We’re here to find solutions. That’s why we work in the financial services industry. And while every advisor has their own style and strengths, we also recognize the value of connecting and collaborating with others.
So we’re trying something different. Here's the perspective of an advisor who, like many of you, is committed to educating his clients to help them make informed financial decisions.
Jeff Christenson has been in the insurance and investment industry for more than 26 years. What began as a stockbroker career morphed into an equally balanced practice of insurance solutions and investments, and Jeff hasn’t looked back since. He is passionate about helping clients and colleagues understand the power of insurance.
However, the secret to Jeff’s success is the way in which he educates his clients. He finds that thoughtful language and explanations designed to clarify what different products accomplish, is more effective than education on how products work.|
Make No Assumptions
“People love insurance,” says Jeff. “But most don’t understand it. And when they learn what insurance products can do, they are almost always surprised. Most of the high-net-worth and ultra-high-net-worth individuals I’ve met with did not understand even some of the most basic details of what insurance can do. Assuming that these people do know, is a giant mistake. It’s show and tell from grade school. But now it’s show and tell and then LISTEN. It’s our job to deliver that surprise.”
And we do that through the language we use.
According to JT Bell, of Bell and Associates (now an Ash Brokerage Company), “Jeff has done a tremendous job explaining what matters most to clients ‘when the rubber meets the road’ and he does it comparing traditional investing to alternative approaches. For many clients what matters most is simply the amount of SPENDABLE income they can reasonably expect from wherever they put their money. Once he has their attention with his “punchline” of total spendable income – and clients often scratching their head how this could be possible - Jeff supports it by weaving together taxes, fee-structures, risk-mitigation, and policy loan types to support and explain from there. With this format, Jeff consistently places several six-figure Target cases through us every year.”
Telling the Story
In Jeff’s experience, consumers generally find insurance presentations confusing. The problem isn’t that we as advisors don’t have the tools. We do. As Jeff shares, “the biggest, strongest, most wonderful insurance companies in the country have been busy for many years, creating certain financial products that clobber Wall Street products. It’s our job as advisors to communicate that to clients who can benefit.”
But the average consumer doesn’t see it that way. We need to translate those tools to language the client understands.
“Shouting at you in French isn’t very helpful if you don’t speak French. The magic is the translation. It’s how we get things done,” he explains. “Right now, clients are ill-equipped to speak the language. But we can change their reaction from ‘no way’ to ‘yes, please’ just by using different language.”
Jeff takes a storytelling approach, using two fictional characters – Fred and Barney – to help his clients see how financial goals can be achieved when presented with different investment opportunities. Let’s look at a high-level example of how Jeff uses the Fred and Barney personas to help his high-net-worth clients with investment or insurance decisions:
- Fred and Barney are each age 50 and plan to invest $200 thousand a year for seven years. Each will have a total investment of $1.4 million over seven years.
- Fred invests his money with an investment firm paying typical management fees and taxes on his earnings. Fred enjoys a spendable income of about $217,000 per year from his investment account which lasts 12-years -a total of $2.6 million.
- Barney places his money in a max-funded, specifically-designed IUL. He enjoys spendable income lasting a full lifetime - a total of $6.6M by age 95.
So instead of trying to sell an insurance product, Jeff focuses on telling a story to help clients along. And he focuses on what they achieve with each different strategy.
Little Changes. Big Results.
Jeff applied the Fred and Barney strategy to a client we’ll call Phil. Successful in the commercial real estate business, Phil’s net worth is $75 million. Jeff served as Phil’s investment broker but didn’t want to disrupt Phil’s long-standing relationship with an insurance rep we’ll call Tom. Phil was pleased with the easy explanation yet disappointed that Tom hadn’t explained the concept of max-funded IUL insurance to him.
Having worked with Tom before, Jeff reached out to him and learned that Tom had told Phil about the max funded IUL, but Phil didn’t recognize the concept. It wasn’t until he heard the story version of Fred and Barney that Phil could conceptualize the power of the investment choices. This collaboration led to a more strategic plan for Phil, and increased confidence in his financial future.
“If my client is convinced that investments are better than insurance,” says Jeff, “I won’t be able to change their mind. But once I translate my solution into general language, without getting bogged down on product descriptions, they’re more open to considering different types of strategies.”
