. Instead, the priority should be in making as large a contribution as possible into a 401(k) or 403(b) plan. Doing so not only enables you to take advantage of any employer match available, it also provides potentially significant tax advantages.

• Take care of insurance needs. Too many parents make the mistake of ratcheting back on life or disability income insurance in order to save for a child’s education. But if something bad should happen, both college and a family’s most pressing needs may be in jeopardy. If the primary breadwinner isn’t working and doesn’t have income coming in for a long period of time, then college is, in many cases, out of the question. Parents should save for college while simultaneously retaining insurance coverage.

• Don’t forget IRAs. It’s crucial to continue funding both your Traditional and Roth IRAs as much as possible. Roth IRAs are particularly good in case parents want to use some portion of those assets for college, because in some circumstances, after five years the contributions into a Roth IRA can be withdrawn income tax and penalty-free. Roth IRA earnings taken prior to age 59 ½, may be subject to a 10% federal tax penalty and possibly state income taxes.

While financing all or part of your child’s college education is a worthy goal, it’s critical to keep your family’s overall financial picture in mind when making financial planning decisions.

The views expressed here are those of the author and not necessarily those of The Wealth Channel or The American College. Ryan E. Price, CFP®, ChFC®, CLU® is a registered representative and investment advisor representative of Lincoln Financial Advisors Corp., member SIPC, offering insurance through Lincoln affiliates and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. The content of this material was provided to you by Lincoln Financial Advisors for its representatives and their clients.

Mastering the Art of Client Conversations

Aaron Hoos

Formerly a stockbroker, insurance broker, and award-winning sales manager, Aaron writes for the financial and real estate industry as an educator and marketer. His first book, The Sales Funnel Bible, helps advisors master their sales funnel.

Rosemary Smyth

Rosemary is an author, columnist and an international business coach for financial advisors. She spent her career working at leading investment firms before pursuing her passion for coaching. She lives in Victoria, BC. Visit her website at www.rosemarysmyth.com.

Most conversations start off with innocuous questions like, "What do you think of the weather?" If you want to build rapport and trust with clients, you need to have conversations that go deeper than that.

The way you ask the questions will dramatically affect the quality and value of your conversation. Certain types of questions can expand the conversation and others can block it. The better you get at asking conversation-expanding questions, the easier it will be for you to build rapport with clients and the conversations will be more engaging and informative.

In this article, you'll read about four invaluable conversation tools that can help you have more meaningful client conversations.

Conversation tool #1: Listening

Your conversations will only be as valuable to you as your ability to listen!  Active listening is hearing what the other person is saying, evaluating it in your mind and then responding appropriately. Listening is the most important element in communication and a whole-being experience. It’s your ears, heart, eyes and mind.

It takes practice to be a good listener and it’s the way we listen that makes a difference in conversations. Bad listening behaviours such as daydreaming, finishing sentences, interrupting, selective listening and pretending to listen can all be improved with practicing active listening. Replacing old ineffective communication styles will help you to re-wire your brain to communicate more effectively with others.

Barriers that prevent us from listening effectively are distractions such as phones ringing, feeling tired or having other clients waiting on hold for you. The way to overcome these barriers is to focus. By focusing you will hear what the client is saying and will understand what their needs are.

Great listening techniques are to face the person that you are listening to and make eye contact. Non-verbal listening uses your face, eyes and body. For effective non-verbal listening, make eye contact, lean in slightly, nod and respond with the appropriate facial expressions. Body language is a powerful tool to use with your questions and tone of voice. Use a variety of listening cues to signal that you are paying attention. Common ones are “uh huh”, “okay” and “hmm”.

Paraphrasing is restating what the other person said in your own words. By paraphrasing it shows a client that you are paying attention and decreases the possibility of misunderstandings. To focus the discussion and summarize major concepts say, “If I heard you correctly, what we discussed was....”

Conversation tool #2: Broad questions

Broad questions are open-ended and ask for opinions and thoughts, and they leave the client with limitless replies. They allow the client to choose the topic and encourage them to think creatively. Examples of broad questions are, “What are you planning to do when you retire?", "What did you think of your vacation resort?", and "How was the process of getting your mortgage?”

Start by asking broad questions and then listen to the answers and build on those answers.

Conversation tool #3: Narrow questions

Narrow questions are direct and ask for yes/no answers of factual information. For example, “Do you have life insurance?", "How many credit cards do you have?", and "Is this a copy of your current will?”

Use narrow questions to learn more about specifics.

Conversation tool #4: Leading questions

Leading questions are opinions that also seek agreement. If you want honest answers, avoid leading questions. They usually start with a negative contraction such as: "aren’t", "wouldn’t", "don’t", or "isn’t". For example, “Isn’t this a great office?" and "Don’t you like the new portfolio?”

Transforming a leading question can create an open dialogue with clients and have you sounding less pushy and domineering. If you want feedback you can change a leading question to a statement and broad question. For example, “Wouldn’t it be great to have quarterly reviews?”, can be altered to “I think it would be great to have quarterly reviews. What do you think?”

If a client asks you a leading question, decide if you want to focus on the opinion, the question or both. You can rephrase the opinion and the question and check for understanding. For example if a client asks, “Don’t you think this is the best mutual fund?” you can respond, “It sounds like you think this is the best mutual fund and you want to know whether I agree. Is that right?”

Use leading questions to get "buy-in" from prospects.

Putting these conversation tools into practice

Developing your skills at discerning between broad, narrow and leading questions and how to rephrase leading questions will improve your conversations and client engagement.  With good communication skills you can inform, negotiate and influence people.

Before you engage a client in conversation, it’s important to relax and stay present. Pay attention to the body language of the client such as the tone of voice, facial expressions and body gestures that will give you clues to what there are really thinking and feeling. Try to speak slowly and briefly and if you are communicating something important, break down the information into smaller segments and then wait for the client to acknowledge that they understand you.

Invest all of your energy and attention into making your client feel important, understood and be confident in your ability to solve their problem. For clients that are angry or upset it is important to empathize with the client’s feelings and to take a break. For example, “I’m sorry to hear that. I can understand how frustrating the situation is.” Silence and pausing allows the client to gather their thoughts and for you to take a breath and refocus.

Taking notes will help you to effectively summarize the conversation. Good notes will highlight the key points and action steps. Transfer the notes to your CRM daily and be succinct so that you can review them quickly later on.


The views expressed here are those of the author and not necessarily those of The Wealth Channel or The American College

Linked Benefits—Long-Term Care and Life Insurance

Richard Olewnik, JD, CLU, ChFC

Richard Olewnik is Assistant Vice President of AXA Equitable Advanced Markets.

Mark Teitelbaum, JD, LL.M, CLU, ChFC

Mark Teitelbaum is Vice President of AXA Equitable Advanced Markets.

The statistics are compelling. With an aging population, there will be increasing reliance on third-party care facilities and less reliance on informal home care offered by friends and relatives. According to a Congressional Budget Office (CBO) study, in 2004, approximately 36 percent of long-term care support was offered informally, with only 3 percent covered by private insurance and 38 percent covered by Medicaid and Medicare. For 2004, out-of-pocket payments covered 21 percent of costs. However, the CBO expects greater pressure on private insurance. Among the items the study noted are declining family size and an increasingly fractionalized family, often living away from a parent, coupled with an increasing elderly population will put strain on informal services. In fact, by 2050 the percentage of the U.S. population age 65 or older will be 21.5 percent, up from 12.4 percent in 2000 and 8.1 percent in 1950. The most significant will be those aged 85 or older, the people who have the most likely need for long-term care assistance, at 5.2 percent in 2050, nearly triple that of the 1.5 percent of the population in 2000. Add to that increasing pressures to cut review to programs such as Medicaid, and there is an increasing awareness to cover some or all of the cost of long-term care.

Options have increased in recent years
A few years ago there was one insured long-term care option: standalone long-term care policies. Today, clients have an increasing number of insured options. In addition to standalone policies, clients now can choose long-term care coverage from the following:


• Life insurance linked benefits and annuity linked benefits. (For example, clients purchase life insurance seeking financial protection and upon the insured’s death, beneficiaries receive a death benefit.).
• Life insurance with single premium, asset-based contracts.
• Life insurance products with annual premium approaches with riders attached (the primary focus of this article).

As many long-term care carriers have exited the market or have significantly raised rates, life insurance linked products have increased in number and in their purchase rates. Many clients have looked upon these linked benefits favorably because they offer benefits that will not otherwise evaporate; they will be made available either during life or at their death. Of course, where a life insurance linked benefit is considered a means of addressing long-term care health needs, a separate need for life insurance protection is paramount to the success of this planning approach.

Life insurance linked benefits
In many situations long-term care riders available with single premium, asset-based life insurance contracts provide an attractive alternative. They offer a return of premium option, often with a growth factor. If death occurs before use of long-term care features, they offer a modest death benefit policy. This can be an appropriate solution for clients with modest estates. But, for clients with more significant estates who have a need for significant life insurance amounts, long-term care riders on policies with annual premium approaches cannot only provide the life insurance that is needed, but access to policy benefits to address estate liquidity and transfer goals.

Long-term care riders attached to life insurance policies
In recent years, long-term care riders attached to life insurance policies have become increasingly popular. These riders accelerate the payment of the policy death benefit upon the occurrence of a triggering event, typically those associated with traditional long-term care policies, such as the inability to perform two activities of daily living or a mental impairment. As with standalone long-term care policies, life insurance linked benefits are available on a reimbursement or a per diem/indemnity basis.

As with traditional long-term care policies, a rider attached to a life insurance contract purchases a predetermined long-term care benefit. In most cases, the maximum total long-term care benefit amount is tied to some or all of the underlying death benefit, and it is set when the contract is issued. When the long-term care benefit is triggered, the death benefit is accelerated based on a predetermined percentage of the face amount and is typically made available on a monthly basis.

