As you may know, September is Life Insurance Awareness Month. This year, LifeHappens, a non-profit organization focused on spreading awareness about the importance of life insurance, and LIMRA took the initiative to engage with Black Americans on their ownership and attitudes about life insurance. Check out the report here.
Posts by Mark George:
After a recent analysis of the macroeconomic trends facing the long-term care (LTC) insurance industry, we have made the difficult decision to discontinue sales of our individual LTC insurance policies in all states. As many of you well know, the distribution landscape for LTC insurance has shrunk significantly since the peak of the industry in 2002. Today, there are far fewer outlets through which individual LTC insurance is sold, impacting the growth potential of the product. In addition, consumer demand for individual LTC insurance has fallen and remains stagnant. These trends, combined with the significant capital requirements of the LTC insurance business, are the primary reasons for this decision, which was not taken lightly.
Please refer to the following schedule of important dates relating to the wind-down of current cases.
- December 2nd, 2016 – last day to submit ‘in good order’ applications. (11:59 ET for applications submitted electronically and/or must be received by December 2nd if mailed). Please note LTC Quick Quotes will be discontinued effective immediately.
- December 16th, 2016 – last day to complete paramedical exams.
- February 10th, 2017 – all policies must be issued and paid for.
Please note that the decision to discontinue new sales does not impact our in-force LTC insurance business. We will continue to honor our commitments and provide high-quality service and support to our existing LTC insurance policyholders and their families for many years to come.
We continue to believe in the importance and value of providing LTC protection for Americans, so as we look ahead, we will focus on offering LTC coverage as an accelerated benefit rider on our wide range of life insurance products, which has become an increasingly popular option for customers in recent years.
We appreciate your long-standing support and partnership in providing our individual LTC insurance to Americans over the years, and to thank you for your business.
“Genworth Financial, Inc. GNW recently announced that it has inked a definitive agreement with China Oceanwide Holdings Group Co., Ltd. to be acquired by the latter for $2.7 billion or $5.43 per share in cash. The transaction will be executed via Asia Pacific Global Capital Co. Ltd., one of China Oceanwide’s investment platforms. The deal is expected to culminate by the middle of 2017 upon fulfillment of closing conditions.”
GNW Recently Announced. “Genworth and China Oceanwide Sign $2.7B Acquisition Deal.” Genworth and China Oceanwide Sign $2.7B Acquisition Deal. Yahoo! Finance, 24 Oct. 2016. Web. 27 Oct. 2016.
Objections. Some are real. Some are not. The question is: How do you deal with and answer the objection to close the sale? People write books on answering objections, and I don’t have the space here to deal with them all, so let me tell you what I do when the prospect starts throwing out objections.
First, what are the basic objections? No need, no money, no hurry, no confidence. Everything else is a variation of these. Let’s explore:
No need. While many people feel they don’t need life insurance, they do need what life insurance creates. Money. Certainty. Dignity. Peace of mind. If the client has the time, he or she may be able to earn the cash required. But if they don’t get the time and die too soon, life insurance creates the cash. It’s the only product guaranteed to create the cash when the family or company needs it the most.
No money. “I can’t afford the premium.” If the prospect can’t pay the premium, which is just pennies on the dollar, how can the family or company solve the problem? They will need dollars, and those dollars may cost more than a dollar when taxes and other costs are factored in.
There may be assets that can be liquidated, but at what cost? It is something that you should know before you start a business in Orlando. If a business rival knows the prospect needs to sell an asset, and is interested in buying this asset, he will want to negotiate the lowest price possible, and this may be less than the current market value. With life insurance, the beneficiaries know with certainty what they will be receiving.When it comes to estate planning it is always better to consult attorneys as there are many attorneys help with estate planning.
No hurry. “I would like to wait.” Why? What will change between now and next week? This is what I say to prospects: “I appreciate your wanting to take the time to make an informed decision, but while you are thinking it over, let’s find out if you qualify for the coverage.”
Remind you client that there is a cost for everything, including waiting: “The longer you wait, the more the insurance costs. Let’s at least guarantee your insurability to buy you the time to make this decision.”
Let me share with you a story of a client who almost waited too long. Each year for 10 years I met with my client to do his insurance review. Each year I tried to convince him with the help of lawyers for business start ups, of the wisdom of completing his estate planning and purchasing insurance to provide for estate liquidity with the help of experts in the field like estate planning lawyers based in Phoenix . Each year he said no. Then one day I received a call asking me to meet him at his home to talk about the insurance and also about how to write a will which I had been proposing for the past 10 years. One can see here to get an attorney involved to make things easier.
My first question to him was what had changed to make him reconsider the insurance. He told me he had just been diagnosed with a terminal disease and now realized he needed to complete the planning neglected over the previous years. And now he wants to buy insurance! This is one of the main reasons why hiring a professional lawyer for financial legacy planning is important.
Finding out you are uninsurable does expedite the decision making process. Fortunately, we were able to underwrite a second-to-die policy at a reasonable rate with his wife who was a preferred risk, but he almost waited too long.
No confidence. Sometimes the objection from the client is nothing more than a polite way of saying that he or she has no confidence in your suggestions. Perhaps you didn’t take enough time to properly determine the true problems the prospect was concerned about before you made a sales suggestion. The prospect must be disturbed by a problem before action can be taken. Perhaps your suggestions did not quite fit what the prospect was looking for in a financial solution.