With different language, we can help clients have a bigger impact.
Little changes in how you position and use stories to help clients understand concepts lead to big impact — no matter which solution you recommend to help them achieve their goals. And in today’s environment when clients may feel more uncertain of their financial futures than ever before, painting a picture through a story can help them connect to the why behind the product, so they feel confident in taking the steps you recommend.
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act to provide nearly $2 trillion of support to families and businesses during the COVID-19 pandemic. This was a massive bill with provisions that will affect nearly every part of the nation’s economy.
As with any new tax law, it will take time for tax professionals to understand the implications not to mention for the Treasury Department and other agencies to issue implementing regulations. That said, Congress clearly intends for the law to deliver significant economic support to businesses and individuals in rapid fashion.
We want to call your attention to some specific provisions that we believe have particular relevance for our advisors, depending on the focus of your practice. We expect that, as you review this material, you will be thinking about how various provisions may apply to the particular circumstances of your most important clients.
(This material is intended for advisor use only. It is believed to be accurate based on our current understanding of the recently passed CARES Act. Ash Brokerage does not provide tax or legal advice.)
Advisors to Individuals
2020 Recovery Rebates for Individuals
- Provides a $1,200 refundable tax credit for individuals ($2,400 for taxpayers filing jointly) plus $500 for each child.
- The rebate phases out between $75,000 and $99,000 of AGI ($150,000 - $198,000 married filing jointly).
- The rebates are not taxable income.
Temporary Penalty-Free Early Distributions from Retirement Funds
- The usual 10% withdrawal penalty on QRP distributions taken prior to age 59 ½ is waived for “coronavirus-related” distributions made prior to Dec. 31, 2020.
- A coronavirus-related distribution is one made to someone:
- Who is diagnosed with SARS-CoV-2 or COVID-19
- Whose spouse is so diagnosed
- Who experiences adverse financial consequences as a result of being quarantined or losing the ability to work
- Maximum distribution is $100,000.
- Distributions are not subject to mandatory withholding.
- A coronavirus-related distribution may be included in income over a three-year period.
- Additionally, a coronavirus-related distribution may be re-contributed over a three-year period to any QRP plan of the participant.
Temporary Increase in Limit on QRP Loan Amount
- Normally, retirement plan participant loans are limited to the lesser of $50,000 or 50% of the participant’s vested account balance.
- For 180 days following enactment (i.e. until Sep. 23, 2020), the limitation is increased to the lesser of $100,000 or 100% of the vested balance.
- For plan participants with outstanding QRP loans, any payments due through Dec. 31, 2020, can be deferred for one year.
- Plan sponsors are permitted to immediately amend plans to permit making coronavirus distributions and plan loans.
Temporary Waiver of Required Minimum Distributions
- Required minimum distribution rules do not apply for calendar year 2020.
- Normally, defined contribution plan participants and IRA owners who have met the applicable age threshold are required to take required minimum distribution each calendar year, with the distribution amount determined by the plan’s account balance as of Dec. 31 of the prior year.
- Given that most plans have balances significantly lower than the Dec. 31, 2019, balance, this provision could allow plan participants to avoid “selling into a loss” – at least for 2020.
Partial Above the Line Charitable Deduction
- Taxpayers that do not itemize may deduct up to $300 in cash contributions made to qualifying charitable organizations.
- Contributions to supporting organizations and donor-advised funds are not eligible.
- Applies to tax years beginning after Dec. 31, 2019.
Temporary increase in Charitable Contribution Deduction Limit for calendar year 2020
- For tax year 2020, the individual taxpayer’s charitable contribution deduction limit is raised from 60% to 100% of AGI.
- Contributions in excess of the 100% limitation may be carried over for five years.
- Contributions must be comprised of cash.
Temporary Increase in Unemployment Compensation Benefits
- “Regular” unemployment compensation is increased by $600 per week, and the benefit period is extended by 13 weeks to 39 weeks.
- The normal one-week waiting period for commencing unemployment benefits is waived.
