My "Bersonal" View

Most of my readers are in the financial services industry. That makes sense. Most of what I read on-line is directly related to my business (I make an exception for ESPN.com!) Reading other blogs and websites fuels my desire to learn more and gives me ideas and information for new articles.

Last week I read an article on the Forbes Magazine web site. Instead of giving you my opinion, which anyone who knows me well can probably guess…lets look at this article by Jesse Colombo. Would love to hear your feedback.

Forbes Magazine – Article By Jesse Colombo

Dear Blog Reader,

Just wanted to check in with you and see if you’d had a chance to  read my latest blog post.

What? Really?

The opening to my blog post didn’t provide you with any value or reason to continue reading. I hate to admit it, but I even do it every now and then. So why do we still use it when we’re following up with prospects? Because sometimes we’re selfish and lazy. But messages like that are annoying and disruptive to the recipient.

The problem is that we all know that following up is critical to closing deals. Here are some stats according to Referral Squirrel:

• 2% of sales are made on the First contact.
• 3% of sales are made on the Second contact.
• 5% of sales are made on the Third contact.
• 10% of sales are made on the Fourth contact.
• 80% of sales are made on the Fifth to Twelfth contact.

However…

• 48% of sales people never follow-up with a prospect.
• 25% of sales people make a second contact and stop.
• 12% of sales people make three contacts and stop.
• Only 10% of sales people make it more than Three contacts with a prospect.

It is well-known that repeat customers and referral business are the two best (and cheapest to acquire) types of business.

We’ve all sent the “just checking in” email before. So what should you be doing instead? Hubspot says that there are three key ways to drastically improve these “check-in” emails:

1. Google Alerts – Set up a custom Google Alert for your prospect’s company name, competition and industry keywords. That will create a trigger event to customize your follow-up email.
2. LinkedIn Groups – Find a LinkedIn Group that discusses their industry. That will provide you with content and an actual reason to follow-up.
3. Signals Alerts – Signals allows you to track when your prospect is actually opening and/or clicking your email. That way, you know when they open your email and will help you with the timing of your follow-up.

The point is, you don’t get any value out of the emails you receive that say, “Just checking in” so stop sending them out to your clients and prospects and start sending something of value. You can’t afford not to nowadays in the modern world of constant interruption.

Twenty years ago you could buy a first class stamp for 29 cents and fill your gas tank for $1.11 a gallon. Today a stamp is 49 cents and a gallon of gas here in CA is close to $4.00. What these things will cost 20 years from now is anyone’s guess. The only certainty is that prices will continue to rise. This is especially true when we look at the costs of long-term care services such as home care and nursing facilities.

Historically, the cost of long-term care services has increased approximately 5% per year. That trend is expected to continue. So, how do people who purchase a long-term care policy today ensure they will have enough coverage 20 years down the road when they will likely need the care? The answer is inflation protection.

Adding an inflation rider allows the policy benefits to increase annually to help keep pace with the rising cost of services. This rider is must on any long-term care policy that you write. The problem for most is that the rider is very costly. For this reason we suggest a thorough examination of the different riders.

We have found that the cost for the 5% inflation rider is the most expensive. In many cases we have found it is less expensive to buy more monthly benefit now with a lower inflation rider (say 3%) to accomplish the same objective. The objective is to create a pool of money for when you need it. If you need it in 20 years we can get their with either rider, the 5% or the 3%, but analyzing the cost of buying more benefit with a lower rider is a smart move.

Call us to do this work for you…because in the LTC world…nothing stays the same.

Last week we passed over 300 followers on “My Bersonal View”. To celebrate we are re-posting the article that had the most hits in our history (over 15,000). Would love to get your feedback on the article and on the site in general. Thanks for your support and loyalty. Next stop- 500 followers!

To most of us who understand the insurance world and the real choices available for our clients, the advice that Suzy Orman gives is at best irritating and at its worse negligent. It is virtually impossible for one piece of advice to be the answer for millions of people all at the same time. In our world of financial decisions, each client is like a snow flake, no two are alike and no set of circumstances are the same. In Suzy’s world everyone is the same and everyone should just do what she says. Black or white. No gray.

