It doesn’t take rocket science to figure out what is happening to the market lately, but some people do think so. Who are they? The people we send our top rated annuity lead card to that’s who. Everyone who has an investment whether it is mutual funds, securities, CD’s, variable annuities or savings accounts are nervous. When people are nervous they make buying decisions.Make yourself part of what should be the best year for annuityproducers. Our response rates have been increasingly higher and higher over the past few weeks. PAP’s conversion rates from response cards to appointments made has also shown better results. Why? Because people want other opinions and are thirsty for information. You want to be the agent that’s proactive at this time. If you are already are working with us, send more mail and order more appointments. Now is the time to get the results you expect from your marketing dollars. This is an opportunity of a lifetime.
Opportunity to meet with people who want to make buying decisons
April 30th, 2009What Is Next Now That The SEC Has Adopted Rule 151a?
April 30th, 2009Make no mistake about it, 151a is scheduled to become effective Jan 2011 andannuity salespeople will be confronted with a whole new playing field. For those who have been in the annuity business for over 30 years like me, it’s apparent that each time a product which has been developed by the insurance industry becomes successful, the SEC ultimately attempts to share in on those profits generated by the product. No matter how absurd this most recent SEC decision sounds, it is not the first and most definitely won’t be the last. I offer the following as an opportunity to gain some perspective and plan for the future.
Why Are We in This Business?
Take a good look at yourself and truly evaluate the products you are selling and for what reasons. My guess is that the majority of us who sell annuities got their start in the Life Insurance business. After a few years, you learned the value of Traditional Whole Life Policies and fixed annuities. Clients came to you because you offered triple compounding, helped them avoid probate, and saved them money on their income taxes. This was all possible by repositioning your clients’ hard earned money into annuities and life insurance which provided a tremendous advantage over other investment products.
Comparing Rule 151a to Past Developments
Single Premium Whole LifeFor those who sold Single Premium Whole Life, we thought it was the end of the world when the tax favored laws changed from FIFO to LIFO. Recently, when looking at some family pictures, my wife found a local newspaper article in which I was interviewed back in 1983. I was quoted as saying: “Single Premium Whole Life is the best thing since sliced bread.” Sure enough, tax law changes brought sales of these policies to a screeching halt. It was an end to one of the best investment vehicles of all time. If you really think about it, who do you think initiated the main push behind changing the tax laws dealing with FIFO and LIFO? Don’t get me wrong, this product is still great but its biggest advantage was taken away. A strongly feel that the SEC was a major influence in pushing congress to pass laws to take away the tax advantage that SPWL had over other investments being offered at the time.
Variable Whole Life
Variable whole life (VWL) offered guarantees of traditional whole life policies so they couldn’t lapse no matter what happened, even if the underlying investments performed poorly. This product was not the most popular because of its higher premiums. The VWL policy still lives and as a matter of fact I purchased a VWL on my own life in 1990. As long as you pay the premiums, the policy is guaranteed to stay in force. The bad news is that people who purchased them as investments are now very disappointed if not downright angry. Why? Because investment choices and management of the investments becomes the single most important factor that drives the performance of this product, and nine out of ten times the insured is left to managing on their own and they fail miserably at it.
Variable Universal Life
Variable Universal Life (VUL) was sold in record volume because of the ability to increase, decrease, or even stop the payments to the policy. However, under the watchful eye of the SEC, insured’s and investors alike saw problems arise from their life insurance protection because of overstated returns on investments and increased mortality and policy fees. Policy holders were and still are left with tough decisions to make. Either decrease valuable insurance coverage or increase policy payments. Because of the mismanagement by the SEC of the sales force who sold this product, policy holders were doomed to fail from the beginning. Why? The SECallowed Brokers to illustrate a set of very complicated scenarios in which current mortality charges and higher hypothetical rates of interest were used, instead of using the guarantees. If you showed a potential client the guarantees associated with these policies, they didn’t look so good. So in most cases the agent/broker who sold this product illustrated high rates of return and lower premiums which created a ticking time bomb.
Universal Life
The 1980’s and 90’s marked a proliferation of investment options including Universal Life. Initially touted as giving the customer more control over their life insurance dollars, UL was an extremely attractive alternative to all the variations of Whole Life and Term insurance available in the market at the time. Customers loved the fact that it was a conservative yet lucrative investment option while eliminating the detractions of term insurance! For those who understood the finer points of UL policies, advantages were enjoyed by both agents and consumers. Above all, Universal Life was about the guarantees and will always be about the guarantees. Everything else is spin and this holds true today.
Equity Indexed Annuities
Just like Universal Life, Equity Indexed Annuities offers a competitive advantage yielding even better returns. In my opinion, the spin centers on the investment possibilities and associated fees. If you use the guarantees within these policies whether life or annuity, it always comes down to where and how much money gets invested. It’s a simple equation behind what makes EIAs work yet there are many unknowns. That’s where the insurance company gets the consumer every time. One constant known factor for the consumer is that the higher the commission, the less of a guarantee to the policy holder. This requires more spin to sell the product’s detractions such as current mortality fees, policy administrative costs, and current interest being paid. It’s our job to figure out what company and which products will perform. This is where I feel that agents typically fall short. I have honestly never had a problem with a UL policy because I always have sold from the guarantees provided within the policy and nothing else. Everyone who has sold these policies knows what happened to the projected cash values and paid up features when interest rates started dipping below the rosy 12% projections. No lapse guarantees were pretty much an oddity unless the agent was savvy enough. When I speak of savvy, I mean not succumbing to spin and accepting lower commissions.
Deposit Term
For those of you who need a refresher, here’s a brief history. General Electric owned a company named Puritan Life who designed a product called deposit term insurance. The policy began with an inflated premium during the first year which funded larger commissions motivating agents to sell them. The policy’s cost decreased in the second year. The initial idea was to invest the difference between the first and second year premium into a fixed annuity. When results didn’t excite the public as much as the stock market’s double digit returns at the time, the fixedannuity portion of these plans was dropped in favor of mutual funds, a more popular investment choice. Promised high interest rates with little or no guarantees on investor funds became the most popular way of purchasing insurance products again. Why? Because driving sales required high agent commissions and spin generated by the insurance companies. Despite this overwhelming trend, I was one of a small number of agents still selling the fixed annuity portion. We believed that investors needed sound guarantees in their financial plans that mutual funds did not offer. I’ll never forget a headlining front cover article in Consumer Reports written about A.L. Williams that boldly proclaimed: “Right Idea Wrong Execution”. How true and significant this article turned out to be! It uncovered the following facts behind buying term insurance and investing the difference:Fact Number 1: Term insurance was being sold by moonlighting school teachers and tradesmen with no solid understanding of financial planning. As an analogy, this was like handing guns to children. More accurately, this scenario was just like what has recently happened to EIAs. If the SEC were to take control of the policing of the EIA, then in my mind they would eventually mismanage a product which was designed for the insurance industry.
Fact Number 2: Since this investment portion of the deposit term concept was relegated to securities salespeople who weren’t interested in their clients’ long term financial well being, common estate planning philosophies were ignored because of this one sided approach. Many people lost their insurance at the end of the term period because of the cost of the renewal rates at the end of the first 20 year period. Even though they had their initial 10 - 20 year guarantees, spin again became the factor. In this case, the spin was the projections of rates of return on the mutual funds being offered by the stock brokers. People were led to believe that their investments would generate so much in returns that at some point ( 20 years ) the insured would not need life insurance and could fund it themselves from the proceeds of their investments. Nothing could have been farther from the truth. As a result, millions of people lost that basic foundation required in a solid financial plan: guaranteed no lapse insurance which is only offered in whole life type guaranteed policies. As customers got older and their health conditions changed, many became uninsurable; they realized that they had been sold a useless bill of goods. The SEChad control over the brokers who were funding the investment portion of this concept. In my opinion they dropped the ball again, and caused serious damage to many consumers.Fact Number 3: People were often sold high load mutual funds by these uneducated brokers. The truth be told, it was the norm for these sales people to bring in a licensed securities “expert” to invest the difference because the agents who sold the overpriced term insurance did not have a securities license. With a concept that had such a vast national audience, it still amazes me that the SEC, with all its wisdom, did not recognize this as a serious problem.
The Current Situation
The only other product similar to Equity Indexed Annuities that these securities brokers sell is variable annuities with Guaranteed Minimum Withdrawal Benefit (GMWB) built in. In my opinion, it is falsely being sold as a guaranteed 5% return. GMWBs are the most misrepresented and most often twisted product being sold in our business today. We know that it is a 5% withdrawal benefit acting like a Single Premium Immediate Annuity (SPIA) but ask any consumer who has purchased this product to explain what they have and they will tell you that it’s a 5% guaranteed return on their principal. All too often, these policies are sold by securities brokers and are not delivered to the client and explained. In almost every case the policy is delivered by mail without the benefit of having an agent explain what they have just purchased. I propose a very simple study conducted with a pool of 100 policy holders. Interview them on Dateline NBC asking them how they received theirannuity policies. I guarantee that 90% of them will respond with “I don’t remember” or “Through the mail.” I know because I have been running in-home appointments for years selling annuities and this is what I encounter all the time. The SEC claims that it is watching over these types of investments to help protect senior citizens from dishonest agents. This is such a joke because there is currently more wrong doing with variable annuities and their brokers selling these products than the insurance industry’s non-securities licensed agents.
The Future
My opinion is that the SEC has a lot of nerve pulling a power play again in order to gain control and to oversee the sales of the Equity Indexed Annuity. I find it hard to believe that the American public can be fooled yet again into thinking that this regulatory body has the legal right to control this product. In the end I feel that their decision will be overturned and EIAs will remain the darling of the insurance industry. However if the SEC is victorious, they will for the first time have total control over a product and the sales force that is selling a true insurance policy. The question that still remains in my mind is this: Will the Securities brokers still explain the GMWD benefit as an interest rate guarantee or will they now fully explain the GMWD scaring people away, which in turn will drive the EIA policies sales to new heights once compared to variable annuities? Overall, the consumer will not be better off but further controlled by the watchful eye of the SEC.
AARP To Appoint Free Lunch Monitors
April 30th, 2009In an effort to protect seniors, the AARP continues to stir the pot as they monitor “Free Lunch” seminars. In 2009 Free LunchSeminars will be under scrutiny due to a new program launched byAARP and the National Association of Securities Administrations Associations. Under this new program, AARP will be recruiting “Free Lunch Monitors” to attend seminars and watch for illegal sales practices. Once recruited the volunteers will be provided with a checklist to follow and a series of topics of discussion to monitor. These Seminar watch dogs are encouraged to return the completed forms to AARP. Once the AARP receives these checklists they will compile the information and will share them with state regulators if needed.
The checklist asks questions such as:
- How did the person find out about the session?
- Did the speaker use a title suggesting he or she had special expertise serving older investors?
- Was a broker or financial advisor recommended or associated with the presentation?
- Were any investment products recommended and if so, what company offered them?
- Did the speaker suggest that AARP, SEC, NASAA, or another state regulator had endorsed or sponsored the event?
- Did you feel pressured to make an immediate decision?
- Was a home visit or appointment mentioned as a follow-up to the event?
- Were you contacted as a result of the seminar, even if you did not ask to be?
“A solid investment portfolio is the bedrock of a financial secure retirement,” explained Jean Setzfand, AARP’s Director of Financial Security Outreach. “By empowering individuals with knowledge and information, we aim to create an educated and financially savvy investor who can spot a scam when … targeted. We also hope (the program) will deter scammers and give state securities regulators an opportunity to investigate them.”
It is my hope that the AARP will be able to screen the people who will be monitoring well enough to stop any preconceived bias that they may have prior to attending the meetings. In the event that the AARP can recruit fair monitors my opinion is this will help weed out the bad, but as usual all seminar presenters will be painted with a broad brush. Only the bad will be mentioned when they catch someone, and the honest seminar presenters will get bunched together with the bad. Despite the AARP’s self serving foray into this matter, after all is said and done it will all be good for the industry as a whole, and that’s most important. In the recent past more and more unqualified individuals have been recruited into the annuity business, and I feel that this is one of the beginning steps to help weed out the less experienced agents who might have diluted the attendance figures for the experienced agents. Another way that is helping to weed out the inexperienced is the sky rocketing cost associated with the ”Free Lunch Seminars “. It is fast becoming the rule rather than the exception that the stronger more experienced agents are the only ones who can afford to run these ” Free Lunch Seminars”. Once you consider the costs ( $400 per appointment booked ), a good argument exists that sending out mail and booking appointments from the response cards, makes Premier AnnuityProspects your most consistent and cost effective way to attract an annuity lead today. No matter how you market yourself and your products today, it seems clear to me that we are in a business that needs to be monitored to protect those who need to be protected, our client base the seniors.
Follow the Lead
April 30th, 2009It has been said over and over again by our peers, and my practical sales experience continues to shout it to me loud and clear. Follow the lead no matter what you think, don’t pre-judge the potential annuity client. For those of you who know me, I do a combination of Seminars “The Frugal Man’s Trust” and pre-set annuity appointments generated from a mail response card. In recent years I have had better luck with the pre-set annuity appointments generated by the mail response cards, and I continue to work this method of attracting annuity leads. I can’t stress the fact enough, to not pre-judge the appointments. The reason I say this is because of the experience I personally have had running these appointments.
This past week I was getting a little lazy and was looking to shorten my work schedule by trying to pre-qualify my already booked annuity appointments. Let me start off by saying I was on a hot streak with my appointments and all the meetings were great with good amounts of investable assets. We all know that when you run these appointments over a long period of time, that they run streaky. Nothing, nothing, nothing, broke no show, and then bang. It’s been going like that for me for years, let’s say almost thirty years. The system never fails, only your work habits or your faith in what you’re doing changes. So anyway it’s Wednesday afternoon and I’m thinking about going striped bass fishing on my boat and I figure I will start calling my appointments for Thursday, rather than just showing up. (Don’t do this ever) I called the one for 9:00 A.M and I determined that they didn’t have enough money so I sent them something in the mail and supposedly saved my self some gas and some time. I called the second one that I had for 2:00 and she had $275,000 and turned out to be a sale for next week, but the kicker for the day was that I called the third appointment and it was to be with a husband and wife, he was age 57 and she was age 65. I spoke with the lady and during my phone interview it sounded like they were dead broke and that she either had very little memory, or that she actually did not know anything about their finances. I asked to speak with her husband, but he would not be available until 8 or 9:00 A.M Thursday morning. So I called Thursday at 8:00 A.M and he said that his wife had Multiple Sclerosis and that he was pretty much broke, had a large mortgage, and was worried if he could ever retire. He sounded like such a nice guy I said to myself I will get paid in other ways down the line. I was at his home by 9:00 A.M. and met with them. She was in a wheel chair and had difficulty speaking. I asked her my pointed questions to bring her into the conversation along with her husband and it all went well. I explained several options available to them and pleasantly I was surprised that he had an IRA of $56,000 invested in a tanking mutual fund. It gets better, out of the living room comes not Chris Hansen from Date Line, but the potential clients Mother who was living with them. She said she liked what she heard and that she had $400,000 with Ameriprise and that the agent indicated that she was all set and didn’t need to do any other planning. He told her that she had enough money invested to pay for her care for about five years and that she should be fine. We immediately set a time for me to come back next week. As I asked the mother more questions, my guess was that the Ameriprise agent was either lazy, just didn’t care or didn’t have the Medicaid planning education behind him so he made up what he thought was a good answer. To some up the story, don’t pre-qualify, or pre-judge your appointments. You never can tell who or what’s behind the wall in the other room.
Know your competition and the key facts pertaining to Income Benefit Riders.
April 30th, 2009Today more than ever, you as a planner should know and understand every last detail about annuities. One of the most popular benefits being offered today by both variable and fixed indexed annuity policies are various types of income benefit riders, or guaranteed income riders offering 5,6, or 7%. These contracts are just another form of annuitization to get a bonus, but in this case the bonus is not up front, it’s at the end, and just like all bonus annuities you never really get them, it just is deducted from your account in one form or another. Take a good look before you leap into using this method of income generation. There is an old saying, ” there’s no such thing as a free lunch”, and it’s true when using an income benefit rider. Just do the math and in the end, the client doesn’t quite get what he or you thought he was going to. Traditionally people purchase annuities for the guarantees associated with traditional fixed annuities, but in today’s world most new annuities don’t offer the true 3% minimum guarantees. The majority of them offer 1- 2% or a 87% on 2.25% or some crazy formula that leaves you scratching your head. If your selling annuities the old fashion way and talking guarantees, then you are leading your client down the wrong path when selling an annuity solely on the basis of the guaranteed income rider. Simply by using the term “guaranteed income rider”, most people are falsely led to believe that their principal is left in tact and guaranteed not to reduce when adding this rider. However the fact is so far from the truth. You need to figure out how to use these income riders based on the guarantees within the contract. If you figure out the guarantees associated in the guaranteed income riders, and truly understand the math, then the answer will be very clear to you that barring a miracle, one way or the other, that the client will not get what you or they hoped for. The insurance company will guarantee the income alright, but it will reduce your principal based on the guaranteed renewal rates within the contracts. The money will not be there for the people inheriting the estate, or there will be a reduction of principal, that’s why the guarantees are written into the contract but never spoken about. Everything you learn from the marketing organizations is based on illustrated numbers. If your selling annuities. nine out of ten times consumers are buying them for the guarantees associated with annuities, not the illustrated projections. If your going to offer these income riders, explain them to the prospective clients using the guarantees. If you don’t sell them but run into them in a home, you should have a field day replacing them.
Getting to know and understand the NAIC
April 30th, 2009It’s September 18 and it’s happening again. The stock market is seeing historic lows and people are panicking. Is this good or bad for the annuity industry? In my opinion it’s good and I have experienced situations like this in my thirty years in the estate planning field. People buy safe money concepts such as annuities and life insurance policies at a higher rate when the market declines rapidly in a short period of time. Now more than ever the general public has a broader knowledge of the Investment opportunities that exist. Most people read the headlines on the front pages of their newspaper and that’s about it. Some people may associate the AIG downfall with the annuity industry and some may not. For those people who do ask the tough questions, it’s a good idea to educate yourselves in regards to the standards of which insurance companies must invest the policy holder’s annuity dollars. It’s time to make yourself familiar with the NAIC National Association of Insurance Commissioners and their investment standards that are set for insurance companies annuity reserves and investment guidelines. Please read this article about AIG which was published on September 16th and familiarize yourself with the contents of their website. I guarantee you will learn a great deal and build yourself more confidence with the safety of fixed annuities. Wouldn’t this be a good time to obtain more annuity leads and send out our new “5 Safe Money Concepts” mailer.