- Eligibility is expanded to include any individual who would not normally qualify for unemployment compensation under state law but who is unable to work because of COVID-19:
- The individual has COVID-19, a member of the household has COVID-19, or the individual’s child is unable to attend school or child care due to COVID-19
- The individual is unable to reach the place of employment or start a new job because of a quarantine being imposed or being advised to self-quarantine
- The individual has become the breadwinner for a household because the head of the household has died of COVID-19
Advisors to Business Owners
Paycheck Protection Program – through June 30, 2020
- Temporarily provides greatly increased eligibility for SBA loans.
- Eligible businesses can borrow money for a variety of qualified costs including those related to employee compensation and benefits, mortgage interest, rent and utilities.
- Maximum loan amount is 2.5 times the average monthly payroll costs, up to $10 million. Maximum loan term is 10 years. Maximum loan rate is 4%. Origination fees are waived.
- Loans are fully guaranteed by the Federal Government.
- A portion of loan principal may be forgiven equal to spending over eight weeks on payroll for employees earning less than $100,000, mortgage interest, rent and utilities. The amount of forgiven debt will not be taxable income to the borrower.
- Employers that rehire previously laid-off employees can include the payroll of the rehired employees in calculating the loan forgiveness eligibility.
- Debt service payments may be deferred up to one year.
Emergency Economic Injury Disaster Loans (“EIDLs”) – through Dec. 31, 2020
- Temporarily provides greatly increased EIDL eligibility.
- Applicants may request a $10,000 advance within three days of application; the advance does not need to be repaid even if the loan is ultimately denied.
- Personal guarantees on loans up to $200,000
- Requirement of being in business for at least one year
- The credit elsewhere test
Employee Retention Credit – March 12, 2020, through Dec. 31, 2020
- Each calendar quarter, eligible employers are allowed a credit against employment taxes equal to 50% of qualified employee wages.
- For employers with more than 100 employees, qualified wages include only those paid to employees who are not providing services due to the circumstances.
- For employers with 100 or fewer employees, qualified wages are those paid to any employee, whether or not services are provided.
- Maximum credit attributable to any employee is $5,000.
- The credit may only be claimed against the employer’s 6.2% share of employment taxes.
- If the credit exceeds the employer’s share of Social Security taxes, the excess will be refunded.
- Eligible employers are those who have had business fully or partially suspended due to government orders to stay at home or those who have had a greater than 50% reduction in quarterly receipts compared to the prior year.
Temporary Increase in Charitable Contribution Deduction Limit
- For tax year 2020, the corporate taxpayer’s charitable contribution deduction limit is raised from 10% to 25% of taxable income.
- Contributions in excess of the 25% limitation may be carried over for five years.
- Contributions must be comprised of cash or food inventory.
Employer-Side Social Security Payroll Tax Delay
- Employers can defer remittance of their 6.2% share of Social Security tax for 2020 over two years.
- 50% of their Social Security tax liability on wages paid in 2020 can be deferred until Dec. 31, 2021.
- The other 50% of tax liability can be deferred until Dec. 31, 2022.
- A self-employed individual can likewise defer half of their 2020 self-employment taxes over the same period.
- The employer’s share of Medicare tax is not affected and must be remitted. Likewise, the employee’s share of Social Security taxes and the employee’s income tax withholding are not affected and must be remitted.
Net Operating Losses for Corporations
- A corporation that incurred a net operating loss (NOL) in 2018 or 2019, or which incurs an NOL in 2020, is permitted to carryback the NOL to the prior five years to offset prior year income.
- The 80% income limitation for NOL deductions for years beginning before 2021 is temporarily repealed.
- As a result, a corporation will be eligible to claim a tax refund of previously paid federal income taxes.
- Corporations having an NOL from prior years may be able to secure a relatively quick refund by filing an amended return as appropriate.
- Corporations expecting a 2020 NOL should review whether its estimated tax payments should be adjusted and should prepare to file a refund claim promptly after closing the 2020 tax year.
Temporary Increase of Interest Expense Limitation for Corporations
- The maximum amount of interest expense a corporation may deduct is increased from 30% to 50% of adjusted taxable income. (Excess interest expense can be carried forward.)
- A corporation may elect to use its 2019 income for determining its 2020 interest expense limitation since many businesses will have little or no taxable income in 2020.