Yesterday, driving in my car…I was listening to a financial talk show and the caller said “but Suzy Orman says I should just buy term and invest the difference.” To his credit, the host asked the caller several questions to see if that strategy made sense for that individual. The whole exchange got me thinking. Why do so many people like Suzy think that buying term and investing the difference is a good idea? And more importantly, why do they not understand the power of permanent life insurance the way we do?

In my experience, people who say they will “buy term and invest the difference” (BTID) rarely do that exactly. Instead they buy term and spend the difference. The truth is people don’t always understand the savings element of the BTID idea. Initially they may have had the thought of investing the difference, but typically life gets in the way and this is where the BTID idea usually fails, leaving the client with no insurance and no investments.

But, for the sake of this article, lets assume that our client does invest the difference and does stay true to the BTID idea. There are still several problems with the concept that Suzy and her pals tend to brush over or minimize. Perhaps the biggest risk other than the actual investment that the client might choose is the insurability risk. We often say that people are never more healthy than they are right now. This is true in a lot of cases but what it points out is a possible risk that can happen in the BTID strategy. Insurability may be lost in between terms – in other words a client must “re-qualify” for the new term policy each time the term period runs out. If they can’t qualify or if the new policy might be rated, then costs for the term can be significantly higher or worse the insurance could be lost.

Another problem that is often overlooked by the proponents of BTID is the investment risk. And within the investment risk there is also another risk and that is the risk of the tax implications. One of the myths of the BTID strategy is that somehow the investment will always grow and will magically be there when you need it. Unfortunately, and recent history bears this out, investments can be volatile and inconsistent and there are no guarantees that the funds will be available and at their peak when you need them most. In addition, the tax implications of the investment are not often factored in when making the decision. With cash rich life insurance, the tax advantages are simple. The cash value is tax deferred (ie: no taxes due on money as it grows) and the funds in a policy can often be accessed tax-free via policy loans.

The BTID idea needs to be flushed out for each individual and compared side by side to a permanent life solution to determine if it is a good idea for our clients. There are several softwares that do this well and we can provide you with a valid comparison that can help your client make a “good informed” decision. I wonder if Suzy and her friends have ever done this type of analysis?

In our IMO, we are firm believers in the power of cash rich life insurance as part of a long-term plan. But, and this is an important distinction, we would never say that it is right for everyone. Term insurance does have a place and can solve a specific need. But to simply eliminate the idea of permanent coverage as an option discounts the true value of a permanent plan. Financial gurus like Suzy Orman who make blanket statements with no regard for the individual set of circumstances are short-sighted and irresponsible. So yes…STOP! Don’t take Suzy’s word for it…call us and let us help you investigate your next case. You may be surprised what you find out.

Our industry is at a turning point. When I first became President of ISN in 2003, and I would go to to industry meetings, I was clearly the youngest President in the room. Unfortunately, even today, when I go to industry meetings I am still one of the youngest Presidents in the room. New blood and new energy are needed in our industry. In the following article by Rachel Adams she takes a hard look at a real problem in the financial world and what we are doing about it.

By Rachel Adams

June 24, 2014 5:29 pm

Joseph H. Clinard Jr. is 76 and spends his days planning for retirement — just not his own. Mr. Clinard has worked for more than 50 years as a financial adviser, and he has no plans to stop anytime soon, despite the fact that many of his clients have stopped working or soon will.

“I don’t think my wife wants me home, to tell the truth,” Mr. Clinard said.

Many of Mr. Clinard’s peers share his outlook. The average financial adviser in the United States is older than 50, a number that shows no sign of getting lower because relatively few young people are interested in the work. That is creating a problem for Wall Street, which after the financial crisis likes the idea of managing other people’s money more than it did before. As both independent firms and large broker-dealers attached to investment banks try to expand their asset management businesses, they must figure out how to attract and retain a fresh pool of talent that is increasingly looking to find its riches elsewhere.