These riders are set up on two types of models. These are critical in determining how a client, or policy owner, can access the benefit on the triggering of a long-term care event. A careful understanding of these helps plan for the appropriate rider for a client’s needs.

With a reimbursement approach, policy payments are limited to the lesser of the monthly policy benefit purchased and the actual amount expended by the policy’s insured to cover long-term health care expenses. With reimbursement benefits, policy payments must be made to the insured or directly to the facility providing care.

With a per diem/indemnity approach, the amount available from the policy when the long-term care benefit is triggered is usually based on the lesser of the annual HIPAA amount or a predetermined percentage of the policy face amount.

This will determine how much is available for a given month. For example, a client with a $1,000,000 death benefit and a 2-percent long-term care rider could potentially receive as much as $20,000 a month for a long as the death benefit remains. The monthly HIPAA amount in 2013 is $9,600 ($320 a day times 30 days), or $115,200 per year. The payment limit in the current year would be $9,600, but has the potential to increase in future years as the HIPAA amount increases.

In general, per diem life insurance long-term care riders can offer greater planning flexibility than the reimbursement approach. They provide access to policy benefits to a policy owner (trust, child, spouse, etc.) rather than limit payments to the insured or benefit provider. In contrast, they do not require receipts to trigger payments and allow for payments in excess of actual qualified expenses. A client with a reimbursement contract may preserve more of the underlying death benefit if their expenses run less than the allowed monthly benefit, however, an indemnity contract might offer planning opportunities.

Under an indemnity contract, it is usually the status of the insured alone that triggers the benefit. In this instance, a client/policy owner might receive a benefit if the insured becomes eligible for long-term care coverage even if they do not actually incur the long-term care expenses. Although this may sound counterintuitive, this offers substantial planning benefit.

The indemnity rider offers planning opportunities in both estate and business settings. Consider an irrevocable trust where a life insurance policy with an indemnity rider is owned by the trustee. If the insured had a long-term care triggering event there is significant post-event planning that the family could do. They could do nothing, running down the client’s estate to cover long-term care costs and replenishing the lost funds by the death benefit. Or, they could trigger some or all of the long-term care benefit/death benefit acceleration:

• Buying assets from the estate to remove future growth and provide a liquid source of funds for the client.
• Making loans to the client, and then having the client accumulate or accrue interest that will help deplete the estate.
• Making distributions to the trust beneficiaries who, in turn, could use some of those funds to cover medical costs for the client. Remember, because this is a medical expense the ability to gift is less restrictive than the current $14,000 annual exclusion.

In a business setting, triggering the rider can be used to help support a business that might be impaired by the loss of a key individual who covers part of a lifetime buyout.

And what about cost of living? Almost every carrier that offers these riders does so on an Option A design. However, in some instances the life insurance contract might allow for a long-term care benefit tied to an Option B design, so a client has the ability to receive an increasing long-term care benefit.

Other considerations
Purchasing this rider comes at an additional cost. In most cases, the rider is paid as an acceleration of the life insurance death benefit. This may offer the client a low-cost approach to address long-term care health needs. Where the benefit is provided by a rider attached to a life insurance policy, at least some benefit will be received by the insured’s beneficiaries. In effect, if one doesn’t use the rider all is not lost, other than the additional cost. In addition, life insurance riders may be available to clients where they might not otherwise qualify for separate long-term care coverage.


There are also a number of different features that clients need to weigh when considering such a rider. These relate to the manner in which the rider can be accelerated, how much can be paid out and how the benefit is paid out.

In most instances, when the benefits are paid out to individual taxpayers they can qualify to be received income tax-free. The limitation would be the greater of the annual HIPAA amount or the actual amount expended by the taxpayer for the long-term care for the insured. At least one carrier allows for two times HIPAA, although some states, such as New York, limit the amount to one times HIPAA. Attention to state variations is critical. In business situations the amount received may not be received income tax-free, and that will run to whether the contract qualifies under IRC 101(g) or 7702B.

An important distinction in life insurance policy riders that frequently goes unnoticed is “qualified riders” versus “chronic care riders.” As a general rule, riders that only qualify under IRC 101(g) as accelerated benefits are deemed chronic care riders. They require that in addition to the medical certification of the insured’s inability to perform two activities of daily living or cognitive impairment, there must be verification that the condition is permanent and the insured is not expected to recover. As a general rule those riders that are deemed to be qualified riders, qualified under IRC 7702B, can trigger benefit availability even if the condition is not permanent.

It is obvious that the need for long-term care heath assistance in our society will increase with our aging population and improvement in health care. Various forms of personal insurance are available to help individuals with their personal planning.


Life insurance linked benefits are a flexible planning tool that offers a valuable planning alternative for many situations. Variations exist in how these benefits are classified by states and the Federal Government, which may impact when benefits are triggered and what amounts may be available to the policy owner.

Originally published in the Spring 2013 issue of The Wealth Channel Magazine, How Fast Can YOU Adapt?

Your Last Will and Testament

Kevin M. Lynch, CFP®, CLU®, ChFC®, RHU®, REBC®, CASL®, CAP®, LUTCF

Kevin M. Lynch is an assistant professor of insurance and The Charles J. Zimmerman Chair in Insurance Education at The American College. Kevin.Lynch@wcinput.com

This issue of The Wealth Channel Magazine is all about change, so I thought this would be an ideal opportunity to discuss the last changes you may ever have the opportunity to make.

Do you have a last will and testament? Whether you think you do or not, you do. Allow me to explain. Hopefully, you are one of the approximately 40 percent of Americans who have sought out the services of an attorney and had them help you craft your last will and testament so that it reflects your exact wishes. If, however, you are in the 60 percent majority of Americans who have failed to carry out this duty to your family or loved ones, the state in which you reside at your time of death has crafted one for you. Unfortunately for you, and especially for those you leave behind, it most likely will not reflect your desires.

Dying without a last will and testament is known as dying intestate. It means just that: You failed to craft your own will and testament before your death.

As life and financial services professionals engaged in the sales of products that change people’s lives, we are often involved in talking about a client’s possible demise. As a trusted advisor, I am confident you have told your clients that among the most important things they can do to get their affairs in order is the acquisition of appropriate estate planning documents. While these documents may have different nomenclature depending on the state in which the client lives, these estate-planning documents might include:

• Last will and testament
• Living will
• Medical directive
• Power of attorney
• Medical power of attorney

Just as important as having these documents drafted and updated on a regular basis is the ability of the client, or his designated representatives, to access the documents when the need arises.

This brings up the matter of where your client should store these documents for safekeeping, while at the same time making them accessible to the aforementioned designated representatives. I contend that the best place for the storage of these documents is not a bank safety deposit box. Why? Because, unless you have the foresight to also add your designated representative as a deputy on the signature card at the financial institution where the safety deposit box is located (and according to bankers I have contacted this is rarely done), at the time of your death your final instructions will be locked in a bank vault and not be accessible to those individuals charged with carrying out your wishes. 

In addition to having your attorney retain a copy of your will, what are some other solutions to this problem?

• In those jurisdictions where it is permitted, consider filing your last will and testament with the Clerk of Court, or similarly positioned public servant, in the county where you live, and notify your executor or executrix that you have done so.
• Consider giving a sealed copy of your last will and testament directly to your executor or executrix. You might also give similar documents, such as your power of attorney, living will, etc., to those whom you have elected to act on your behalf under those circumstances in which the documents would be required.
• Keep a copy of your will in a plainly marked envelope with your other important papers at home.

As long as you have also followed one of the aforementioned recommended options, you can keep a copy of your will in your safety deposit box if that’s what it takes to give you peace of mind.

Is this issue really important enough to deserve so much attention? On May 26, 2010, my stepmother passed away. In spite of my having told her on multiple occasions not to file away her will in her bank lockbox, like many older clients set in their ways, she decided to ignore my advice. (After all, that is where my father had kept his, along with countless others of his generation.) What she failed to remember was that when my dad died, she still had access to their safety deposit box. When she died, however, no one else had access to her box as she had no deputy assigned on her signature card. In addition, as I found out the hard way, stepchildren are not legally related to stepparents, unless legally adopted. Having been raised by a woman you have considered to be your mom since you were 5 years old carries no weight with the court.

Suffice it to say, the three weeks following my mom’s death were filled with frustration, red tape, and multiple phone calls to courthouses, funeral homes and cemeteries, all of which would not have been necessary if my mom had not filed her one and only copy of her will in her bank safety deposit box.

In the world of life insurance there is a saying: “No one buys life insurance unless they love someone or they owe someone.” I would like to think that, like the love demonstrated to loved ones by the purchase of life insurance, taking the time to record your final wishes on the last legal document you will ever have the chance to change shows just as much love.


Originally published in the Spring 2013 issue of The Wealth Channel Magazine, How Fast Can YOU Adapt?

Are You Ready for the Toughest Questions Every Financial Advisor Is Asked?

Aaron Hoos

Formerly a stockbroker, insurance broker, and award-winning sales manager, Aaron writes for the financial and real estate industry as an educator and marketer. His first book, The Sales Funnel Bible, helps advisors master their sales funnel.

Rosemary Smyth

Rosemary is an author, columnist and an international business coach for financial advisors. She spent her career working at leading investment firms before pursuing her passion for coaching. She lives in Victoria, BC. Visit her website at www.rosemarysmyth.com.

As your plane taxis down the runway, the person beside you strikes up a conversation. The what-do-you-do-for-a-living question will usually come up. When it does, you know that they will inevitably follow up with another question – perhaps something like: "My brother-in-law is really into gold stocks. Do you have any hot tips?"

