One of the most common threads I’ve seen in successful financial advisors is a tenacious focus on the client outcome. Outcomes are the results that outstanding advisors provide clients to achieve goals, solve problems and provide financial fulfillment. This is not to understate or minimize the process and client experience along the way – both of which are intensely important – but results provide advisors with tangible proof of their value to reinforce client relationships.
Let’s highlight three strategies that led to outstanding client results. I will take you through how advisors engaged with their insurance partners to solve problems and achieve the best outcome for their clients.
Early this year we had an advisor approach us with an opportunity to assist in putting together an insurance portfolio for two business partners. Let’s call them Jim and John. The two clients built an extremely successful manufacturing business that was well capitalized and generated significant cash flow. Jim and John needed to arrange a buy-sell agreement and funding strategy.
Based on the advisor’s discovery session with Jim and John, their goal was to ensure they had enough insurance coverage to fund the buy-sell arrangement, and they didn’t like the idea of “renting” term insurance. The clients believe that in 15-20 years they will be exiting the business and it is important to them to either have cash value built into their coverage that they could take with them or permanent insurance they could repurpose for estate planning. While this may sound relatively straightforward, the typical “cross-purchase” arrangement makes this more difficult to accomplish as the partners would essentially own each other’s policy. While cross-purchase is still a workable strategy, a more streamlined solution for this type of scenario is to establish a partnership to own the policies with an operating agreement that will govern the buy-sell.
The benefit of using a partnership to own and govern a buy-sell agreement is threefold.
The advisor suggested the clients consider creating a partnership agreement funded with cash-accumulating life insurance. Jim and John agreed to the strategy and began underwriting while also engaging with their attorney to draft the appropriate agreements.
Jim and John were both approved with favorable underwriting terms and put the advisor’s recommendation in place. Each of their policies is projected to last for their lifetime and have cash values at their target retirement age that well exceed the premiums paid. The outcome of this scenario is the coverage Jim and John needed with an ownership structure that accomplishes what they wanted.
The fastest-growing line of business at Ash is our long-term care business or, perhaps more appropriately named, our healthcare in retirement business. In speaking with advisors across the country, there is a palpable demand from their clients for solutions to fund potential long-term healthcare events. Virtually everyone has now witnessed a grandparent or parent go through an extended care event and the strife and complexity that often accompanies it. The question is no longer if a client will need care, but when and how to fund the care.
One of our most successful advisors found a unique funding mechanism to seamlessly provide his clients with a substantial amount of LTC coverage without impacting their cash flow or investable assets. This advisor has a group of clients with significant cash accumulations in underperforming whole life contracts. These contracts were earning a relatively modest, albeit safe, rate of return every year and required an annual outlay. Few clients needed the insurance death benefit and the money in the contracts was more of a contingency pool of assets rather than dollars needed for retirement income.
Knowing that one of the primary reasons a client might need those “contingency” whole life dollars is a significant long-term healthcare event, the advisor looked for a different strategy. The advisor recommended a tax-free exchange to an asset-based long-term care policy. Asset-based LTC is relatively simple: The client deposits money with the insurance company (since this was a rollover, it was a single lump sum) and in return gets a pool of dollars for long-term care that is often three-five times the initial lump sum and is indexed for inflation. In some of this advisor’s cases, the LTC pool of dollars represents a tax-free internal rate of return in excess of 8% at life expectancy. The drawback of the asset-based strategy is a very modest death benefit – essentially a return of the premium. Since this group of clients weren’t concerned with death benefit, but knew the impact of an LTC event, this solution fit very well.
This advisor was able to provide his clients with certainty and peace of mind about long-term care, all with very little disruption to the client’s financial picture. By repositioning an asset that was no longer serving the client’s needs, he was able to mitigate one of the biggest risks in retirement, a long-term health event. This is a very positive outcome.
This summer, we had an advisor approach us with a client who had been oversold a portfolio of annuities. The annuities had significant surrender schedules, high fees for guaranteed income riders, and the client (let’s call him Joe) had no need for the income in retirement. These annuities were ultimately going to pass to Joe’s family, and he was relatively unsure why he had acquired them.
Joe’s advisor brought his portfolio of annuities to Ash and asked us to help model some scenarios integrating insurance. We put together projections for maintaining the current annuity portfolio but also looked at using the guaranteed income features to fund an insurance strategy for the client. The insurance strategies created a far more compelling net result for the client and added in some potential long-term care coverage as well.
The outcome for this client was a better, more sound planning result that was a custom fit for his circumstances, not an advisor’s commission statement. Our models proved the value of insurance and created a platform for this client to make the right decision.
2019 was a great year, and by focusing on bringing solutions to every client, every time, we can keep this momentum going in 2020. And beyond.
In this industry, we’re planners by nature. It’s what we spend our time doing — working out a plan for a client to help them achieve their dreams. Much of our planning is for the what-ifs. If this event ever happens, what does that mean for my client? We plan for individuals. For families. For businesses.
So let’s discuss the often-overlooked need for a disability buy-out plan. Businesses must plan for the possibility of a partner becoming disabled. And it’s essential that the planning takes place before the disability happens. Either first-hand or through stories, we’ve all experienced tragic events that force businesses to sell to the lowest bidder, discounting years of work and sacrifice. Those outcomes are the result of not having a plan in place in advance.
Just establishing the need for a plan is a great way to start. Ask your clients some basic questions, giving them things to think about should one of them become disabled:
Unlike common life valuations, there is not a goodwill multiplier or a gross sales multiplier. Just use the tax documents to follow the steps above and you’re ready to go.
Experience teaches us that plans change. But without looking forward, without preparing, we won’t be able to help clients – or ourselves – achieve success.
The key here is to help your client create a formal written plan, regardless of how they decide to fund it. In many cases, disability insurance is the answer. But even if it’s not, just having a plan is what matters.
And as always, the Ash Disability team is here to provide solutions. Just let us know what you’re trying to accomplish, and we’ll help you see it through to paychecks, made possible.
I get it.
Long-term care isn’t something you work on daily. You’re not comfortable discussing the subject, and you’re not confident you can answer all your clients’ questions.
If you take one lesson away from me, let it be this: Long-term care IS overwhelming. And that’s EXACTLY why you need to help your clients create a plan. You’re accountable to them and their families. Your ability to handle complex topics is exactly why your clients work with you.
Here are a few questions to get started:
Look at this from another angle. Yes, the planning conversation can be hard. But what kind of conversation will you be having with your client’s spouse or children if you don’t help them create a plan?
It will be far more overwhelming to help them make decisions and find funds in the middle of a care event. I can promise you that.
You don’t have to have all the answers. You just have to ask the right questions. Still not ready? That’s where we come in.
© 2018 Ash Brokerage LLC.