“All of us in this industry are facing the same dilemma, which is, where is that next generation going to come from?” said Erica McGinnis, the president and chief executive of the AIG Advisor Group, where the average financial adviser is 54. “There certainly are people who are not being served by financial advisers because there are not enough of them.”

Of the 315,000 advisers working in the United States, only 5 percent are younger than 30, according to data from the consulting firm Accenture. Richard Stein, a partner at the executive recruiting firm Caldwell Partners, estimates that half of all advisers working today are within 15 years of retirement.

At the same time, firms like Morgan Stanley and Bank of America Merrill Lynch, which rely on thousands of advisers to serve their clients, have made it clear that they intend to increase their wealth management businesses as traditionally more lucrative operations, like trading, have largely dried up.

“It’s a real problem for them because the only way they can grow their assets under management is by hiring new advisers, and there’s a limited supply,” Mr. Stein said.

As a whole, Wall Street is a less attractive place to work than it used to be for new graduates. Many Americans distrust the banking industry more now than they did before the financial crisis, and the paychecks aren’t as large. Fewer college students want to go into the financial services sector at all, Mr. Stein said. Instead, they are drawn to budding social media and technology start-ups, hedge funds and other fields beyond the financial services sector.

In one sense, that could mean less competition — and more opportunity — for younger people who choose to become financial advisers. But the compensation model has changed as well.

Advisers used to rely on commissions, meaning that they would make money from every transaction executed on a client’s behalf. But the industry has shifted more toward a fee-based model, which pays an adviser a percentage of the money under management. That may be fine for an older adviser who has a large book of clients, but it can be a deterrent for people just starting out in the business.

Big firms say that the fee-based model helps align the interests of clients and their advisers, but it is also contributing to their staffing problem. Big retail brokerage firms are increasingly losing advisers to independent firms, which offer a bigger cut of fees. According to Mr. Stein, more than $100 billion followed brokers from the big firms to independent ones last year.

Complicating the overall matter is a generational issue. Many young people resist the idea of working with advisers close to their parents’ age, and many older clients view 30-something advisers as too inexperienced.

“Advisers tend to attract people that are within a range of their own age,” said Mr. Clinard, who co-founded North Ridge Securities, an independent broker-dealer based in Melville, N.Y., more than 20 years ago. “I just think the experience level is more important to older people than it is it to younger people.”

The growing amount of money under management has added to the sense of urgency among the large brokerage firms, which also face competition from a plethora of cheaper digital options, like E-Trade and Charles Schwab, that allow people to manage their own investments online. As the baby boomer generation enters retirement, there are more potential clients — and more competition for them.

“The urgency is really the fact that there are more clients retiring than there are advisers who can cover them,” said Racquel Oden, the head of new adviser development for Merrill Lynch Wealth Management.

Last year, AIG Advisor Group had more advisers older than 80 than younger than 30, according to one former top Wall Street executive who met with the company’s management. According to Mr. Stein, only 4 percent of all financial advisers working today are younger than 30, while 32 percent — the largest group — are 50 to 59. Mr. Stein said that a quarter of advisers are 40 to 49, while 18 percent are 30 to 39.

But AIG and the other firms are trying to buck that trend.

“We realize we needed to start earlier introducing individuals to the wealth management business,” said Ms. Oden at Bank of America Merrill Lynch. This summer will be the first year for an intern program for financial advisers.

Big banks are also seeking to improve the compensation situation. Bank of America and others are offering a base salary to newer advisers, for example, to help them get started.

AIG is focusing more outreach on women and minority groups, which has an added advantage because they are making up an increasing percentage of its clients.

“As the client demographic shifts, I want to have a sales force that mirrors what our client base looks like,” Ms. McGinnis said. AIG says it now has “significantly more” financial advisers who are younger than 30 than older than 80.

Other large advisory firms are also focusing their recruitment efforts on diversity, which executives say will help relate to the needs of a changing customer base.

