While the recently passed SECURE Act 2.0 is generating quite a bit of conversation in retirement planning circles, it has not had near the impact in the life insurance segment that the original SECURE Act did when it was passed back in late 2019. The primary impact of SECURE 1.0 in the life insurance space was the significant change to Stretch IRA rules, making inherited IRAs even more of a tax challenge for beneficiaries. Read on to learn more about a strategy to work with both G1 and G2 for a comprehensive solution!
In an ironic twist, planning opportunities stemming from SECURE 1.0 focus not as much on the taxes paid by “G2” beneficiaries, but on the “G1” IRA owner who has had the good fortune to accumulate a large qualified plan balance and the ability to fund a traditional IRA Maximization strategy involving current distributions to fund a life insurance policy with far more favorable tax treatment. This presents some planning obstacles for all involved, including:
This last issue, the remaining balance inherited by G2, has two components:
Fortunately, many of the challenges listed above are easily solved with a life insurance strategy focused on G2. By establishing a permanent life insurance policy as part of G2’s retirement planning approach, there is the possibility of avoiding the taxes that would be due on gains from other asset types. This policy is funded by a portion of the inheritance, and are a number of design elements to consider to render it maximally effective: Consider using a face amount in excess of the minimum required to accommodate the portion of the inheritance allocated to the strategy. The “balanced” approach to the design will also increase any amounts available via accelerated benefit provisions included in the base policy or added via rider, strengthening G2’s care planning strategy. Availability of participating loans early in the policy could allow for higher funding levels, subsequently using a policy loan to pay taxes when due in April of the following year, versus holding a portion of the proceeds back in anticipation of future taxation. Another consideration is one of timing. While the fact that there is a future inheritance may be known fairly early on, the timing of the event is obviously unknown. This could present a problem if there are insurability issues for G2 that present themselves at the time of the inheritance. The solution to this challenge is to put the insurance in force on G2 early in the process, in anticipation of the future inheritance. Doing so eliminates insurability as a future unknown and would also become part of G2’s overall retirement planning. Having a tax-favored source of retirement income above and beyond the ability to accommodate the inheritance strengthens the resilience of their overall retirement plan. If this approach is pursued, the use of a policy face amount higher than the minimum required for G2’s premium budget at inception creates the capacity to accommodate the future inheritance. While this strategy has been described as a way to solve the issue of not being able to execute a traditional IRA Maximization strategy, the use of these two strategies in concert would be maximally effective in terms of reducing taxation of the IRA and minimizing G2’s tax burden on a forward-looking basis. This “second sale” to G2 in an IRA Maximization strategy can also be used to prospect up or down the family tree, depending on where the original client relationship lies. PUT US TO WORK ON YOUR NEXT CASE!
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Fixed index annuities (FIAs) have many strong advantages to help protect your client’s savings and provide sustainable income over many years. Our goal is to help you gain a better understanding of the components that make up FIAs. This knowledge will enable you to make well informed decisions when it comes to product selection and design. FIAs accrue interest based on an external index, the index selected determines the amount of indexed interest received, which will fluctuate based on index change over the crediting period. The choice of the external index stands paramount. It is critical to explore the array of index options aligned with your FIA considerations. Equally crucial is the selection of the interest-crediting method for your FIA. The crediting method determines how fluctuations in the index will be calculated then credited to the annuity. The method chosen incorporates elements such as caps, spreads, and participation rates, which may greatly impact of indexed interest earned. In the subsequent sections, we delve into prevalent crediting methods, shedding light on how they work. Annual Point-to-PointA straightforward crediting methodology, annual point-to-point hinges on comparing the index value at two distinct points in time. This option could work well during periods of higher than usual mid-year volatility. Process Overview:
Illustrative Example: In a hypothetical scenario, if the ending index value surpasses the initial value by 6%, the indexed interest for the policy year could be contingent upon factors like a participation rate of 110%. Thus, the indexed interest would amount to 6.6%. However, if a cap is in place and is lower than the 6% increment, the indexed interest would be capped accordingly. Similarly, if a hypothetical scenario features a 3% spread, the indexed interest would be 3% (6% change in index value – 3% spread). Multi-Year Point-to-PointEchoing the principles of annual point-to-point, the multi-year point to point spans multiple years, thereby diminishing the influence of market volatility between the selected points. Process Overview:
Illustrative Example: Consider a two-year point-to-point crediting scenario, where the ending index value outstrips the initial value by 10%. Assuming a participation rate of 150%, the indexed interest over the two contract years would amount to 15%. Monthly Sum This volatility-sensitive methodology tracks monthly index fluctuations, offering interest in buoyant markets while being susceptible to downturns. Process Overview:
Illustrative Example: In a hypothetical monthly sum scenario with a 2.00% cap, monthly index fluctuations are evaluated. The cumulative sum determines the indexed interest, with any negative sum resulting in no interest accrual. FIA Crediting Methods: A Quick Overview Below is a chart outlining the relative sensitivity to performance volatility and interest potential of a few common Fixed Index Annuity (FIA) crediting methods.
Please note that this chart serves as a brief summary; it's essential to review the detailed descriptions of each crediting method before making a decision. Remember, no single method is universally superior. Depending on market conditions, one method may yield more interest than others—or no interest in a given year. Additionally, you have the option to combine crediting methods. Regardless of your choice, your accumulation value is safeguarded from negative performance. When looking at net profits, money is the second of the assets that we must monitor and master. "Time" is the first asset, which you can read more on here.
I prefer to separate the money that I put into my business in two categories: Expenses and Investments. First, let’s look at and define our subset consisting of expenses and investments. Expenses are pretty easy to define. They are the basic items we need to run our practice. These are dollars spent to insure that we are able to adhere to the philosophy of Service, Credibility, Integrity and Profitability (SCIP®). Expenses are things like rent, telephone, salaries, supplies, fees paid to outside consultants, professional fees, website maintenance, business insurance, health insurance, office equipment and other things of this nature. This seems pretty straight forward but it always bares further investigation. It’s important to reevaluate your vendors at least once per year because the savings through this will increase your net profit. Expense is the biggest factor when you are trying to increase your net profit. Remember: Revenues - Expenses = Net Profit Let’s look at investments vs. expenses. Investments are costs associated with items that will either maintain or increase your net profit. Some investments must be made just to stay even and keep your flow of income. Others are dollars spent to get to the next level, such as increased advertising, website enhancement, increased direct mail, client appreciation events, new office furniture or a more prestigious location and continual education. What about a new hire dedicated to a new project? What about hiring an intern? How about hiring a public relations person to enhance your position in your community? These are investments. And there is no better place to invest in than your own business. You have the most control in this endeavor. When considering deficit spending and its possible values, just make sure you have a well thought out plan with the proper strategies and tactics to give you the best chance for success. People engage in “proper” deficit spending everyday. Kids and parents borrow money for college. Cities raise money through bonds to enhance and improve their communities. There are many more examples. Money is precious. Make sure you use it properly, for it is usually a finite asset and not never ending. You spend a lot of money to get in front of these prospects. So, doesn’t it just make good sense to give yourself the best opportunity of closing the sale? Time, money, and manpower are your assets. Don’t waste them! Set the stage for a successful conclusion to every sales meeting.
For many professionals, closing the sale always seems to be the toughest part of the sales cycle. If you have had this problem, don’t think you are all alone. It is the toughest part of any business. In fact, “closing the sale” applies to professions you may not have thought of. Consider these examples:
What all of these effective “sales persons” do that you may not be doing is “setting the stage” for the closing. They know, perhaps instinctively, how to prepare their “clients” for a definite conclusion. Setting the stage includes:
Here are four (4) general reasons that people don’t buy:
Understanding these “rejection factors” is why it’s important with every prospect to build trust, qualify them financially, and conduct a thorough needs analysis. A “fact finder” form allows you to find your prospect’s number one concern or need. Once you discover that need, you will be able to focus on it. As you present your story, you can make sure that you are addressing your prospect’s main concerns. Furthermore, during this fact finding process, you should never introduce new needs or concerns. The successful advisor always sticks to the big picture. If you do present new topics, you will sidetrack your discussion and move away from not toward closing the sale. Now, I know you’ve heard these tips hundreds of times. You know what to do ... but are you doing it? If not, you should review your branding and prospecting methods, examine your knowledge of your market, evaluate your time management procedures, and scrutinize your sales presentation. Again, at the heart of the process – the beginning of the sales call – is the use of fact finder interview. You would be amazed at the high percentage of advisors who don’t bother to use a fact finder. Most advisors simply walk in and try to dazzle their clients with their footwork and close a sale fast. Using a fact finder will separate you from the majority of financial sales people, because your clients and prospects will see you as the true, professional advisor. Do your homework – know your prospect, your products, and your market. Engage in some careful fact finding to identify the true needs of your client. Then, begin your “pitch” while staying on track throughout the conversation until you reach the conclusion. You will find that if you accomplish these steps, closing the sale will be the obvious and normal conclusion you and your client reach. I can't remember who first said the title above, but I know that it has been repeated for years. For many, it falls on deaf ears. Many think that they can just "wing it.” Well, the very greatest can sometimes wing it for a while. But, as things get more complex, one starts running out of hours in the day, or the rules change, then we find that we needed a plan to be able to address any of the aforementioned challenges. The following is from the book "The Best of Success," compiled by Wynn Davis. "Planning is like a road map. It can show us the way, head us in the right direction, and keep us on course. Planning means mapping out how to get from where we are now to where we want to be. Planning is the power tool for achievement - the magic bridge to our goal."
I think this sums things up pretty well. We are entering the planning season for next year, and it is time to start thinking about the plan. Income goals, market goals, digital marketing, branding, sales numbers and more. In my opinion, you need a template. You should make this as easy as possible. Therefore, I suggest that the best plan is the one year plan. You can start looking out further once you are implementing the plan. You want to keep the plan flexible and have exit strategies and plans 2 and 3. Because, as you have seen, the world changes faster now than ever before. So, that challenge also presents a tremendous opportunity. You can get there faster than your competition if the plan is ready to kick off on January 1st. So, the time to start is now. As I conclude this short commentary, I would like to offer up The Ohlson Groups business plan and marketing plan templates. I like to use the "KISS” method... Keep It Simple Stupid. And, I am addressing this to me and The entire Ohlson Group. We have the tools to assist you in reaching your goals. But, we have to have a plan. So, schedule a planning session with one of our marketing consultants. I close with the following, "Reduce your plan to writing... the moment you complete this, you will have definitely given concrete form to the intangible desire." Thanks for your attention and until next time... good selling! Most of us came in this business hearing the famous selling tip- KISS….keep it simple stupid. This acronym has never been as important as it is in today’s fixed annuity arena. Remember, when we speak of fixed annuities, we are addressing the traditional fixed and the “fixed” index annuities.
Let’s focus for a minute on the index annuity market. This is a “goofy” market. Have you even seen anything like this in your insurance career? We have products that take most agents 30 minutes to understand. How are we supposed to explain them to a prospect or client in three (3) minutes? Please allow me to quote Jack Marrion, President of the Advantage Compendium, “Fixed index annuities can best be described as savings instruments offered by insurance companies that provide a minimum guaranteed return. Insurance companies’ earnings, above and beyond what is needed for this minimum guarantee, are used to purchase an index-link providing the potential for the crediting of excess interest above the minimum guarantee.” Sounds pretty simple, doesn’t it? This is even better when you explain to the prospect that their principal and past interest gains are never subject to investment risk. They are backed by the faith and credit of the insurance company. This is safe and this is simple. Some might want a simple explanation of the difference between a “fixed rate” annuity and a “fixed index” annuity. Marrion says, “The difference between the two is that with a fixed index annuity, most of the interest paid is used to buy an index-link on an equity index. This gives your client the potential for more interest if the index cooperates.” This sounds pretty simple to me. You do, of course, have the benefit of many fine point of sales pieces along with historical performances of each crediting methodology. So what’s happened? Why all the confusion? Okay, many companies have made these products difficult to understand ... too many index choices and too many games. Some products have stretched the surrender periods without giving anything back to the client. Don’t get me wrong, long surrender periods are okay if the client gets something in exchange and fully understands what he/she is buying. Some products will never, in my opinion, perform well. Why? They are building in unmanageable commission structures. I like high commissions as well as anyone, but not at the expense of our clients.
Before we analyze potential changes, let’s look at the traditional “fixed annuity.” The traditional, non-index annuity, has been around for quite some time. It has really served a great purpose. People have been able to save money through this vehicle on a tax deferred basis. The last ten (10) years provided our industry with an excellent opportunity for explosive growth. Boy did it ever happen! Bank annuity sales took off; agents were experiencing tremendous increase in incomes and companies’ assets exploded. The annuity design was simple. They mimicked CDs. That’s the greatest benchmark for today’s consumer – “is this annuity paying more than my CD?” This is very important because that is the most important factor in your client’s decision to purchase. Tax deferred growth, freedom from probate and an income they can’t outlive is a distant second to “beating” the CD. But things started to get a little cloudy. Let’s take a look. Companies wanted an increase in market share. They wanted more assets under management. Remember, that’s one of the two (2) biggest factors in which an insurance company makes money. It’s called the spread. It’s the difference between what the company earns in investment income and what they pay your client. The bigger the spread…..the bigger the profit. The other main factor is expense (home office costs and of course, your commissions). So, enter the day of the first year bonus. This “sizzling” first year rate brought in a lot of money. These bonuses have brought about some critics from the press, as well as, disgruntled clients. Why? Renewal rates, in many cases, tanked. These were declared rate annuities that allow the company to “declare” where they set the renewal rates. Many companies in search of income reduced your client’s rate to increase the spread. Wall Street liked it….but not the policyholder. I believe that it’s in your best interest, as well as your clients, to purchase a multi-year rate guaranteed annuity if you are not proposing an index annuity. Otherwise, your client is saving in a vehicle with no guarantee of future results. They surely wouldn’t do this with a bank CD. Don’t get me wrong, there are plenty of honorable companies that will treat your client fairly. Also, we do want the company to be profitable. They are our partners. There are many ways to analyze a company to determine how they will renew your client’s rates:
I have been fortunate to be on both sides of the fence. I’ve been an insurance company president as well as having twenty (20) plus years in the field as an agent, general agent and owner of an insurance marketing organization. So, please excuse me if I tend to over-analyze. But, I am happy to say that the next couple of years will get our annuity industry back on track. Companies are now designing new products, pulling old products and adhering to new regulatory guidelines. The business is going to be better than ever! The policyholder, the insurance company and the agent will all do well! We are getting back to a level playing field. I, for one, am extremely happy with the direction our industry MUST take if we are going to be able to operate profitably without government intervention. So, what do we do next? Here we go: Sell only what you believe in. Don’t rationalize away parts of the contract you don’t like. Only sell “GOOD STUFF”. Have a concise presentation that provides your prospect or client with all the information they need to make a decision. They buy easier when they understand what you are selling. Don’t over promise. Don’t sell the stock market. This isn’t an investment. The fixed index annuity is the most important annuity in the industry. Seniors and Boomers will continue to buy. Our future is bright for multiple sales of annuities and ancillary products - but, only if they are happy with previous purchases. This product is simple and beautiful. Sell it properly and you will profit immensely. The answer is simple. Sell it right and sell what’s good. Good for everyone. We can’t lose. Until Next Time ... Good Selling! While obtaining leads is most advisor’s number one priority, the 2nd most important step is closing the sale. In order to do this, you must put yourself in your client’s shoes and ask the appropriate questions. Along with that, you should provide them with professional services to build relationships, trust, and position yourself as their trusted financial consultant. Let's discuss 5 sales tips for annuity selling insurance agents to help you boost sales and continue achieving your goals: 1. Understand Your Target Market: The first step in selling annuities is to have a deep understanding of your target market. Who are your ideal clients and what are their needs and concerns? What are their financial goals? Understanding your target market will enable you to tailor your sales approach and messaging to resonate with them. This will help you identify the right prospects and focus your efforts on those who are most likely to be interested in purchasing annuities. 2. Build Trust and Establish Relationships: Selling annuities is not just about making a one-time sale, but also about building long-term relationships with your clients. Trust is crucial in the insurance industry, and it takes time to establish. Be honest, transparent, and professional in your interactions with clients. Take the time to understand their financial situation, goals, and concerns. Educate them about annuities and how they can benefit from them. Listen attentively to their needs and provide personalized solutions. Building trust and establishing relationships will help you earn repeat business and referrals, which are essential for long-term success in annuity sales. 3. