LTC may cost more than clients think
Regardless of where you practice, the costs of long-term care are staggering and will likely continue to rise. On average, respondents from a recent survey underestimated the annual cost of a private room in a nursing home by roughly half as much as what they actually are. Plus, the cycle of care is not linear, and it could quickly become overwhelming. Care might just as easily commence with the need for nursing home care as it could with an in-home health aide.
Americans generally look first to their savings to pay for the care they might need. They expect that their savings, in combination with health insurance and government entitlements like Social Security and Medicare, which are not designed to meet most long-term care needs, will cover the potential costs. Without a common understanding of the real costs and who pays, clients could make false assumptions that can leave them exposed. A common misconception is is that a combination of Medicare and health insurance is a way to meet the expenses of paid long-term care. Until they start using their Medicare coverage, clients don’t realize what’s covered by Medicare and what’s not. Medicare does not cover long-term care or custodial care. It’s limited to special circumstances and situations, such as a portion (up to 100 days) of skilled nursing facility costs, triggered by a minimum three-day hospital stay. And, limited coverage for certain home care.
A long-term care event can accelerate the risk of drawing down retirement savings
Advisors see the last 10 years of retirement as being a period of high risk for clients. As individuals grow older, the potential for a long-term care event increases, which can cause clients to spend their assets too quickly. When clients need long-term care and have no insurance in place, advisors estimated the average annual withdrawal rate from savings to more than double, from 5% to 13%. A client who needs extended long-term care, which can be common in later stages of Alzheimer’s, for example, can be at high risk of depleting all their assets when no other sources exist to pay for care. And then there is Medicaid, meant as a safety net for those with limited assets and income. Clients might not know that they can only benefit from Medicaid after they’ve spent down most of their assets, a situation many advisors avoid for their clients.
America’s attitude toward caregiving is evolving
Out of all the risks associated with long-term care—financial, time spent providing care, physical and emotional burden—families expressed their biggest concern was the emotional risk (72%), and this number was even higher for those who’ve been through a caregiving situation (84%). For a client who has seen or experienced the responsibilities of long-term care up close, an opportunity exists for advisors to begin a broader conversation about long-term care. More than half (52%) of those Americans who have provided care said their experience as a caregiver changed how they are planning for their own future. More than two-thirds of parents (72%) said they don’t want their children to feel the burden of caregiving. And children’s attitudes have evolved as well, with 61% of sons and 51% of women expressing reluctance about providing care to a parent.
Families who haven’t discussed caregiving in the open may be unaware of how their loved ones feel toward providing care. In a survey, respondents recognized their own limitations when it comes to caring for a loved one and they supported having professional care as a viable option. Nine of ten said hiring professional help would be valuable to them if they ended up needing to provide long-term care for either a spouse (92%) and/or a parent (91%).
Start planning sooner rather than later
Most advisors agree that people wait too long before discussing their long-term care preferences and options. Wait too long and people risk having to make decisions quickly and under the duress of an immediate need. The actual age to begin planning for long-term care will vary by client and individual circumstance, but most advisors surveyed believed it to be around age 50. But a good rule of thumb is anytime you’re discussing retirement, it may be a good time to raise the subject with clients. Asking “What if?” questions is a great way to get the conversation started and encourages them to think ahead about what long-term care actually involves. Long-term care planning shares similarities with the many other client needs you address. An early start makes for more viable and better options, leading to more satisfied clients and referrals.
Marketing is expensive. And when you’re a new in the business adding another expense line item can feel like a ton of bricks weighing you down. From digital promotion to advertisements, getting the word out that you are in business takes time, practice and patience…especially when money is low.
Nowadays, many bootstrap minded reps have found ways to navigate tackling their marketing details to bring in sales with little to no money upfront. Here are four tips you can use to do the same.
The best form of publicity and marketing is word of mouth. People love hearing first-hand accounts of other people’s experiences. Consider Google and Yelp reviews. If you leave a review, they’ll email you to tell you how much your review is being seen by others. You want your customers to love being a client of yours so much that they leave honest reviews that help attract you more business.
When you are strapped for cash, the people who do love your services can be your walking billboards. Leverage the people you already have connections with to bring in more potential clients. Offer incentives that entice people to be an advocate for you.
For so long, social media platforms were the perfect avenue for marketing small businesses. Due to “friends” and “followers,” many new reps had ready-made pools of potential customers at their fingertips. Now that these social media platforms have found ways to monetize the efforts of businesses who want to advertise, reps have had to start investing to get seen.