Firms try to recruit more aggressively, but the talent pool has limits. Many of the robust training programs that used to churn out a steady supply of fresh financial advisers no longer exist, and the ones that do still face high turnover rates that have always been a hallmark of the industry.

For example, Bank of America has more than 3,000 people in its adviser training program. Of those, only 35 percent will graduate into the firm, Ms. Oden said. She said that the graduation rate still beat the industry standard of 25 to 30 percent and that the bank was trying to push that figure as high as 50 percent.

In general, as many as half of all trainees won’t stay with their firms after five years as many cycle out during times of economic downturn.

“Everyone is looking to get rid of their bottom 20 percent of people on a yearly basis,” said Mr. Stein, the recruiter from Caldwell.

Morgan Stanley, the largest retail brokerage firm by employees, had 20,000 brokers after it agreed to buy Smith Barney from Citigroup in 2009. That number has since dropped to 16,000.

Mr. Stein and others say that the well-documented technology issues Morgan Stanley had after the merger contributed to the exodus. But a spokesman for Morgan Stanley, Jim Wiggins, said that the firm offered retention bonuses to keep only its top-performing advisers. Mr. Wiggins declined to say how many advisers were offered such packages

“Adviser attrition at Smith Barney actually slowed after formation of the joint venture,” Mr. Wiggins said in an email. “Head count over the past two years has been quite stable at 16,000 and change.”

No one works forever, of course. Mr. Clinard says that he’s working on a succession plan.

“I have a good backup person that works with me,” he said. “They’re going to carry me out of here feet first.”

An Executive Bonus Plan (Section 162 Plan) can provide key executives significant benefits on a tax-deductible basis for the employer. In an effort to recruit, reward and / or retain top talent, the employer agrees to pay the premiums on a life insurance policy owned by the executive. This is a common practice and is the simplest form of Executive Bonus plan.

The “Restricted Arrangement” Executive Bonus is the same but with a twist. In the original plan, the Executive owns the policy without restrictions. This means he can access the cash value at any time and do with the policy as he or she sees fit. A restricted arrangement is an addendum to the agreement that restricts the executives abilities to access the policy cash values for a specific period of time. The reason for the restrictions is that it gives the employer more control or peace of mind that the executive will stay through the restricted period so that they will have access to the cash value – in other words a more secure “golden handcuff.”

Similar to an Executive Bonus plan – the Restricted Arrangement Executive Bonus (REBA) is tax-deductible to the employer. The employer agrees to provide the executive with a taxable bonus or a series of taxable bonuses. The employer will include the bonus on the employees w-2 and can deduct the bonus as an ordinary business expense. The executive agrees to purchase a life insurance policy as insured and owner. The difference is that then the executive and the employer execute a “restricted endorsement” at the time the policy is purchased and file it with the insurance carrier. At an agreed upon time, the endorsement is lifted and the executive will be able to use the potential cash value in any way desired – including supplementing their retirement income.

A REBA is a new twist on an old idea. Next time you talk executive bonus with a potential client…ask them if they have heard of the REBA. Chances are you will create curiosity and have a chance to present this great idea.

Brian Hix is the author of “The Tinderbox Tapes”, an inspirational novel. He regularly keynotes at industry events and always has an interesting take on our industry and how to motivate reps and clients. In a recent article titled “Drink Fool” he gives us his perspective on how to motivate our clients to take action.

From Brian Hix:

“You can’t force a horse to drink, but you can encourage him. Here’s some food – or drink- for thought:

1. Tell A Good Story- Work on your storytelling skills. You don’t just pop open a brochure and hit them with dollar amounts. No one thinks they are going to get sick or hurt, but when you tell them about someone who did, they can relate.
2. Say it Well – Don’t assume that the presentation that worked with one person will work on another. Learn how to read body language and adjust how you say and what you say.
3. Rely On the Power of Emotion – A word is not just a word. You don’t have to cry at every presentation, but don’t be afraid to tug on those heartstrings a little.”

