My "Bersonal" View

I have been writing my blog for over 3 years now. It has been a great experience for me as I learn to find my voice, reach my audience and share information on a much broader level than I ever did before. The feedback I have gotten from my peers, my clients and my contemporaries has all been positive. Many of them ask me the same question – How can I begin to write my own Blog?

With that in mind, I wanted to share some of the important lessons I have learned. Of course the most important is – “Start Now” – it is easy to set up a blog site (I use WordPress but there are many other great services available) but the hard part is just writing. Begin. Start now…that is my best advice. Other lessons I have learned include:

1. Don’t Write in Vain – Make sure the topics you cover on your blog are backed up by actual prospect needs and pain points. Remember, people do not search for brands…they search for answers.
2. Focus on Readability – Divide your content into concise sections if you can help it. This makes content more digestible for your audience and makes it easier for them to find the information they are looking for.
3. Break Up Your Copy – Use bulleted lists, poll questions, embedded social media posts, graphs, charts, videos and other media to support your text and make your long form blog content seem less intimidating and more engaging.

There is an unmistakable energy when a great client meeting concludes. You believe that the client is going to move forward and there is no way that this is going to stall. However, even the best client meetings have a remarkably short life if not acted upon.

After a great client meeting, how long do you think the impact lasts? A few hours? Maybe a day? Two days at the most? The quality of follow through is imperative. It serves three vital roles:

1. It provides the information necessary to advance the relationship with the client.
2. It enhances your reputation as a professional.
3. It extends the “lift” or “energy” of the initial effort into the future.

Here is a good follow-up formula to use for all of your client meetings. Both good and the not so good meetings need follow-up…so make a plan and follow it.

• One day later send them an email thanking them and recapping the details of what happened in the meeting. If you promised information or materials provide it here.
• Three days later contact them via the phone to schedule a follow-up appointment or call
• Seven days later follow-up by sending at least a hand written note or thank you card through the mail

A Guest Article by David J. Scranton —CFP®, CLU, ChFC, CFA, Author/Speaker |Founder of Scranton Financial Group

August kicked off with a flurry of market activity that included Wall Street’s worst day of the year. After sliding downward to start the month, the stock market took a precipitous drop on August 5th. By the end, the S&P 500 had fallen almost 200 points from a peak of 3,030 down to 2,840, and the Dow Jones Industrial Average went from 27,349 down to 25,717. Once again, the driving force behind the drop was the same as it was throughout 2018 when the market experienced record volatility: fears over the Trump Administration’s ongoing trade war with China. One concerning new development was that China devalued its currency to a certain strategic level, which is a cheating strategy that governments sometimes use to try to gain a trade advantage.*

The bottom line for investors is that the stock market is clearly not the same market it was prior to 2018. In 2017, optimism was in control and the market climbed rather steadily in anticipation of President Trump’s massive tax cut. That all came to a screeching halt in January 2018, and Wall Street has pretty much traded sideways for about a year-and-a-half since, with the threat of a third major sustained correction increasing the whole time.

Is this latest big drop the start of that correction? To be honest, I don’t think so. In the midst of all this volatility, we’ve already had pullbacks as steep as 10% (technically a correction) and the market has always recovered; I think that will probably be the case once again. So far there’s been no materially bad news to trigger a sustained drop, but sooner or later it’s going to happen—as the bond market already knows, and has been saying loud and clear since December.

‘Smarter Than the Stock Market’

In terms of anticipating trends, the bond market is always said to be smarter than the stock market. As I’ve pointed out before, a good example of this “smartness” occurred in December when—for the first time all year—bond yields didn’t increase to accommodate another short-term interest rate hike by the Federal Reserve. Anticipating slowing growth and other factors, the bond market said, “enough is enough” and didn’t budge. Long-term interest rates have only fallen further since that time, resulting in the U.S. yield curve becoming partially inverted. Meanwhile, many European countries have recently seen their yield curves become fully inverted, albeit temporarily.**

As of this writing, the yield on the U.S. 10-Year Treasury rate is at 1.73%, which is still lower than the current Fed funds rate even after the Fed lowered short-term rates on July 30th from 2.50 to 2.25%. As you might recall, the Fed started the year by stating it intended to raise rates two or three more times in 2019. Naturally, as the stock market has struggled and recession fears have mounted, the Fed’s tone has become increasingly dovish, and there’s a good chance it will lower short-term rates again at its September meeting.

What’s interesting is that the stock market’s latest big drop occurred less than a week after the Fed approved that quarter-percent rate cut. Throughout the era of quantitative easing, the stock market has been hugely influenced by the Fed’s actions, and a market rally in response to a rate cut should have been expected. However, it didn’t happen, and that’s telling. It suggests that big investors are no longer shrugging off multiple pieces of bad news to focus on one piece of good news (as they did throughout 2017); they’re doing the opposite. They’re ignoring multiple pieces of good news—like the rate cut and some strong earnings reports released in July***—and focusing on one piece of bad news: in this case, another escalation in the Trump-China trade war.