Remember, you must determine your prospects wants, needs and desires, and each of these may require a different solution. It’s your job to ask the disturbing questions to encourage the prospects to discuss what problems are of most concern to them today. Then you can make appropriate recommendations to solve the problems in order of priority. You must earn their trust and confidence by doing what is right for them.
One thing to remember as you go to your next appointment: You can’t sell insurance to people who do not care.
U.S. Department of Labor’s Conflict of Interest Rule is a hot and controversial topic in the financial services profession. Since the rule was finalized in April 2016, its reception has been predictably divisive. Already, the first of what will likely be a parade of lawsuits has been filed, aiming to stop, dismantle or delay the rule from taking effect next year. Legal hurdles in place, the industry and consumers alike will know soon enough if the DOL rule has strong enough legs.
However, waiting for the outcome of a challenge before preparing for the implementation of the rule should remind us of the fable of the hardworking ant and the carefree grasshopper. While the ant diligently prepares, the grasshopper spends the summer singing the days away and finds itself unprepared to survive through winter.
Let’s not find ourselves like the grasshopper, outside in the cold, shivering and unprepared come next April’s deadline.
Defining a Fiduciary Duty
The DOL rule expands an existing fiduciary duty to include recommendations concerning retirement assets. This will target IRA account holders, rollovers and those who are acquiring, holding, exchanging or distributing retirement assets. This broad net definition covers just about every working or retired American, from a coffee-shop employee saving $50 weekly into a ROTH IRA, to a small business owner opening her first 401(k) plan, to a corporate officer facing retirement with a few million dollars in a profit sharing plan. All of the above are owed a fiduciary duty of care. A better understanding this fiduciary duty requires a visit to the world of academia.
A fiduciary duty can be illustrated as a relationship between two parties. Writing in the Journal of Financial Economics, authors Jensen and Meckling set up the discussion of principal and agent conflicts in their 1974 publication,”Theory of the firm: Managerial behavior, agency costs and ownership structure.”
According to Jensen and Meckling, a client (young employee, business owner, retiree) is viewed as the principal. The principal has an interest in retirement. It may be accumulation of capital, developing an income strategy, meeting bequest motives, developing an appropriate risk tolerance, or a combination of motives. In financial planning we refer to this interest as helping the client understand and meet his specific goals. The counterpart to a principal is an agent. The agent may be an insurance agent, investment adviser, broker, banker or other financial service professional. The agent also has a set of goals and motivations, such as profit, sustainability, growth and financial success.
The Conflict Over ‘Conflict of Interest’
The principal/agent model has natural conflicts. An agent has a set of best interests (success and profit) which may not lead to the principal best realizing his goals and dreams. The model is often complicated by including firm interests, such as the interest of the shareholders or the interest of the policy owners of an insurance company. Multiple interests can be in conflict. The conflict between agents, principals and firms can resolve itself in any number of ways. One party could win at the expense of the others, a natural market may develop that balances interests, or a regulatory policy can be imposed on a principal, agent, and firm to ensure consumer interests are met. When we view the DOL fiduciary rule, we need to consider this framework.
The Department of Labor stated that retirees and accumulators (principals) were vulnerable, and this vulnerability was leading to excess costs and fees. The excess costs and fees, coupled with increases in consumer longevity, contributed to underfunded or unsafe retirement strategies. Enforcing a fiduciary standard requires all parties (principals, agents and firms) to align their interests to that of the principal. Requiring a fiduciary standard puts profit and growth secondary to meeting the financial planning goals of a client, which is the first priority. The fiduciary standard is in place to ensure that consumers, who may not have as much knowledge as the professionals they work with, will not be taken advantage of because of the information asymmetry inherent in the relationship. In other words, the Department of Labor is requiring financial planners to work in the best interest of their clients, rather than in the best interest of themselves.
And this leads to the core of the rule. The DOL questions certain compensation structures that might lead to biased advice. Commissions, assets under management models, even hourly fees have the potential to create conflicts between principals and agents. Conflicted compensation is prohibited under the new rule, unless the agent works under a prohibited transaction exemption. The DOL can then influence the principal/agent relationship by setting specific processes and rules regulating the allowable uses of prohibited transactions. The DOL is not trying to discredit the financial services industry with this rule. It is, instead, attempting to set specific parameters around the retirement advice provided to potentially vulnerable consumers.
The Grasshopper and the Ant
Additional challenges will likely come forward as the rule’s deadline continues to approach. Phase one of the rule rolls out April 10, 2017; the remaining phase requires compliance by January 1, 2018. Challenges may adjust the timeline and the details of the possible prohibited transaction exemptions (BICE, 84-24), but are not likely to change the rule’s overarching alignment of principal, agent and firm interests.
Remember, the ant prepares for change in seasons, stores food and devises strategies for survival. Let’s not take the short-sighted perspective of the grasshopper when preparing for the future of financial planning.
Take a lesson from the ant and recognize the opportunities that exist today to create new models and procedures that will benefit not only the profession, but also the retirement security of the clients whose best interests we are pledged to serve.
Text by Craig Lemoine, PhD, CFP®, Director of The American College Northwestern Mutual Granum Center for Financial Security.
For the original article, click here.