I don’t know about you…but I am thirsty…

Your client comes to you with a problem and you are ready to dish out some advice. Wait. First lay the groundwork so that your input sinks in. Follow these three steps:

1. Ask- Probe to find out more about the problem. Remember, often times the first thing they tell you is not always the real problem or concern. Ask two or three questions to clarify your assumptions…collect more facts.
2. Support- Always try to give a “one sentence pat -on-the-back.” Things like “you have done everything right so far based on the information you had at that time” or “you are going to make it through this” go along way towards letting your client know you are on their team.
3. Advise- Now that you have probed and supported, offer your best insight. By bonding with clients first you are ensuring that they are ready to hear your advise.

“Sometimes I think the main obstacle to empathy is our persistent belief that everyone is exactly like us”

John Powell

The Tax Reform Act of 2014 (or “Camp Draft”) would impose $60 billion in new taxes on life insurance companies, products and services. It would establish an unnecessary barrier to financial and retirement security for tens of millions of American families and thousands of businesses by:

• discouraging long-term savings
• increasing the cost and reducing the availability of insurance products
• limiting employers’ ability to provide employee benefits and plans for the future

The current tax treatment of Life Insurance is appropriate. Throughout the 100 year history of the federal income tax system, gain from inside buildup has never been viewed as gross income  until proceeds are actually received by the policyholder (typically through sale or surrender.) Gain on inside buildup is not taxed when held within the contract consistent with treatment of appreciation on stock or home value. If and when proceeds are actually received, ordinary income tax, not the preferential capital gains tax, is imposed.

Please take time to spread the word on this issue. Reach out to your congressman. Let them know we oppose the Tax Reform Act of 2014.

Brian Gilder has written articles for my blog in the past. He always has a unique perspective. When it comes to Sports and Finances his take is always relevant and on point. With all the talk about Donald Sterling and the sale of the Clippers I asked Brian what he thought of the sale. Here is what he wrote:

A Diversified Low Risk and High Reward Investment

Steve Ballmer’s $2 billion investment in the Clippers might seem outrageous, but in the long term the Clippers could be worth more than  $2 billion.  Microsoft was one of the best growth companies from 1990-2000. The Clippers could be on that same track.  There are five good reasons the Clippers are a good investment for Steve Ballmer:

1.  Cable Revenue- Cable companies are paying big money for live sporting events.  The Lakers inked a 20 year $3 billion deal with cable TV, and the Dodgers will earn more than $7 billion over 25 years under their contract.  The Clippers will certainly earn a higher multiple when they negotiate new agreements because of the team’s new popularity and media exposure.

2.  International Growth Opportunities– When you think of growth stocks these are companies that generate big profits for owners. The NBA keeps growing the brand by expanding to different countries to obtain a bigger market share. They play games in Mexico, Japan, United Kingdom, and other countries where NBA popularity has grown.  This has led to a big increase in revenues generated for teams from overseas markets.

3.  Los Angeles is a Premium Advertising Market-  Donald Sterling owned the Clippers for 30+ years but he never leveraged the full capacity of the team until recent years under new management. Ballmer will be able to have plenty of sponsorship and other growth opportunities in one of the nation’s top sports markets, which increases the value of the Clippers even more.

4.  Salary Caps-  In a nutshell, there is a league limit on the amount teams can spend on individual and team player contracts. The NBA 2011 collective bargaining agreement made teams worth even more money and protected owner profits.  It is said that the NBA owners saved themselves at least $3 billion over the life of that collective bargaining agreement.

5.  Diversification- When it comes to finance 101 the name of the game is diversify your assets. Steve Ballmer is reportedly worth more than $20 Billion.  So Ballmer is investing 10% of his net worth into the Clippers, a privately held company with strong revenues, positive cash flow and profits.  If you were worth $200,000 and you made an investment of $20,000 (10% of your net worth) into the Clippers would that be a reasonable investment?  And how happy is Ballmer – knowing he can run a company without bothering with shareholders?

Brian Gilder, CFP, CLU, CHFC

http://www.thefinancialplaybook.com

Contact (310) 804-3767