The New Japan

So, what does it all mean? Well, for years I’ve been pointing out that one of the potential outcomes of all the artificial stimulus we’ve pumped into the economy is that we could end up becoming the “new Japan”, whose economy has been stuck in a low interest rate environment for decades. Other economists that have noted that low interest rates could become “the new normal” globally, and now the evidence for that is stronger than ever. In addition to the yield curve problem and growing recession fears, the Fed now has another incentive to cut rates further in September, and possibly again after that: as a trade war strategy. That’s because one way for us to combat China’s devaluation of its currency is to devalue the dollar, which would require lowering interest rates. In fact, I believe we may actually see a negative Fed funds rate once the next recession hits.

All of this gives me and other Income Specialists a golden opportunity to demonstrate why investing-for-income is a sound strategy for investors over 50 regardless of market conditions. For one thing, the shift in the direction of interest rates from rising back to falling means that the headwind for bond investors, overall, has ended. This isn’t to say the current environment doesn’t make it challenging to get good, competitive yields, or that a major sustained market correction wouldn’t make it even more challenging. But that’s exactly why I switched to an active management business model four years ago; active management gives us the opportunity to turn these challenges into opportunities on behalf of our clients.

For investors who’ve been using income-based strategies throughout the current long-term secular bear market cycle, once the next major correction hits its low point at between 40 and 70%, that may also present a golden opportunity. At that time, those with the right risk tolerance might want to consider getting back into the market as capitalists (instead of victims) and—with their advisors’ help—ride the next market wave upward! In the meantime, you can continue to enjoy retirement knowing your principle is protected and your income assured!

A Guest Article by Sheryl J. Moore

Today, indexed life insurance offers partial withdrawal options as well as three different types of policy loan options. Here, we will discuss each of these loan options, their pros and cons, and explain why withdrawals have fallen out-of-favor in the IUL market.

Since the creation of cash value life insurance, insurance agents have been advising their clients how to tap into that value. Accessing your life insurance policy’s cash value for retirement income, education funding, and other income scenarios while you are living not only provides living benefits to you, but also leaves the net death benefit as a tax-free benefit to your life insurance beneficiaries.

So, how does one gain access to their life insurance policy’s cash values?

Historically, insurance agents have advised their clients to take partial withdrawals of the policy’s cash value, until the contract’s cost basis is reached. Once the cost basis threshold has been reached, loans are initiated against the policy’s cash value as a method of accessing funds.

It is important to understand that partial withdrawals permanently reduce a policy’s death benefit and cash value. Therefore, the benefit payable to heirs is forever reduced when withdrawals are initiated and interest earned is thereafter credited on a lesser cash value balance.

By contrast, loans reduce the policy’s cash value and death benefit until repaid and also have loan interest that is payable annually on the total loan balance. So, the benefit payable to heirs can be fully restored if a loan is repaid, but until such time, a lesser death benefit is payable and interest is earned only on the net cash value.

It goes without saying that this method has its drawbacks, but the “withdrawals to basis, then loans” strategy ensures that taxable consequences are avoided, while protecting the policy owner’s rights to access their cash values. But this strategy is now a thing of the past. It has been falling out-of-favor since the introduction of indexed universal life insurance in the late 20th century.

With the introduction of indexed life came the opportunity to continue earning indexed gains on policy cash values that were loaned against, a feature never before available on universal life. While such benefits had long been offered on participating whole life contracts with dividends not of the direct-recognition variety, customers purchasing unbundled, interest-sensitive products were never allowed the opportunity to earn interest on monies that were loaned against.

Today, indexed life insurance offers partial withdrawal options as well as three different types of policy loan options. Here, we will discuss each of these loan options, their pros and cons, and explain why withdrawals have fallen out-of-favor in the IUL market.

Fixed rate loans

Fixed rate loans have traditionally been the vehicle of choice when accessing cash values on life insurance, once the cost basis has been hit via withdrawals. Fixed rate loans are, quite simply, loans that are charged a fixed rate of interest, which is declared by the insurance company.

Often, life insurance contracts with fixed rate loans also offer a “preferred loan” provision, which charges a loan rate that is equal to the credited rate on the policy once a specified time period has elapsed (typically 10 years). In the past, some insurance agents referred to such loans as wash loans, as the interest charged and the interest credited appeared to be a wash. This is technically not an accurate way to describe the favorable loan provision, but gives one an idea of how marketable this policy feature can be.

Fixed rate loans have pluses and minuses: With fixed rate loans, you always know the amount of interest you’ll be charged. However, neither fixed loans, nor their preferred loan benefits, credit interest on the monies that are loaned against.

Variable rate loans

Variable rate loans aren’t really new; they have been utilized on whole life policies for eons. Yet indexed life insurance has reinvigorated this once-forgotten loan option. Variable rate loan provisions charge a loan rate that varies, based on the Moody’s Corporate Bond Yield Average. Considering the historical Moody’s rate has been around 8 percent, one can see why fixed rate loans (typically averaging around 6 percent) have prevailed in popularity in past decades.