There is a workaround, however. It centers around you being intentional about every interaction you have on social media. From status updates to commenting or engaging in groups, use every opportunity you can find to let people know what you have to offer. If you run across someone asking a question that your expertise can offer a solution to, answer it.
Also, connect with others in our industry. Leverage the strength of using other people’s platforms to help build your own. But be tactful. You don’t want to be known as “that” person who is always selling something.
In the seize for mass attention, many reps often forsake the power of their own platforms. Your website, social media sites, or business cards can serve as a platform for persuasive conversation.
When potential clients go to your site, they need to see a balanced mixture of visual and written content. The content can be photos of your products, video testimonials, or informational blog posts. If you have a winning personality and are the face of your agenccy, your platform should show you off in a way that creates the know, like and trust factor immediately.
Your social platforms should be on brand and also convey the message you want to spread about your product or service. Your focus should be to teach your audience something new and to ask for the sale. Period.
Although we live in a highly digital society, there is still a whole world of business that occurs offline. As a rep you can’t just wait for business to find you. You have to take the initiative and go find the business you need. And if you open your eyes and your mind, you’ll see your target market all around you.
A great starting point is local networking events. You’ll meet new faces and make connections who may be potential buyers. In addition, attend industry and vendor events, and any event that puts you in a space where you can connect with people and do market research.
When there is a lack of funds, creativity can soar. You have to learn how to take your future in your hands and master being in the trenches of doing business. The more you stay consistent and stick with a strategy, the better your chances will be in generating business for yourself.
A GUEST ARTICLE BY KIM OBRIEN
As the National Association of Insurance Commissioners considers amending the model suitability regulation, and as the U.S. Securities and Exchange Commission considers adoption of a parallel best interest proposal, the FACC Campaign finds certain misconceptions have taken root that must be addressed to ensure the ongoing debate is conducted based on facts and sound reasoning rather than preconceived notions or inaccurate assumptions.
Neither “fiduciary duty” nor “best interest” are defined terms as such. However, there seems to be a perception that the best interest standard being proposed for agents or brokers would be a lesser standard than the fiduciary obligation imposed on investment advisers or other established fiduciaries such as corporate directors, lawyers, and guardians. The fact is that best interest is at the heart of fiduciary duty and the two concepts are inseparable.
The SEC’s own website states that “as an investment adviser, you are a fiduciary to your advisory clients. This means that you have a fundamental obligation to act in the best interests of your clients and to provide advice in your client’s best interests.” SEC Chair Jon Clayton is quoted as saying “we’ve called it the best interest standard, but I want to be clear — for broker dealers there are core fiduciary principles embodied in that best interest standard. In fact, those fiduciary principles are, I believe, the same as fiduciary principles that are embodied in the investment adviser standard.”
Best interest does not lie somewhere between suitability and fiduciary duty as some suggest. Best interest is a fiduciary standard, embodying concepts of loyalty and prudence which the Labor Department (DOL) sought unsuccessfully to apply to agent and broker recommendations.
The SEC best interest proposal would have the same effect of turning brokers into quasi-fiduciaries contrary to decades of common law as explained in the 5th Circuit decision striking down the DOL rule. While it is true the SEC proposal recognizes that agents and brokers provide transaction-based services whereas advisers have ongoing monitoring obligations, that is merely a functional difference, separate and apart from the legal standard applicable to recommendations which is the core substance of fiduciary duty.
Semantics do not alter the analysis. The SEC refrains from defining best interest in its proposal, inviting debate over whether best interest equates to fiduciary duty, but in the end canons of construction dictate the words “best interest” will mean the same thing whether applied to advisers or brokers. Meanwhile several NAIC proposals avoid the term “best interest” but say an agent must place consumer interests ahead of agent interests. These formulations boil down to “best interest” because mandating that consumer interests come first is the crux of best interest carrying with it duties of prudence and loyalty, all of which may seem appealing but would cripple agents from selling products under legal standards historically reserved for fiduciaries.
A common refrain in the best interest debate is more disclosure is not enough to address concerns about agent conduct. But the precise nature of those concerns remains elusive and nobody can say with certainty that better disclosure would be insufficient to address concerns about misalignment of agent and consumer interests. Increased transparency has always been a powerful weapon in addressing sub-optimal behavior in free markets and is especially relevant here where room exists for enhanced disclosure of compensation and conflicts of interest.
Concerns propelling the best interest debate began with the DOL fiduciary rule but remain ill-defined as applied to annuities. Other than general criticism about agent compensation and variable annuity product fees, nobody has openly stated which annuity sales are bad and which should be stopped by adoption of a best interest standard. Absent any identified wrongdoing, it is unclear how adoption of an abstract best interest standard would change agent behavior for the better or result in a different mix of product recommendations, whereas enhanced disclosure is a sure way to empower consumers and improve marketplace transparency.