- Combined with the favorable NOL provisions, a corporation can take an interest deduction in 2020 that would generate a (larger) taxable loss that could then be carried back to recover taxes paid in the previous five years.
Excess Loss Limitations Repealed
- The 2017 Tax Cuts and Jobs Act added a new provision to the Internal Revenue Code limiting excess business losses of non-corporate taxpayers (including owners of S corporations and LLCs) to $250,000 ($500,000 for married taxpayers filing jointly.
- That provision has been repealed.
So, what’s it all mean? That’s a good question. The short answer is that there are different implications for different situations. But you don’t have to navigate it alone. We’re here to help. Reach out to your Ash team with questions and concerns and we’ll help you work through them.
On Dec. 17, the House of Representatives approved the current appropriations bill which contains the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The Senate is expected to approve the bill and send it to President Trump for his signature by Dec. 20 to prevent a government shutdown.
Some provisions will take effect as early as Jan. 1, 2020.
This is a significant piece of legislation that makes numerous changes to the retirement system. The goal is to make it easier for businesses to offer retirement plans and for individuals to save for retirement.
Among those changes are:
Multiple employer plans or pooled employer plans
- Allows two or more unrelated employers to join a pooled employer plan
- Elimination of “one bad apple rule” and nexus requirement should encourage adoption
- Effective for plan years after Dec. 31, 2020
Employer-based plans are easier to adopt and more tax friendly
- Tax credits for small employer plan startups
- Easing of requirements for pooled employer plans
- Deadline for plan adoption moves to the due date of the tax return – versus (current) end of calendar year. This effectively allows employers to retroactively start a plan if they recognize the advantages prior to filing tax returns.
Part-time employees included in 401(k) plans
- 401(k) plans are required include employees with either one year of service of 1,000 hours, or three consecutive years of service with 500 hours
- The employer may exclude such employees from nondiscrimination testing
- Effective for plan years after Dec. 31, 2020.
Encourages annuity products inside employer-based plans
- Provides a safe harbor for selecting an annuity provider – effectively, some basic due diligence upfront eliminates an employer’s liability for a carrier’s subsequent failure.
- Rules to ease portability of lifetime income products between plans or to IRAs.
- Plan participants must annually receive a lifetime income disclosure. The disclosure would illustrate the monthly payments the participant would receive if the total account balance were used to provide lifetime income streams, including a qualified joint and survivor annuity.
- Waives §72(t) penalty for pre-59½ plan distributions used for childbirth or adoption expenses up to $5,000.
- Waives §72(t) penalty for pre-59½ plan on qualified disaster distributions up to $100,000. Income tax on a qualified disaster distribution can be spread over three years.
- Up to $10,000 of 529 plan money can be used to pay off student debt. An additional $10,000 can be used to pay student debt for each of the plan beneficiary’s siblings.
- 529 plan money can be used to cover costs associated with registered apprenticeships.
RMD start age
- The required minimum withdrawal start age is raised from age 70½ to age 72
- Applies only to individuals who have not attained age 70½ by Dec. 31, 2019.
Maximum contribution age
- The age cap for contribution to an IRA, which used to be age 70½, has been eliminated
- For other than “eligible beneficiaries” of DC plans and IRAs, balances must be distributed in full to must be distributed by the end of the 10th calendar year following the year of death.
- There will be no required minimum distribution during the first 9 years.
- Eligible beneficiaries are surviving spouse, disabled, chronically ill, not more than 10 years younger than owner, and minor children.
This last item, the change to inherited IRAs, is significant in that it essentially eliminates the “stretch IRA” strategy. Under current law, if an IRA or DC plan owner names a child or grandchild as beneficiary, once they inherit the plan, they can use their own life expectancy to calculate the required minimum distributions. For those with significant QRP assets, the “stretch” keeps RMDs low and thus maximizes the opportunity for tax-free growth.
Now, instead of a young beneficiary taking distributions over several decades, all the assets will be distributed (and taxed) within 10 years. In cases where the inherited IRA has a six-figure balance, the beneficiary may well be pushed into a higher income tax bracket as a result of the distribution.
In many cases, a more tax-efficient wealth transfer strategy will be for the IRA owner to use the after-tax proceeds of lifetime distributions to fund a life insurance policy. The life insurance death benefit is received by the beneficiary income-tax free and can partially or fully offset the IRD (income with respect to a decedent) tax liability on the remaining IRA balance. To eliminate the IRD tax, distributions could be increased to fund a policy giving the beneficiary the desired inheritance, and any remaining IRA balance can be left to a charity.
Note: Loss of “stretch distributions” also impacts those families who had planned to leave QRP assets in so-called conduit trusts. The language of such trusts will likely need to be revised.
As with any legislation, it will take time to fully understand the impact on our industry. Changes to the industry are part of why we exist. We're committed to providing you with multiple solutions, concepts and products through a consultative approach to case design. We help guide you, so you can effectively guide your clients.
If you have questions specific to your clients, please reach out to our Advanced Markets team. Whatever the question, whatever the need. Ash Answers.
About the Author
As Senior Advanced Markets Consultant at Ash Brokerage, Steven Gates uses his analytical expertise to support advisors who serve high-net-worth clients, including business owners. Using customized modeling options, he helps create life insurance-driven strategies for wealth transfer, business protection and charitable leverage. In his consultant capacity, he will also identify other strategies that may be beneficial for the client while meeting the advisor’s objectives.
JourneyGuide started as an idea at Ash Brokerage. Today, it functions as its own separate entity, with a retirement income planning software unlike others in the industry.
When looking to add a new planning tool to our retirement platform, there were three things it had to accomplish:
- Improve the retirement outcomes for clients
- Grow an advisor’s business
- Show how annuities fit into a retirement plan
JourneyGuide does that. As Ash's retirement solutions platform quickly approaches $2 billion in annual annuity deposits, it's important to add value and help document why an annuity is in the best interest of your clients. We evaluated several market-leading financial planning tools. JourneyGuide won on sales capacity, simplicity and speed.
No matter what the model – RIA, independent or broker-dealer – advisors using JourneyGuide have increased their annuity proposals. Some even doubled their annuity sales. The interface is easy to use and allows you to show how the annuity works in the clients’ best interest. You can develop an annuity-inclusive retirement plan, collaboratively with your clients, in under 15 minutes. Your clients will be able to visually see the impact it has on their portfolio.
I could go on and on, but here’s the bottom line: I prefer completing a plan in real time with the client, proposing more guaranteed income using annuities, and winning more business as a result. It’s tested, and it works.
Through your Ash team, you can now get JourneyGuide at a 10% discount. You can read more about our selection process in the official press release. More importantly, you should reach out to your Ash Retirement Income Consultant for details on how to get signed up.
Everything we do centers on helping you grow their business. The JourneyGuide team shares that vision, and now you can too.
In business, it’s easy to get caught up in the numbers. Sales goals, margins, expenses, etc. – a lot of those reports come across my desk. But as 2017 comes to a close, I find myself focusing at some figures more than others.
Inspired by Dave Sheridan at Protective Life Insurance, I wanted to share some data that maybe doesn’t get as much attention as it should. Here are three numbers:
- $16.6 billion
I’ll give you a couple hints. The first and third figures come from all lines of business combined. The second is from our life insurance division. You don’t have to guess – here are the stories behind them.
- Ash Brokerage protected 28,498 people in 2017. That’s nearly 30,000 lives impacted by our work. If you add in the families of those individuals, the number is exponentially bigger. The peace of mind we provide is immeasurable.
- We placed $16.6 billion in life insurance face value. That’s $16.6 billion to help families in times of crisis. To pay for college. To keep them in their homes. To let them continue on without their loved ones. It’s truly priceless.
- The last number is YOU, our advisors. We had 6,866 advisors submit business with Ash Brokerage in 2017, and we couldn’t be more grateful. Without you, those other figures would not exist. You’re the ones on the front lines, caring for your clients. Thank you.
As we embark on a new year, these numbers will stay etched in my mind. We’re in this business because we care. It’s not always easy, but it is always worth it. Every. Single. Day.
I’ll leave you with some words that I’m sure you’ll read again and again in 2018 … these words are my promise, and the promise of every person on our team: Whatever the question, whatever the need. Ash Answers.