Over the past few years, however, Moody’s has remained in the 4 percent to 5 percent range, meaning that variable rate loans have taken favor over fixed rate loans, which have been charging a higher rate of interest.

Variable rate loans have their pros and cons too. The ultimate pro of variable rate loans is that the policy values that are loaned against continue to earn indexed interest on IUL products. Variable rate loans can also offer more competitive loan rates when you consider that fixed rate loans are typically charging a rate of 6 percent, but some companies today have variable loan interest (VLI) rates as low as 4.39 percent.

On the other hand, variable rate loans charge interest that will likely change in the future. This makes it difficult to predict what rate will be charged on monies taken out of the policy when the agent is illustrating life insurance policy distributions at point of sale.

The insurance agent may illustrate a rate of 5.50 percent being credited to the policy, and a loan rate of 4.5 percent being charged against the loan balance; this would effectively be a 1 percent net gain (5.5 percent – 4.5 percent = 1 percent). In reality, however, the loan rate could exceed the policy’s credited interest rate, meaning that the policy holder is upside down on their life insurance.

This phenomenon is further complicated when considering indexed life, where the illustrated rate may be as high as 10 percent, but the credited rate could be as low as 0 percent.

For this reason, many companies have scorned the VLI provision on some IULs, citing that the propensity for both the policy’s credited rate and the loan’s variable rate charged can deviate significantly from what is illustrated at point-of-sale. As a result, some companies with VLI provisions guarantee that the variable loan rate will never exceed a stated rate of interest (typically 10 percent).

PARTICIPATING FIXED RATE LOANS

Also as a result of the negative stigma that has surrounded VLI on indexed life, some companies in the IUL market have begun offering an entirely new type of loan option: the participating fixed rate loan. Participating fixed rate loans (sometimes called indexed loans) are like fixed rate loans in that the interest rate charged on the policy loan is fixed (usually at 5 percent or 6 percent), and declared by the insurance company.

Conversely, participating fixed rate loans continue to credit indexed interest on the monies that are loaned against. This new type of loan options effectively offers the best of both worlds when it comes to fixed rate and variable rate loans.

That being said, we clearly see the argument for participating fixed rate loans; but what about the case against this innovative loan option? Some have argued that such loans are not sustainable. After all, if Moody’s Corporate Bond Yield Average has historically been around 8 percent, and the rate being charged against the policy cash values is only 5 percent, how is the insurance company going to account for the shortfall of 3 percent interest? Some speculate that non-guaranteed insurance charges will have to be increased, or that non-guaranteed caps and participation rates will have to be reduced, in order to compensate for such scenarios.

In the end, the loan provision chosen is up to the agent and the policy holder. Everyone selling cash value life insurance should understand that no one loan provision is better than the other. No loan provision is right for every client either. Agents need to understand the benefits and shortfalls of all life insurance distribution options. In the interim, only time will tell which loan feature ends up being the preferable option for IUL policy holders.

It is undeniable, however, that both variable rate loans and participating fixed rate loans are the more powerful options for indexed life insurance purchasers. With the power of compounding interest and the ability to earn indexed gains on the loaned-against cash values, these two loan options have made “withdrawals to basis, then loans” a thing of the past when it comes to indexed life.

There is a popular saying “the customer is always right” – in fact some very successful corporations base their whole business model around that concept. But those of us in the financial arena who deal with clients everyday know that the idea that the client is always right  is not necessarily true. In fact, it is often not true. Our clients come to us because they are not sure of what to do in this very complicated financial world that we live in. But, while the client is not always right, he is definitely the judge and the jury. This we must be aware of in all of our dealings. So how do we respond when we are under attack – being questioned about something we absolutely know is wrong?

Another popular saying is that “a good offense is the best defense.” But in the financial arena, again this may not be the best approach. If you take a so-called “good offense” and attempt to justify and explain your position you will likely cause your client to dig in his heels. A “good offense” will only make your client feel “not OK.” Why not try a different approach? When under attack- fall back.

How does that look? What does falling back sound like? Suppose your client challenges your idea that an annuity is a good solution for their concern of “outliving their income in retirement.” Now we know that is not correct but again- to go on the offense might force your client to dig in their heels. But, using questions- we can successfully “fall back” and give our clients the opportunity to change their mind. Here is what that might sound like:

“I imagine you have made up your mind already that a guaranteed lifetime income is not for you and that you do not want to go forward. Would that be a fair statement?

“If you were in my shoes what would you do to make this work for you?”

“Is it me, or is something bothering you about this concept?”

“Falling back” takes the wind out of the customer’s sails and makes it possible for you to have a conversation in which each side is OK. Once the emotional intensity is reduced, and nobody is under attack, you have a better chance of working towards a solution.