Many professions have these dreaded questions. Even in social settings, doctors are frequently asked for an impromptu diagnosis of a rash, mechanics are frequently asked to identify engine trouble, and you as a financial advisor are probably asked for some kind of portfolio-related guidance.

These questions happen everywhere – in airplanes, at family get-togethers, at neighborhood barbecues, or while you're watching your kid's ballgame. People hear that you're an expert and they have questions and expect answers from you.

Rather than stumbling around an answer, savvy financial advisors prepare answers to the most common questions and have them ready to deliver when the questions inevitably come.

The 5 Types of Questions

Below, you'll find the 5 types of questions you'll be asked. Although some of these may seem similar when you first read them, it's helpful to have responses for each type so that a question doesn't catch you off-guard.

1. Analysis/due diligence questions include questions like, "what do you think about XYZ Company?" or "what do you think about stocks in the ABC industry?" These are questions invite you to add to their knowledge about a particular company or industry.

2. Forecasting questions include questions like, "where are interest rates headed?" or "what will the market do this week?" These are questions about what you think could happen in the future.

3. Advice questions include questions like, "should I buy XYZ Company?" or "is the ABC industry going to turn around soon?" These questions ask you to provide portfolio-specific advice.

4. Story questions include questions like, "what's the most money you ever made on a trade?" or "did you have any money in XYZ Company before it tanked?" These questions are looking for stories of big wins or losses in the marketplace and often precede a story that they'll share with you.

5. Testing questions include questions like, "do you sell a lot of this new product?" or "have you ever heard of ABC Company?" These questions may seem innocent enough but they are actually testing you to see what you are like as an advisor and how you stack up to their perceptions of what an advisor should know.

These questions are a mixed blessing. On the one hand, they show that the person may be a potential prospect (or may know someone who is) and their questions demonstrate their interest in learning more about us. On the other hand, they are all-too-common questions that could be asked with the hope of getting free financial advice.You know you'll face these questions. So prepare now to respond to them advantageously.

How to Prepare Your Response

First, you'll want to make sure that you can readily identify the likelihood of that person's client potential. (This is done by knowing in advance who your perfect prospect is and what expertise you provide to your target market). This is key to ensuring that the rest of the conversation will provide value to both you and the person you are talking to.

Second, you'll want to speak generally to their question (so it doesn't look like you are avoiding their question) in a way that demonstrates your knowledge of the topic. For example: "XYZ Company has been volatile in recent months and there isn't a lot of consensus among analysts."

Third, provide a friendly disclaimer that explains how you can't provide a specific answer without analyzing their portfolio or determining if it's right for them. Do so in a professional way that shows how you care about providing the best advice possible. For example, "Whether or not I would recommend XYZ Company to you? Well, that's a harder question and it really depends on the asset mix in your portfolio and your risk tolerance."

Fourth, pivot to an action step for them. If they have the potential to become a client, invite them to your office for a further conversation with something like, "Why don’t I give you a call this week and set up an appointment…". Or, if you know that they won't become a client (i.e. because they live too far away or are not in your target market) then say something like, "your own advisor could give you far better advice than I could because he or she knows your portfolio and your financial goals."

Additional Tips to Formulate Your Responses

As you think about your responses to the 5 types of questions all financial advisors are asked, use the following list to help you craft your answers:

• Know who you want to serve and how you help them. It's fine to say that you don't know the answer to a question you're asked, especially if it's not something your clients need you to pay attention to.

• Avoid the temptation to expound knowledgeably on the topic, which will only lock you into the conversation and make it harder to pivot to an action step.

• Craft answers that are neutral (so they don't give advice) while at the same time positioning the industry and the other person's advisor in a positive light. Don't disparage other advisors if they do things differently than you.

• Always move the conversation toward an action step – one that draws the potential prospect closer to you (if appropriate) or one that steers them to a professional who can help them.

• Be authentic. You'll build rapport with the other person and you'll enjoy your conversation more, and you'll position yourself in the right way in case they know someone they can refer to you.

Action step: Write each of the five types of questions and then craft a professional, authentic response with two potential action steps, depending on how likely they are to become clients.


The views expressed here are those of the author and not necessarily those of The Wealth Channel or The American College

It Can’t Happen to Me

Arthur D. Kraus, CLU®, ChFC®, CAP®

Arthur D. Kraus, CLU®, ChFC®, CAP® is a nationally recognized advisor who was a pioneer in full financial planning and a former CEO of the National Association of Insurance and Financial Advisors.

Many of us travel through life with the emotional comfort of the expectation that our lives will be rosy — a happy childhood, a good education, a happy marriage, good health, wonderful children and grandchildren, and more. I should know. I used to be one of those people.

Most of us wish for financial success, as well, and I have been blessed beyond my fondest dreams. The financial services business has been good to me and in analyzing what I have learned and what I can pass on to others, I realize how much I have been influenced, both in obvious and not-so-obvious ways.

Obviously, to succeed in business you need a few tools. You need to know what you are talking about. Getting by with some knowledge is just not a good long-term strategy. Knowledge takes work and most of mine came from listening to my peers at industry meetings and by taking the time to take stretching courses. In my case they were almost exclusively through The American College. I am a CLU®, ChFC®, and a CAP®. My son and business partner, Mitchell, is a CFP®, CLU®, ChFC®, LUTCF, and is studying to be a CAP®. We really believe in professionalism.

Another obvious need is to learn how to sell, which did not come naturally to me. I was nervous and found myself as a new agent rushing to get to the close. I just wanted the process to end! Of course, it did, and not usually well. Studying my peers and understanding that the sales process is merely helping the prospect get what they want rather than selling what I want boosted my career. It isn’t about us – it’s about them. Once I understood that, my education really kicked in.

The last obvious task is perspiration. It is the rare person who does well without working hard. And a long workday is just the beginning. It is how productive you are that is critical. Many years ago, financial services titan Al Granum taught me how to be productive by sharing the “One Card System”. He shared a tool that in its most simple form told me whether I was doing productive work or just going through the motions.

So the obvious has been stated, and you can probably add more ingredients than I have to the mix. But the real challenge is not the obvious; it is your passion and desire to give ultimate service to all the people you meet. That might already be a part of you. But I admit that it wasn’t for me. I think I rarely went above and beyond what was expected.
I knew I could discuss with my prospects their needs and find solutions using my insurance and investment products. But where was the passion? Where was that belief that comes from your innermost core that helps the prospect understand that “it can happen to me”? Yes, I could hold my own intellectually, but the passion to go beyond that wasn’t part of my makeup. I could give analytical advice, but not emotional advice.


Until it happened to me.

It was early in the morning about 15 years ago. My habit was to arise at 5:30, exercise, dress, then be at the office by 7:30. That morning was no different than any other until I went to the bathroom and noticed my urine was red. My mind raced and I made an excuse to my wife that I couldn’t walk with her. Not wanting to upset her, I went into another room and called my doctor for an appointment. He told me to come in immediately.

My doctor gave me an examination and said that I needed to see a urologist. He had called ahead to get me an appointment right away.

Driving to the urologist’s office, I worried. Did I need surgery, of which I was deathly afraid, or would a pill solve the problem? I won’t go into detail about the urological exam because when the doctor told me what he was going to do, I thought I would faint. Scared describes my emotional state.

When the exam was over (and it wasn’t as bad as I’d expected), he told me I had bladder cancer and that surgery was required. 

The good news is that while it took a few surgeries, they were not awful, and I was cured. Many years have passed without any recurrence. It was a blessing to get through that, but a blessing without a lesson is an experience unlearned.

The evening before a passed blood in my urine, I was a preferred life insurance risk. The following morning I was uninsurable. It wasn’t somebody else; it was me. The realization of my mortality was immense. My wife needed me and I needed her. My children needed me. I had objectives in life that were not accomplished.

Life changed for me in literally minutes. Life changes for others the same way. Can that happen to you, others you care about, others you have yet to meet? Of course it can. The lesson is that those things that need to be done, need to be done now.

The visceral understanding made me realize that what I had to give to prospects was not just my knowledge and training. More importantly, they needed time from me. Time to establish a relationship. Time for me to explain as often as I could in as many ways as I could the financial decisions they were making or not making. Time to explain consequences with emotion. Time for them to get to know I would do whatever I could for them—regardless of compensation or expertise. It changed my life from a life of work to a life of service.

My son, Mitchell, and his wife, Cynthia, have the most precocious 3-year-old in the history of mankind. If you don’t believe it, just ask this proud grandfather. We were overjoyed when they announced to us that little Zachary was going to have a brother. All of us were excited and even “Zach Attack” was naming the baby during the pregnancy. How he determined that the baby’s name should be Bob was a mystery to all of us.

Cynthia experienced a normal pregnancy and we received a call that she was in labor. Mitchell was with her and we took Zachary out to dinner with his parents’ instructions to bring him by the hospital between 6:00 and 6:30. We did as requested and we were ushered into a waiting room. We didn’t see Mitchell, but he kept texting us that things were moving along and that she would deliver soon.

Then Mitch texted us that something was wrong with the baby. He wasn’t sure what, but the baby was being rushed to another hospital where they had special facilities to take care of the health issues he was facing. “Please take Zachary to your home to go to sleep. We will call later!” he wrote.

A few days later, baby Nicholas died. His life was brief but meaningful to his grieving family. Great anticipated joy became anguish. It can happen to you and it did to us.

Can an infant have a legacy? Though he only lived a few short days, how can anyone say that his life didn’t count? Mitchell and Cynthia, as well as others in the family, suffered greatly with the question, and for me, I found I could not live in peace without something good coming from the tragedy.