Best interest is seen by some as a panacea for consumer protection, but its impact is untested and unknown. The one certainty is that it will arm plaintiffs’ lawyers with potent ready-made claims against any agent who sells any product which pays higher commission or fails to meet a subjective standard of best. Even regulators are reluctant to adopt a straight out best interest standard knowing it would go too far. Consequently, most best interest proposals contain seemingly incongruous provisions saying “best” does not mean “single best” and allowing agents to limit product offerings, all of which runs contrary to pure best interest in favor of existing practices.
The dilemma for regulators is that best interest is a poor fit for insurance agents. Fiduciary obligations like best interest have historically applied to services and not products. Fiduciary concepts are aimed at those who provide specialized services where duties of loyalty and prudence are paramount. This includes corporate directors, lawyers, trustees, and advisers. But seldom if ever are such standards applied to sales professionals or product recommendations where objective issues of cost and performance are paramount rather than undivided loyalty or conservation-oriented prudence. Best interest, as applied to products, only invites second guessing in search of “better” or “best” products that are ostensibly cheaper or perform better without regard for intricate choices that abound in a highly competitive marketplace.
Enhanced disclosure deserves a chance before adopting any new litigation-prone ill-fitting best interest standard of care for agents. If the real concern is conflict of interest and financial incentives of agents, disclosure can be designed that sheds light on agent motivations enabling consumers to judge whether agent recommendations are unduly influenced by self-interest. Today agents do not disclose compensation or conflicts. But with proper attention, regulators can come up with meaningful user-friendly disclosure requirements that empower consumers and sensitize producers to concerns over alignment of agent and consumer interests, which along with existing suitability regulation will ensure a well-functioning marketplace.
Some insurance regulators see best interest as a possible new tool in the regulatory toolbox to contend with improper agent practices. But there is no evidence new tools are needed given the existing array of laws and regulations already at their disposal. Insurance regulators already have unfair trade practices acts, licensing requirements, suitability regulations, replacement laws, advertising rules, anti-fraud laws, investigatory powers, and much more. There is ample authority to deal with virtually any and all agent misconduct that is demonstrably improper or otherwise contrary to consumer interests.
The biggest concern identified in the best interest debate is the agent who sells products merely to make money at the expense of the client’s welfare. The scenario contemplates an agent selling inferior or unnecessary products to consumers merely to earn higher commissions. The situation is posited where the agent offers several products, all of which are suitable, but the agent recommends the product earning the highest commission even though it yields inferior results. While such unambiguous cases may be rare, regulators’ hands are hardly tied.
Insurance regulators have broad authority under existing insurance laws. These laws vary from state to state and every fact situation involves unique circumstances. However, as a general proposition, regulators have extensive authority to investigate and discipline agents and seldom hesitate to exercise such authority against agents engaged in self-serving conduct to mislead or injure consumers.
The suitability regulation itself is quite elastic and could be invoked to discipline agents who sell products to make money contrary to a client’s interests. Suitability is undefined which gives regulators considerable enforcement latitude. In a 2003 decision, the SEC upheld a FINRA (f/k/a NASD) enforcement action against a broker who sold Class B mutual fund shares rather than Class A shares, merely to earn greater commissions. The SEC ruled the agent had “put his own interest before that of his customer” and this constituted a violation of suitability under securities laws. The same enforcement authority would exist under insurance suitability laws.
The point here is not to say that enforcement in such situations would be easy. In fact, it would be difficult to show an agent was motivated purely by higher commission in selling products contrary to client interests because sales are often complex and based on many competing factors. However, that is the very reason suitability, rather than best interest, is the proper standard of care for insurance agents because consumers need freedom of choice and agents need flexibility to present alternative products, without paternalistic government interference, all of which in the longer run will serve the true best interests of consumers.
Kim O’Brien is the vice chairman of Americans for Asset Protection and a member of the steering committee of the Fixed Annuity Consumer Choice Campaign.
Myth 1: Your Expenses Will Suddenly Decrease
Removing your commuting, work wardrobe and business-related travel and dining costs could reduce some of the expenses to which you’ve grown accustomed, but your retirement expenses ultimately depend on the lifestyle you pursue once you stop working, as well as your saving and spending habits. In fact, the Center for Retirement Research’s data indicates that about half of workers in the United States are at risk for a retirement lifestyle of a lower quality than the one they were able to sustain while earning income.
Long before you plan to retire, track the amount of money you spend each month (and on what) to establish a sense of your average expenses. Given that some of those expenses will likely go away once you retire — like fuel costs related to your commute — your overall living costs could go down in retirement. But if you plan to exchange the work commute for world travel or buy a home on the beach once you’ve sold your current one, it’s less likely that retirement will leave more money in your pocket.
In addition, take note of outstanding debt like high-interest credit card balances or car loans. If you plan to pay them off while you’re still earning income, those expenses will be eliminated (along with the interest and fees that may come with them) and ultimately won’t affect your retirement spending.
Myth 2: No More Tax Concerns
You may no longer rely as much on your employer’s W-2 when filing your annual tax return in retirement, but that doesn’t mean taxes stop being part of your life. Once you turn 70 1/2, for example, you may be required to take annual minimum distributions from your retirement accounts — which are then included on your income tax return. Social Security and other retirement benefits are also generally subject to income tax.
You may also find that you’re newly eligible for some tax advantages in retirement, such as the tax law that allows taxpayers age 70 1/2 and older to make contributions directly from their individual retirement accounts (IRAs) to qualifying charities and count those qualified charitable donations toward their required minimum distributions. Some retirees find that they’re eligible for tax advantages they weren’t eligible for previously, like the ability to deduct un-reimbursed medical expenses that exceed a percentage of their adjusted gross income (AGI). The expenses must exceed 7.5 percent of the taxpayer’s AGI for the 2017 and 2018 tax years, or 10 percent of their AGI in the 2019 tax year.
Myth 3: Every Day Will Be Like a Vacation
Whether you dream of not waking up to an alarm each morning (like you have over the last several decades) or are simply looking forward to a day without professional commitments, common retirement misconceptions swirl around the myth that endless free time equates to joy or contentment. Retirees often find that a sense of purpose is more important than non-stop relaxation. In fact, your health could benefit: A study published in the Journal of the American Medical Association found a correlation between strength, vitality and one’s sense that they have a purpose and are giving back to society. You might consider seeking opportunities to volunteer with local organizations or mentor younger students and professionals.
Myth 4: You’ll Never Work Again
More than half of retirees who responded to a study conducted by the RAND Corporation said they’d willingly return to work if the right opportunity presented itself. Further, nearly 40 percent of respondents age 65 and older were currently employed, despite having retired previously. While their motivations for working (or wanting to work) after retirement aren’t defined in the study, their responses debunk retirement myths about older adults wanting to spend their golden years in a rocking chair or on a golf course.
Though the emerging trend of “unretirement” doesn’t mean you have to stay in the same profession in which you spent most of your working life, it does demonstrate that retirement doesn’t have to mean the end of your professional life — rather, it may simply be the start of a new chapter.
Myth 5: Social Security & Medicare Have You Covered
Whether you can live off of Social Security and Medicare in retirement depends on many factors, including the age at which you claim benefits, your current and future medical needs, and the possible future depletion of the Social Security trust. However, it’s important to know the role each will potentially play in your retirement finances in order to build the rest of your retirement savings strategy accordingly.
AARP reports that the average Social Security recipient now receives about $1,400 a month; the maximum payout for those who wait to claim benefits until full retirement age is now $33,456 a year. While Medicare Part A coverage can offset the costs of your hospital care in retirement, retirees should still be prepared to fund additional premiums for Medicare Part B, prescription drug costs and other healthcare expenses they may face related to vision, dental and hearing aid coverage.
Retirement misconceptions can make it challenging to know what your future will hold, but a little strategy and planning can help you prepare. Don’t let retirement myths prevent you from working towards the personal, financial or professional future you want.
Cash indemnity benefits offer value to many clients compared to reimbursement plans — or even basic indemnity plans. Because the insurance company does not restrict how LTC benefits are used, and requires no monthly paperwork to collect benefits5 — cash indemnity policies may be more flexible and easier to use.
Cash indemnity plans do not discriminate against alternative care services, and no permission is required in order to use LTC benefits to pay for such care.
Reimbursement plans may have contract language to address use of alternative care services — but there are standards the alternative care service must meet to gain approval — thus the insurance company has the authority to decline benefit payments for these types of services.
Cash indemnity plans can be used to pay immediate family members or unlicensed caregivers that may be less expensive to provide 100% of the insured’s care.6 Reimbursement plans generally do not allow immediate family members to be reimbursed for providing care to the insured and often have limitations or deny reimbursement for unlicensed care providers.
Cash indemnity benefits can be used to pay for care services existing now as well as services invented in the future. This would include traditional care services as well as alternative or “boutique” care services.
One cannot predict if a reimbursement plan would pay for creative or alternative services invented in the future.