Maybe it was the convergence of circumstances, but we found an answer. Mitchell is enrolled in the Chartered Advisor in Philanthropy® (CAP®) program and within its textbook pages was a wealth of information about finding your passion. What Mitchell and Cynthia understood was that there needed to be a memorial to their child. All lives need meaning, even those that are brief, and Nicholas’ short life could help others.

So when the time came to make public the tragedy that had befallen us, Mitchell and Cynthia were able to let friends and family know that they wanted any donations that people might want to make to go to a local charity that would help families suffering from similar circumstances move through their grief with professional help. There is great meaning, and healing, in that.

So, to be successful you need to know and practice your craft diligently. But that is not the only requirement. We must learn from our own experiences and from the experiences of others. We must use those life lessons to better serve our clients.

Philanthropist businessman W. Clement Stone, said, “When you discover your mission, you will feel its demand. It will fill you with enthusiasm and a burning desire to get to work on it.”

You are blessed. You have chosen a profession where you can make a difference to others. Do it.

Originally published in the Spring 2013 issue of The Wealth Channel Magazine, How Fast Can YOU Adapt?

Lizzie the Learner

Heather L. Davis, J.D., CLU®, ChFC®,

Heather L. Davis, J.D., CLU®, ChFC®, is The American College Alumni Association Board of Advisors Communications Committee Chair and the Corporate Vice President of High Net Worth Marketing Management with the New York Life Insurance Company.

Nobel Prize-winning author William Butler Yeats once said, “Education is not the filling of a pail, but the lighting of a fire.” And often, in the insurance and financial services industry, when you meet an up-and-comer or rising star, you notice a difference in the dedication to his or her career. You see that spark. 

Meet Elizabeth Dipp Metzger. Lizzie, as she prefers to be called, is an agent in the New York Life El Paso General Office. In 2010 she was named the company’s New Org Agent of the Year, and in 2011 she became the first female to win Agent of the Year for her General Office. Lizzie is a member of a select group of top-producing agents in the Latino community.

Becoming a licensed agent only three years ago, Lizzie is obviously on the fast track to success, which includes pursuing her Master’s degree and other professional designations from The American College. 

Lizzie became interested in a career in financial services when she began assisting her husband, who was an agent (and is now in management), around the office in an administrative capacity. “We had a new baby at the time, and I became well known in the office for balancing a baby on one arm and client files on the other,” she said. Eventually, the office’s Managing Partner, Steve Nagy, approached her about the idea of becoming a licensed agent, and that opened the door to a new career. 

Initially, Lizzie decided that her market would be focused on women and young people, but through her father who is a real estate developer, she had access to higher net worth individuals, and she tended to gravitate to independent professionals, business owners and the affluent, rather than the middle market. She began researching New York Life’s resources to bring expertise beyond her own to her high net worth prospects and clients, and learned that she has access to consultants within the company who have expertise in business and estate planning. 

Lizzie was able to schedule appointments with four of her prospects to meet with the company’s Advanced Planning Group, a team of professionals with years of practical experience as lawyers, accountants and financial services professionals. The consultants introduced planning opportunities and solutions to the clients that Lizzie said she would not otherwise have been able to address on her own. In one situation, the planning techniques that were presented helped to reduce the clients’ estate tax burden down to about $10 million on a $100 million estate. 

“I’ve told my clients this a million times: If I don’t know something, I’m not going to pretend I do. I’m going to go and get someone who can help me, because I can. I have access to some of the best, most experienced consultants in the industry, and I have the backing of a Fortune 100 company,” she said.

Of the three characteristics that Lizzie feels her clients value most, the first is that you have the proper knowledge base to help them. She suggests that you do some homework on the client, learn about their industry and their particular issues, before your first meeting. 

Second, she thinks clients value having a planning team, and she suggests that you make sure to utilize other qualified professionals to help clients in areas where you cannot.  

Third, she feels that high net worth clients, in particular, don’t want to be sold. The relationship is absolutely the key. “Make sure the clients understand that you have more than one product available that can help them and that you’re there to present a comprehensive solution, not to make a sale,” Lizzie said.

While her access to the company consultants opened the door for Lizzie early on in her career, she says becoming more educated on issues wealthy families face is absolutely imperative for her continued success in this market. 

“Clients want to know my professional background, especially when I’m dealing with millions of their dollars,” she said. “They want to know that I know what I’m talking about, and they won’t just take my word for it. You have to prove that you have the experience and credentials first, and then they’ll take you seriously.”

Lizzie feels it’s not just her clients who want to know about her credentials; it’s just as important to the other professionals on the planning team, like the lawyers and accountants. “The accountants know the difference between a CPA and a bookkeeper,” she said, “and the attorneys I work with who are board certified make a big deal out of their credentials. So to me, if I study and earn a Master’s degree and industry designations after my name from The American College, those credentials demonstrate to the entire planning team that I’m committed, that I’m doing what they did by taking the next step in my education. 

“The more you know, the more you can help your clients. It’s a real differentiator in our community.”

Forming lasting relationships with her clients is the most important aspect of Lizzie’s work. Learning about the issues the client’s family or business is facing, focusing on long-term planning objectives, and growing with the clients as their estates mature and transition is what makes her feel successful. “I want to work with people who are interested in aligning their long-term strategy and who will work with me to help them create a better future,” she said. 

Lizzie has some advice for new agents who are just starting out in the insurance and financial planning business:
• Get going as hard and as fast as you can. Those agents who succeed in this business have an unparalleled work ethic right from the start.
• Obtain as many licenses as possible, as quickly as possible. Having an insurance license without being a registered representative is like having one hand tied behind your back.
• Enlist others to help you. Everyone you know understands that you’re new at this. Let them know about what you’re doing and ask for help with referrals or in brainstorming ideas. Even if they don’t do business with you right away, they may later. 

Originally published in the Spring 2013 issue of The Wealth Channel Magazine, How Fast Can YOU Adapt?

Commissions in the Crosshairs?

Keith Hickerson, MSM

Senior Strategy Consultant at The American College, Hickerson, MSM, previously served as Vice President of Marketing at The College and, before that, at Unum Corporation.

Be thankful you’re not providing financial advice in the United Kingdom. Now that we’re into 2013, the Financial Services Authority’s (FSA) ban on commissions as payment for providing financial advice is in full effect. According to an estimate by a major consulting firm, 5.5 million people will stop using financial advice as a result.

Surveys repeatedly show that consumers are unwilling to pay large up-front fees for financial advice, especially families with smaller amounts of savings or investments. They’d rather use their money to purchase investments or products. Purists argue that consumers are paying for their advice through commissions anyway, but it’s a very different client experience. According to recent surveys, two-thirds of investing consumers in the UK say financial advice is worth no fee at all. The remaining consumers dramatically underestimate the fair value of financial counsel.

High-net-worth individuals, many of whom are under fee-based arrangements already, will not be dramatically affected. The middle-income investors who arguably need the most assistance, however, will be disproportionately harmed. Many will decide to take a do-it-yourself approach using random Internet advice and suggestions from friends and colleagues. It’s a perverse outcome from a well-intentioned, over-reaching regulatory structure and a recipe for disaster when it comes to retirement planning and financial security. The number of financial advisors serving middle-income customers has already seriously declined in the UK, and the ban just went into full effect.

Because new exams and financial advisor qualifications are also part of the new approach (further advisor education is the one part of the mix the FSA may have gotten right), the advisors who do continue to practice may ultimately be more qualified. The final result could be somewhat better financial advice for a small percentage of the population (those with the highest incomes) and none at all for the rest of the market.

The commission ban extends to life insurance products with any investment or savings component as well. There is a general sense among regulators there that commissions, in whatever form they take, should be replaced by fee-based compensation.

What do we have to worry about here?
Yes, that’s across the pond, but the anti-commission trend is spreading. It has also hit the Netherlands, Australia and other countries. In the United States we’ve already seen commission pressure in the healthcare arena, and all eyes are now on the Department of Labor (DOL) as they regroup and re-propose their rules on new fiduciary standards under the Employee Retirement Income Security Act (ERISA). The DOL’s move could well impact IRAs, subjecting any advisor who works with IRA clients to a strict fiduciary standard. It’s certainly possible that commissions could be impacted. The details won’t be clear until the DOL’s new proposal is made public, but the final outcome could be a real blow to middle-income investors looking for affordable advice on their IRA investments.


Where the SEC’s fiduciary standard is concerned, Dodd-Frank’s language made it clear that receipt of commissions and/or access to only a limited product set would not, in and of themselves, place an advisor in any violation of a new fiduciary mandate. The wording is ambiguous at best, however, and does permit the SEC to ban any type of compensation they feel is detrimental to investors.

We can feel secure in established distribution models if we like, but we would be wise to be both a little worried and very aware of the trends impacting regulators’ thinking in this area. The assumption is too often made that an advisor working under a fee-based arrangement is somehow more ethical, more consumer-friendly and more objective than one who is paid through commissions. It doesn’t matter much that the perception isn’t true and that payment methods by themselves do not lead to increased conflicts of interest or creation of investor harm. The anti-commission bias has become the latest rallying cry of those who are not particularly knowledgeable about insurance in the first place, and it fails to consider consumer preferences and product access.

So what do consumers think?
For all of the wrangling about how advisors are paid and the standards of care under which they should operate, consumers are not particularly attuned to either. Their concept of providing advice completely and purely in their best interest may also be different from the way we think about it. For a consumer, the pertinent questions may be more outcome based than process based: “Did I gain a better rate of return?” or “Did you lose any of my money?”


As part of the overall debate, it’s important that consumers, legislators and regulators understand how vital insurance products and services are to the economic health and security of our country. How often do you hear politicians talking about how important Social Security is to our citizens? The latest numbers I have show that Social Security pays out $1.9 billion daily in benefits—and insurers pay out $1.5 billion daily. But where’s the high rhetoric singing the praises of insurance and how it protects a full 20 percent of the long-term savings of Americans through a distribution system that’s unparalleled in terms of reach and access to products and services?

Isn’t it time we change the conversation?


Originally published in the Spring 2013 issue of The Wealth Channel Magazine, How Fast Can YOU Adapt?

Develop an Expert Status That Attracts Your Target Market

Aaron Hoos

Formerly a stockbroker, insurance broker, and award-winning sales manager, Aaron writes for the financial and real estate industry as an educator and marketer. His first book, The Sales Funnel Bible, helps advisors master their sales funnel.

Rosemary Smyth

Rosemary is an author, columnist and an international business coach for financial advisors. She spent her career working at leading investment firms before pursuing her passion for coaching. She lives in Victoria, BC. Visit her website at www.rosemarysmyth.com.

When you have a toothache, you don't go to your local mechanic's shop to have a cavity filled and when your car isn't running properly, you don't pay a visit to your dentist. Rather, you go to the professional who has the education, experience, and qualifications to solve it. You go to the EXPERT.

As a financial advisor, you have a level of expertise in the industry. Unfortunately, so does every other financial advisor out there. The perception among prospects is that financial advisors are all clones; they look and act the same, they all know the same information, have basically the same products and they all provide similar care and attention to their clients. So what would motivate a client to go to one advisor versus another?

You can separate yourself from the pack by building a unique and compelling expert status. An expert status provides new advisors with a head-start advantage in the industry and seasoned advisors with a way to strengthen their client base. An expert status benefits you by:

       • Clarifying and focusing your marketing efforts.
       • Helping you to zoom in on a specific target market.
       • Making you more memorable to those you connect with.
       • Assisting your existing clients to refer you to others.
       • Guiding how you develop your career.

Creating your expert status
Start with these steps. You may need to get some help from trusted friends or family members to help you.

1. Make a list of your strengths and values that describe you best. List as many as you can (although be cautious to avoid listing the characteristics that you wish described you but really don't. Start with what you have, not what you aspire to be.)
2. Make a second list of the things that are interesting and memorable about you. This might include your background, your interests your personal style, and even your hobbies.
3. Make a third list of the things that you have in common with your target market. For example, there might be demographic or psychographic similarities, such as language, ethnicity, education, philanthropy, etc.
4. Make a fourth list describing the problems that you solve for your target market. Focus on the problems you like to solve and are particularly good at versus everything you can do. (And remember: Keep it focused on problems you solve rather than products or services you offer. This is a key difference).

Now you have four lists that describe aspects of who you are, who you like to work with, and how you can help them. Using these four lists, choose a couple of items from each list as a starting point to put together a unique expert status that not only describes you in a way that is unique among financial advisors. Here are some examples of excellent expert statuses advisors might create:

• "I'm an expert at helping women as they navigate the financial complexities of divorce."
• "I'm an expert at helping seniors who are downsizing and need estate planning."
• "I'm a Mandarin-speaking advisor who works with new immigrants and their families."
• "I'm a former Olympian who works with athletes to help them with their unique financial planning challenges."

Notice how these one-sentence descriptions immediately portray expert status, demonstrating problems that are solved, target markets that are served, and the advisor's experience and available financial solutions.
Using the four lists you made earlier, create a few of these one-sentence expert status descriptions for yourself and review them against the following questions:

• Do you like how this describes you?
• Are there people with whom this expert status would resonate?
• Can you see a growing demand for this expert status in the future?
• Which expert status feels the most authentic and motivates you to get up each day and give your very best?
• If you have some experience in the industry already, what has worked for you?

Ask family and friends for feedback. Don't expect to nail down an answer immediately, and expect to adjust this expert status over time.

If you're not sure how to construct these one-sentence expert statuses, here is a useful template to use: "My intention is to work with (my perfect prospect) ______ because I am particularly adept at helping them with _________, and they get ________ as a result."

How to use your expert status
Once you have an expert status that you feel is authentic to you and attractive to your target market, revisit your prospecting efforts to ensure that everything you do aligns with this new expert status:

• Does your expert status resonate with your audience as something they find trustworthy and memorable?
• Does your marketing communicate your expert status to your audience?
• Are there networking activities that are more closely aligned with your new expert status than the ones you are currently using?
• How can you communicate your expert status to your existing clients to help them refer others to you more actively?
• What education and personal development can you invest in to help you strengthen this expert status?
• How can you serve in the community to enhance your expert status and to build your reputation as an expert?
• What other experts can you add to your network to act as centers of influence (COIs), who would help to support your expert status and assist you in helping your clients?
Your expert status may seem like it has the potential to limit the number of people who come to you, as well as the services you offer. Counter-intuitively, it can actually make you more attractive to your prospects because an expert status separates you from your peers and elevates you.

Get started!
Take action to start building expert status today by making the four lists and gather those components together into an exciting, authentic, attractive sentence that describes why your prospects should view you as THE expert.

The views expressed here are those of the author and not necessarily those of The Wealth Channel or The American College

Disability Insurance & Barefoot Running

Scott D. Dial

Scott D. Dial is a Disability Income Supervisor with the Guardian Life Insurance Co. of America, Financial Process Group.

I’m a one-dimensional, DI geek. I’m also a barefoot runner, which got me to thinking the two things have a lot in common.

Running is in our nature. Humans actually evolved to run—as marathoners, not sprinters. As evidence, we have an Achilles tendon, a hefty gluteus maximus and a nuchal ligament. Why did we evolve to run? To catch prey. And how did we do that? By running them to exhaustion! As further evidence, we’re the only mammal that sheds most of its heat by sweating—animals pant. Chris McDougal, author of Born to Run, said, “Humans, with our millions of sweat glands are the best air-cool engine that evolution has ever put on the planet.

“All you have to do is scare [the animal] into a gallop, on a hot day. If you stay just close enough for it to see you, it will keep sprinting away. After about ten or fifteen kilometers worth of running, it will go into hyperthermia and collapse. If you can run six miles on a summer day, then you, my friend, are a lethal weapon in the animal kingdom.”

And the best way to run? Barefoot!

Author of Barefoot Running Michael Sandler confirms: “The truth is that running in shoes is high impact, heel-centric, promotes bad form, is relatively unstable and inflexible, [and] tends to weaken rather than strengthen the feet … In contrast, barefoot running is low-impact, toe-centric, promotes good form, enhances stability and adaptability [and] strengthens your feet in miraculous ways.”

Bottom line: Less is more. Least is best.

Selling income protection is also in our nature, our professional nature. It’s what most of us were originally trained to do in this profession—it’s called life insurance! Just like life insurance, disability insurance (DI) provides future income when the client can’t. Life insurance is, in essence, a single use, catastrophic DI policy. To me, life and DI are always a dual sale. Why would you only want to insure the future income against a single event when you can insure it against thousands of events with DI? And you do you do this by selling a single concept: income protection, dead or alive.


Here’s the real key: 90 percent of the time, any policy that is purchased is that in which the agent believes. If you don’t believe in it and aren’t willing to go the distance with your product, it’s unlikely you will sell it.

So, how do you run down a DI sale? You do it simply (less is more). You diagnose and prescribe, just like your doctor or your auto mechanic. If the problem is income protection, then DI is part of the solution, and you recommend what, in your professional opinion, is the best DI policy. Remember, it’s barefoot running, not running in Moon Boots® over tube socks and a toe ring. GOOGLE teaches in its vendor seminars that the chance of selling anyone anything is about 50 percent. Add a second choice and the chance drops to 15 percent. Jim McCarty (author of The Sale They Never Told you About) put it another way: “The chance of selling a DI policy is inversely proportional to the thickness of the illustration(s)!” Again, less is more.

How do you determine which is the best DI policy? It’s the one that “pays the most benefits in the most claims situations.” You determine that by simply reading the definitions in the policy. For DI, the shorter the definition (the fewer words), the more protection for the client. For example, one Own-Occupation definition simply reads, “… unable to perform the important duties of your occupation.” Least is best.

One other commonality of barefoot running and selling DI, some might say: it’s hard. But some things are good when they’re hard, and there is a definite upside. For runners (even for non-runners), some physicians believe that every common foot ailment could be wiped out by going bare. And for selling DI, you’re protecting your clients’ most important asset—their incomes—in an insurance market with the least competition, the best persistency and an excellent renewal income stream.

Your formula for success? Lose the shoes. Sell DI.

Originally published in the Spring 2013 issue of The Wealth Channel Magazine, How Fast Can YOU Adapt?

Positive Change through Community Foundations

Bobbie Chapman, CAP®

Bobbie Chapman is currently the Director of Business Development at the San Francisco Community Foundation, responsible for developing relationships with prospective donors and their wealth advisors. She holds her CAP® designation from The American College.

Financial advisors frequently overlook or underestimate what community foundations offer. Many community foundations not only offer great opportunities for an advisor’s clients, but they also offer the advisors themselves a depth of knowledge, expertise and a change in perspective that is not readily available elsewhere.

Change is constant
As we grow older, the pace of change seems to get faster and faster. I’ve found that it’s how one embraces that change and shares it with others that allows one to keep pace and continue growing.


Change happens
My career was in the travel business for more than 20 years. Five years ago I decided to be my own change agent and went to work for a national donor-advised fund provider. They hired me because of my relationship skills, not my financial knowledge. I had to learn that new area from the ground up and I did so through the Chartered Advisor in Philanthropy (CAP®) program at The American College. That certification provided exactly the foundation I needed to succeed. The next challenge was learning to speak to different kinds of professional wealth advisors about the value of charitable giving and the different vehicles that can be utilized in planning.


Change is difficult
Making appointments with wealth advisors to talk about charitable giving was very different and a little scary. Some were very excited and others just didn’t see how community foundations could help their clients or their practice. What I learned was that if I told the story of how a donor became engaged with their giving—what it looked and felt like for them—advisors could start to see how their clients could benefit from a relationship with a community foundation.
Advisors often ask how to introduce charitable giving to their clients. Here are a few simple opening questions:

• What was the best gift you’ve ever heard of someone giving?
• How would you like to be remembered?
• Is there a nonprofit organization that helped you along the way to your success?
• What’s important to you and how do you see helping make that change?
• What would you like to see changed in the world—what can you do now, or later, to help make that change?
• What has been the most satisfying gift you have made and why? 


Change is universal
As professional advisors, your clients will inevitably experience changes in their own lives. They will experience personal changes, like the marriage of their children, a new grandchild or the death of a loved one. Clients will also experience professional changes, such as the sale of their company. Helping clients prepare for those changes is a key responsibility of professional advisors, and charitable giving may help address and even enrich some of these life changes:

• Help clients maximize the sale of their business.
• Help clients prioritize what is truly important in their lives.
• Build a charitable legacy for their families that can last for generations.
• Teach children the value of giving back to their community.


Change made easier
I strongly urge professional advisors to partner with their local community foundation. They provide a simple, powerful and highly personal approach to giving, and offer a variety of tools to help people achieve their charitable goals. Many have expertise in planned giving and the different vehicles that can be utilized to facilitate and promote a client’s philanthropy, and they are a great philanthropic resource because they understand the pulse of the community and charitable organizations. Community foundations have  nearly a century of experience working with families and professional advisors. Here are ways they can help:

They work through and with you. You stay in control of your client relationships; they are there to help you serve your clients’ charitable giving needs. Community foundations have deep knowledge of the nonprofits in the area and will help your client find those effectively working on the issues they care about most.
They partner with you by providing support, information and expertise related to charitable giving options. Many have professional advisor councils that you can become involved with—they want to work with you.
They help you build stronger relationships. Studies show that many high-net-worth individuals want to talk with their advisors about giving as they make financial plans. Clients will appreciate the charitable impact and tax advantages you help them achieve by working with a community foundation.
They connect across generations. When you help families establish donor-advised funds at their local community foundation, you and your client begin an ongoing process of involvement with current and future generations.

Change for the good
As a professional advisor, you are there to serve as the expert to help clients build their assets, to protect and guide them through their business and family financial needs. When life’s ever-changing moments come up with your clients, talk to them about charitable giving. If you want assistance, call your local community foundation. They will be happy to guide you through the discussion and help offer charitable options that work within your clients’ financial plans.


There is true joy to be experienced for both you and your client when you assist them in giving during their lifetime. That is creating change for good.

Originally published in the Spring 2013 issue of The Wealth Channel Magazine, How Fast Can YOU Adapt?

Getting at the Emotion Behind the Money

Julie Murphy Casserly, CFP®, CLU®, ChFC®

Julie Murphy Casserly, CFP®, CLU®, ChFC®, is a 17-year veteran of the financial services industry and founder of JMC Wealth Management in Chicago. Check out her award-winning book, The Emotion Behind Money. Connect with her at Julie.casserly@wcinput.

As a nation, we have a huge macroeconomic problem because of the microeconomic problems happening. Major businesses—ones that most thought were unbreakable—have fallen quite far, and entire industries have failed.

It was no surprise to me during the last market downturn that individuals who worked for big companies like General Motors were in a similar personal financial situation as the major corporations they worked for. On the surface they were staying afloat, but underneath the manicured lawns in large suburban neighborhoods lay a financial wreck. They, like their major companies, were just a few bad decisions away from total collapse.

Our responsibility
When the market failed, the blame game started. Individuals who were laid off from their jobs blamed their employers. The government blamed the big banks. The American people blamed the government. And our clients sometimes blamed us, because aren’t we the ones who suggested specific investments and laid out solid financial plans for their future? This is all true, but it’s also not blame we should take to heart.


Our egos give us our drive to be planners, and that’s why less than 5 percent recruited into our industry survive past five years. But our egos often keep us from changing, so we need to check them at the door. We need to stop apologizing for the work we do. It’s time for the advisor and the consumer to both have skin in the game; let’s focus on collaboration as opposed to dictation.

As advisors, we are there to do just that: advise. Our job isn’t to make a decision for our clients despite the fact that many would love for us to do so. Remember, this is their money. Their financial past, present and future should be in their hands, and you should just be a guide. While it can be difficult to relinquish that control, we have to get clients to internally own their decisions, not just take our advice and blame us later.

One of the first steps you can take is to make sure your business model supports client advocacy relationships. If you are still operating on commission only, then perhaps you are setting yourself up for failure. Money is energy. How are you energizing that client relationship? If you always have to sell, sell, sell, are you really in tune with where your clients are emotionally? 

Consider getting paid to listen. Charge hourly for the advice you offer or charge planning fees outside of asset management fees. They are two completely different services we provide. When doing asset management, you can get that recurring revenue coming in the door for maintaining the relationship and your revenue goals for your life’s desire at the same time. It can be done; you just have to make a conscious shift. The day I realized my recurring revenue was $500,000 annually, my life got a lot easier. And my client relationships got more rewarding.

Be courageous
We have to ask more questions on topics not typically associated with finances. We need to create strategic alliance relationships that are more than the normal estate planning attorneys or accountants. One of my best referral sources is a psychologist who understands why people create scarcity in their relationships, and it all has to do with how they process their money decisions.


You could even go more esoteric and find those working in the energy psychology sector. Clients either work things out or they act them out. Most people act them out through their health or money choices. Energy psychologists are phenomenal at getting clients to clear their path for a more abundant life, which, in turn, gets us more assets under management. More so than ever before, we must connect emotionally with those we advise. Some of us have started doing that through discussing life planning, coaching and reading behavior finance experts. But it’s time now to step out further; we must do more than focus on the outside, looking at more than rate of return. Looking, dressing and speaking like our clients may get them in the door, but it won’t keep them coming back.

It’s about tapping into your clients’ heart space. Impact your clients’ lives emotionally and they will become an advocate for your business. According to the Heart Math Institute, the magnetic force of our minds only goes for a couple of feet, yet the magnetic force of our hearts goes for miles. This is the difference between a market dip causing a client to negatively place blame and an advisor-client relationship emotionally rooted and based in trust. Which one of those situations do you think will lead to lower compliance complaints, higher client retention, higher revenues and more referrals? The key is having the courage to start building your business outside of just the numbers. You have to bring humanity back into finance.

The true cost
Recently, I did a WGN Radio interview where I spoke extensively about the emotional side of our relationship with money. A caller, whom I’ll call John, disagreed with my approach. He said that money was cheap; we should borrow cheap money and make a big return on it. People who get themselves into debt for the wrong reasons through uncontrollable spending, lack of consciousness around cash flows, or as victims of the current economic downward cycle need to shift. It is our job to get them to take a close look at what they’re doing and shift to a space of complete awareness.


I’ve worked with several clients like John. What I’ve found in my own business is that they operate mostly from their left, logical brain. They have a more technical, straightforward type of job like engineering or accounting. On average, about two-thirds of society is operating in dysfunction, and I believe this is because we focus too much on the left-brain aspect of our finances.

So what’s the true cost of viewing our finances from a technical standpoint as opposed to an emotional one? Continued dysfunction: in our finances, our business life and our personal lives. Our clients have gotten addicted to their lifestyles, and it has cost them their security. Their finances are out of whack, and that disconnect has seeped into the other areas of their lives. This is why on a macro scale we have governmental and corporate financial dysfunction. If clients don’t master how to operate personally with their finances, they cannot run companies or governments effectively. As advisors, we must lead the charge to change this.

Education over dictation
To repair our clients’ experience, we have to help them with more than the dollars and cents. They must unplug from jobs they hate and plug into jobs that feed their soul. They will find more success as a result because they are bringing positive energy to their work life instead of drudgery in a job that sucks the life out of them. Instead of surrounding themselves with people they hope will help them, we must encourage them to build a team that will support them in their endeavors, a personal board of directors, if you will. Otherwise, they will surround themselves with people who reinforce the behaviors they need to change. I call these their “crabs in a bucket.” Help them get those crabs out of their lives so they can start to pursue the life of their dreams. You are likely not qualified to do this on your own, but you can pull in those alliances that can help them.


The thought of relinquishing control to other experts is frightening. We are taught to be as all-knowing as possible when it comes to money. We keep up on investment news, stay connected with other financial experts and thought leaders, and do our best to stay informed on the different financial challenges and changes within our industry. So why, then, would I suggest that you allow other experts to guide your clients instead of you?

I believe that we all need to align ourselves with people who can help us create a full, authentic life. Money is a large part of that, but so are other factors like physical and mental health, professional guidance and even where we lay our heads. Your clients will be happier, more fulfilled and thankful once they are connected with people who can help them create their ideal lives.

More than just money
These strategic alliances are more than just advice givers; they are true guiders. They dig deep into what your client is really craving—a better job, more time for loved ones, a creative outlet—and they work with you to get your clients just that. The only way that you know exactly what your clients need, however, is to ask them.


How do they feel about their aging parents and the responsibility it brings them? Is their marriage putting such a strain on their lives that it’s affecting their other relationships? When do they want to retire, and how can they make that happen with loads of debt and an insatiable appetite for spending?

These types of questions have very little to do with money and more to do with the emotions behind it. Talk about the uncomfortable stuff with your clients even if you have different views from them. Of course we must hit the numbers with our clients, but in this tenuous financial state that is becoming a commodity. If you’re only talking about the numbers, you’re going to be left in the dust.

Originally published in the Spring 2013 issue of The Wealth Channel Magazine, How Fast Can YOU Adapt?

The Financial Needs and Attitudes of Women of Color

Sandra Carr

Sandra Carr is the Assistant Director, State Farm Center for Women & Financial Services. She is also the project manager for the Women’s Leadership Academy Summit. Sandra has an extensive background in communications and non-profit management. She has worked for a radio station, a PBS television station and a newspaper. Most recently, Sandra was the Director of Development for the Sunshine Foundation. As the former Executive Director for the Center for Responsible Funding (CRF), she managed Philadelphia employees’ charitable giving campaign which raised over one million dollars in annual contributions. Sandra has a Master of Science Degree in Integrated Marketing Communications from Chicago’s Roosevelt University.

The State Farm® Center for Women and Financial Services at The American College has released a landmark report entitled The Financial Needs and Attitudes of Women of Color. The purpose of the study was to better understand the financial position, goals and concerns of women of varying racial and ethnic backgrounds.

One of the key findings of the study revealed that most women do not feel financially secure. This overview of the report highlights some of the contributing factors creating this sense of fiscal uncertainty among women of color.

Reducing or eliminating debt is a top priority for three-quarters of women of all racial and ethnic backgrounds. However, the pressure to pay off debt amid the challenge of meeting their own and their family’s immediate needs are key circumstances preventing many women of color from saving and building cash reserves. This ongoing strain results in a state of financial insecurity that is consistent across women of all racial and ethnic groups.


Insufficient retirement savings
Although nearly three in four women indicate that saving for retirement is a high financial priority, only 28 percent of women are highly confident in their ability to calculate how much they need to save for retirement. Hispanic (67 percent) and Asian women (68 percent) are less likely than women in the general population (predominantly Caucasian, 73 percent) and African American women (74 percent) to place an emphasis on retirement savings.


Lack of cash reserves/emergency funds
Virtually all women surveyed (95 percent) report the need to build cash reserves and an emergency fund. Yet most have not calculated what they need or set up a plan. The lack of cash reserves exists across all income levels, hitting middle-income households the hardest. The survey indicated that the presence of cash reserves generally correlates with income. Women who reported annual household earnings of more than $80,000 are more likely to have these funds. Specifically among women of color, seven in ten Asian women (71 percent) report having this type of savings, which is significantly higher than the 56 percent of Hispanic women and 51 percent of African American women who report having an emergency fund.


Attitudes toward financial advisors
Women of color, regardless of economic background, are more likely to think they can’t afford a financial advisor than women in the general population. However, the majority of all women believe that working with one could help them achieve their financial goals. Among women with household incomes of $75,000 or greater, women of color are significantly less likely than others to report having a financial advisor. Specifically, fewer than one in three Hispanic, Asian and African American women are working with a professional advisor versus 43 percent of their counterparts in the general population.
When it comes to what women look for in a financial counselor, the advisor does not need to be a woman; only 15 percent call this even somewhat important. The study revealed that an advisor who understands their unique financial needs is far more important to women of color than sharing the same demographic traits, such as age (7 percent), race (6 percent) or gender (4 percent).


Additional insights
In conclusion, this study provides relevant financial insights into a segment of the American population that is growing in affluence and influence. Despite the challenges and the general lack of financial security, women of color report greater optimism about their financial futures. In fact, across all income levels, African American women expressed the most hope for an improved position in the coming years (74 percent compared to 56 percent of the general population). Additionally, the majority of women believe they are making progress on their goals, particularly those ages 55 and older.


As advisors increase their understanding of the core values, challenges and needs of women of color, they will be better prepared to assist these women in developing a financial future that is healthy and secure.

For the full report, visit the Women’s Center website at TheAmericanCollege.edu/Womenscenter. A video about these findings and their implications can also be found on The American College’s Wealth Channel.


Originally published in the Spring 2013 issue of The Wealth Channel Magazine, How Fast Can YOU Adapt?

Practical Perspectives that Make a Difference

Maggie Baker, PhD

Maggie Baker, PhD, is a clinical psychologist and financial therapist in the Philadelphia area and author of Crazy About Money: How Emotions Confuse Our Money Choices and What To Do About It.

As a psychologist and financial therapist, I work with the constant ebb and flow of people’s lives. As financial planners and advisors, so do you. Plus, you have to react to risk and volatility in your clients’ lives as well as in the financial markets. I’m sure that many financial advisors would love to have less change. The stability of low risk and low volatility would make decision making simpler. But change is inevitable—and not necessarily in anyone’s total control. I offer some ideas that can help you, as a financial planner or advisor, to better anticipate your clients’ reactions to major life changes.

The areas that most likely affect your clients’ money situations are health problems, divorce, death and retirement. What causes stress for people is any change that disrupts the structure and rhythm of their daily lives, even good change. Take, for example, Joe. At age 53, he was fit and engaged in an absorbing professional and family life. Biking one day, Joe fell off his bike and sustained a severe concussion and hurt his back.

Stunned, he was reduced to no activity and severe pain that lasted for several months. He and his family were overwhelmed. His financial advisor was thrown into a state of uncertainty because no one knew how long Joe would be incapacitated. Unlike most families these days, his wife was a stay-at-home mom and didn’t take care of the finances. Joe consulted his financial advisor, who, after listening to his story, encouraged him to engage with his wife to estimate his current and future medical costs, and to estimate how long he would be out of work.

Another common major financial change happens when clients divorce. Depending on the contentiousness of the divorce, the age and number of children and the couple’s assets, a divorce can be a nightmare for even the most skilled advisor. If the divorce is complicated, the process can get drawn out. And couples may perceive their advisor is taking sides even when she/he has proclaimed neutrality.

Take the example of Kevin and Dawn. Kevin earned a good living teaching at a prestigious university. He and Dawn lived with their two children in an affluent area near the university. Dawn insisted they have the best of everything. Kevin worried about their growing debt, but he was scared to disappoint his wife and children. He avoided dealing with his finances and began to fudge the truth to his financial advisor. When Dawn realized how stuck and irresponsible Kevin had become, she filed for divorce.

Although death might seem to be the most difficult of changes for an advisor to handle, retirement often presents even greater challenges because of the number of factors, some known and some unknown, that can affect retirement. An example: Sue and Don both had good-paying careers. They had been vigilant about their spending habits and systematic about saving for retirement. They were a financial advisor’s dream! As Sue and Don neared age 60, their college-age son contracted dystonia, a serious neurological disorder. At the same time, Sue’s parents, now in their 80s, confessed that they had been gambling away much of their retirement savings and would need help. Sue and Don had planned to retire from their demanding careers at 62, given the stress their work created. All the work they had done with their advisor had been geared to a specific retirement age. This dream was now no longer possible, given the added expenses of their son’s illness and Sue’s parents’ needs. All the planning in the world could not have foreseen the events that befell Sue and Don.

When bad things happen to good people it is only human to both sympathize with their misfortune and feel the urge to avoid confrontation of it. The push and pull of these feelings can often delay a call to your client because you may have to deliver bad or at least disappointing news to them. Of course, those very stressful times are exactly when your clients need the most support and empathy, not just sympathy. Being empathetic, clear and direct about the financial consequences of a change in your client’s circumstance may not be what they want to hear in the moment. In the long run, however, telling them the truth will build trust, the sine qua non (the indispensable mark) of a well-functioning client relationship.

As a psychologist and financial therapist, I can offer another important piece of guidance: Get to know a self-administered stress test called the Holmes and Rahe Life Change Scale Stress Test. This simple-to-administer paper and pencil scale (also available online) lists 41 life events and you asked, “What events have happened to you in the past 12 months?” The assigned values of each life stress event (Life Change Unit or LCU) checked off are added up. The test’s creators, Holmes and Rahe, found that individuals scoring below 150 were much less stressed and had a 35 percent chance of an illness or accident within the following two years; a total of 150-300 predicted a 51 percent chance and over 300 between an 80 and 90 percent chance of an illness or accident within the following two years.

This easy scale can give you an indication of what kind of stress level your clients are living with. If they are in the 300 LCU group, you can expect a high probability that they will suffer illness or accident within the following two years if they do nothing to reduce the stress. On the other hand, if their score is very low, they are living with stress levels they can manage well. A low score reduces some important risk factors that create instability and volatility.

Another benefit of giving your clients the Holmes and Rahe Life Change Scale Stress Test is that it will convey your concern with your client’s lives and show that you are engaged with them and looking out for their best interests.

To illustrate the usefulness of the Holmes and Rahe Stress Scale, consider Hal, aged 48. How did he get a total of 374 points putting him at serious risk of poor health and vulnerable to an accident? Let’s start with his leaving his wife and three children to live with another woman. Efforts at reconciling with his wife boomeranged him back to his lover. His finances were strained because his new business wasn’t growing fast enough. He was chronically concerned about his children’s welfare, but unhappy when he returned home to them. To top Hal’s story off, he had gotten very good at having an upbeat air about him so no one would ever guess how stressed he really was.
Knowing the results of the Holmes and Rahe Stress Scale will help his financial advisor get a snapshot of Hal’s distress level. His advisor can show that he understands how much stress Hal is under and offer suggestions, including the common sense reminder that checking in with his doctor might be warranted. The overall effect of better understanding your client’s life stressors will strengthen your relationship with them and build trust.

Another effective tool you can offer clients under change and stress is perspective. It is easy for clients to get lost in the immediacy of difficulty. As the advisor, you can maintain perspective and more easily see eventual outcomes your clients may know are possible but cannot relate to in their immediate confusion and panic. For example, Susan, the main breadwinner in her household, just got laid off. She and her stay-at-home husband (looking after two small children) panicked. When would she find another job? Fortunately, she got a good severance package and they had a three-month emergency fund. In helping them see that their situation was short term and holding their hand through this rough patch, their trust in their advisor will increase.

There may be times when you feel overwhelmed by the responsibility you carry for your client’s welfare. When this occurs, you may find yourself going to the extreme of either becoming too involved in your client’s difficulties or too detached. If this happens, it is wise to seek the wisdom of a more seasoned advisor, a mentor or even a therapist (www.financialtherapyassociation.org) if all else fails.

A critical goal for all financial advisors is to understand your client well enough to mutually engage with them and map out an effective strategy to deal with changed circumstances, be it a change in health, marital status, death or retirement.  Accurately communicating the strategy can calm clients down. One thing you really don't want is for an anxious client to act based on fear.

Decisions made in anxiety states are usually foolish. Understanding their changed situation, being straight with them about the reality and giving them thoughtful advice, will in and of itself lower their anxiety. The best financial advisors aren't only technical wizards. They are also people who deal with upsetting circumstances and emotions that are always a part of the chance process. Likewise, advisors can have too much change in their lives which can affect the advice they give to clients.

Originally published in the Spring 2013 issue of The Wealth Channel Magazine, How Fast Can YOU Adapt?

Take Charge of Your Prospecting and Revitalize Your Sales Funnel

Aaron Hoos

Formerly a stockbroker, insurance broker, and award-winning sales manager, Aaron writes for the financial and real estate industry as an educator and marketer. His first book, The Sales Funnel Bible, helps advisors master their sales funnel.

Rosemary Smyth

Rosemary is an author, columnist and an international business coach for financial advisors. She spent her career working at leading investment firms before pursuing her passion for coaching. She lives in Victoria, BC. Visit her website at www.rosemarysmyth.com.

Before embarking on a road trip, you need to know a few important facts – not only your point of origin and your desired destination but also a detailed map of the route you want to take. Your prospects go on a similar journey on their way to finding financial services. Their point of origin is the realization that they need sound financial advice from a professional. Their destination is opening an account at your office and transferring their assets to you.

Just like a road trip is made easier when the route is laid out with precise turn-by-turn directions, your financial practice will benefit from a road map (also called a "sales funnel") that outlines the exact activities you do to help prospects turn into clients. It doesn't matter if this is your first year of business as a financial advisor or if you're on the home stretch and looking to finish well, you'll gain some surprising insight into your business when you go through this sales funnel exercise and the questions that follow.

3 Steps to create your sales funnel

On a blank sheet of paper, create the following 3 lists, which correspond to the 3 stages of your sales funnel:

1. Stage 1: Contact-generating activities: Start at the top of the page and list the activities you do to meet people – your contact-generating (or lead-generating) activities. The goal of this stage is to capture some information about a lead (such as their name and contact information) so you can follow up later. This might include networking and marketing activities in which you gather names and contact information. It might entail any print or broadcast advertising that you or your firm does, public seminars you offer, a landing page on your website that invites people to know more about you, your cold calling, and any networking activities where you are meeting new people and handing out your business card. A lot of online marketing falls into this category as well.

2. Stage 2: Relationship-building activities: Then, in the middle of your page, list the activities you do to build relationships with your leads, to learn more about them and to qualify them as prospects. Here, you are connecting with people whose contact information you collected from your contact-generating activities, or from referrals, and you are now building a relationship and rapport with them. This might include follow-up phone calls and letters, newsletters, invitation-only seminars, and so on. Some marketing, like certain social media marketing, can be used for relationship-building activities. Some professionals use credibility-enhancing activities like educational materials, brochures, a book, or a series of videos to help them build a relationship with their contacts, and other professionals who prefer face-to-face relationship-building activities might meet these prospects for coffee or participate at networking events such as a Chamber of Commerce event.

3. Stage 3: Closing/selling activities: And near the bottom of your page, list the activities you do to actively persuade these prospects to become clients. This might include consultative meetings or some other sales presentation. For example, you might offer to review your prospect's portfolio and give them a second opinion, or you might uncover a specific problem that they need solved and offer to put together a plan to help them, or you might offer to help them with some of their assets so that you prove yourself to handle more of their portfolio.

This exercise should help you understand how your client-generating activities all work together: Once you have a new lead, what do you do to turn them into a prospect? And once they're a prospect, what do you do to get them to open an account with you?

Note: These aren't always clear-cut activities. The speed that someone moves through your sales funnel is partly determined by the urgency that they feel about how you can help them! Some leads turn to prospects quickly and can even become clients at the end of a relationship-building meeting. But not all prospective clients feel that sense of urgency so professionals should think about building a sequence of relationship-building activities.

Analyze your sales funnel

This is the roadmap that all of your prospective clients use on their journey toward becoming your clients as they move from lead to prospect to client. Look at the sales funnel you've just created and answer these questions:

• Reason to advance: Why should your prospective clients even go on the journey to end up at your office? Some professionals try to rush the process, attempting to jump people from the first stage of their sales funnel to the last stage (without any relationship-building in between). So, what would the impact be if you adjusted your message – instead of convincing leads to become clients, how might you invite them to move from the first stage into the second stage, where you build a relationship with them, and then how might you move those people from the second stage to the third stage where they become clients?

• Clarity and purpose: Do you have a clear and purposeful sales funnel? Once a prospect has started the journey, what can they expect next? Are you proactive in immediately moving them to that next stage or are you waiting for them to take action first? When you meet someone for the first time, what is your process for capturing information about them and following-up? How can you make this process faster for them and easier for you?

• Time and energy investment: Are there too many activities (or too many time-consuming activities) in one stage, and are these activities stealing your time and energy away from better activities? Are there too few activities in another stage, and do you need to bolster this part of your sales funnel with additional effort?

• The very best activities: Do your sales funnel activities resonate with your niche market? (For example: Will you really build credibility on social media with your niche market if they aren't active users of social media?) Which activities were the most influential in bringing your favorite clients into your office? And, which activities were most influential in bringing your least favorite clients into your office? How can you increase the activities that tend to generate the best clients?

Tracking: How do you keep track of who is in each of the three stages of your sales funnel? How do you ensure that no prospective client falls through the cracks? (Another advantage of paying attention to the number of people in each stage: You can forecast your new client sign-ups more accurately). What are the ratios as people move from one stage to the next, and how can you improve your skills to improve those ratios?

• Plug the holes: Not everyone will become clients. Some leads will exit before you can build a relationship with them; some prospects that you're building a relationship with will simply say "no" to your offer of becoming their financial advisor. So, do you know which stage is losing the most of your prospective clients and do you know why? Do you have a way to connect with them periodically just in case something changes for them?

• Skill up: If you want to grow the number of clients you have, but you don't know exactly where to focus, look at the answers to some of the questions above and decide which sales funnel activities are the most effective at bringing in the best clients (while also being effective uses of your time). And, look at the places in your sales funnel where you tend to lose people. Then invest some time in developing your skills in those areas.

Schedule time regularly to review your sales funnel and explore other ways to find new leads, build relationships with them, and invite them to become clients. By now, you should have a clear roadmap for your practice – one that will empower you to lead more of your prospective clients on a journey that culminates with them sitting in your office and opening an account with you.


The views expressed here are those of the author and not necessarily those of The Wealth Channel or The American College

Why Designations Matter

Sterling Raskie, MSFS, CFP®, ChFC®, CLU®

Fee-Only Investment Advisor and Financial Planner

Throughout my career I have had the occasion to talk with several financial advisors, planners, insurance agents, brokers, and other industry professionals about some of the reasons why people choose to pursue or not to pursue designations. I have heard differing views on the topic and thought I’d share some of my insights as to why I chose and still choose to pursue designations and degrees.

Before I do, let me start by talking about some of the reasons why the advisors I have spoken to decide not to earn a designation. More often than not, the typical answers that I receive are not having enough time, not sure which designation to pursue, lack of funding to afford the designation, and lack of support on earning the designation – either from their employer or family. On the latter two points, some companies may not be able to “support” the designation - think captive agents that get the CFP® or ChFC® designation. They may be allowed to earn it, but if they are captive agents to a specific company, meaning that they have to be loyal to the company first, they are not allowed to advertise it, put it on business cards or stationery, and most importantly are not allowed to act as a fiduciary – meaning that they have to put the interests of the company they work for first, then the client. This isn’t necessarily a bad thing, just different. Regarding family, many designations take a lot of time, energy and resources away from the family. Although these sacrifices are short-lived, some family members have a hard time with the time and resources being shifted momentarily.

One of the most ridiculous responses I heard came from an advisor I was having a conversation with regarding the coveted CFP® designation. Having found out that I earned it, we were discussing the finer points of what the designation means, what you have to know for the exam and so on. At the end of the conversation the advisor gave me a slap on the back and said, “I already make enough money and don’t need the designation. But have fun paying all those fees!” (Side note: as of this writing the advisor I was speaking to is no longer in the industry).

In my humble opinion there are reasons why you should and why you should not pursue a designation. As you can assimilate from the information above, it becomes clear of why we should not pursue a designation. It’s not for the “money” and it’s certainly not for the prestige (although you feel pretty good when you earn one). You shouldn’t pursue one if you feel forced to do so (would you want to work with an advisor if you knew he or she really didn’t want the letters after their name?).

Most advisors and planners pursue and earn designations because they want to. They want to better themselves, their clients and their industry. Now, I’d be lying if I said that having designations doesn’t increase your income. It certainly can. That being said, the increase in income is (and should always be) a by-product of learning, putting your clients first, and maintaining the integrity of the industry and the designation earned.

The real beauty of earning a designation is it teaches us humility. Why? Because it’s through learning and earning those designations that we truly realize how much we really don’t know – and how much more we need to learn. This industry has so much to offer and so much of it is ever-changing. To not continue to learn, earn designations and better ourselves is a disservice to our colleagues, our profession, and our clients – and most of all, ourselves.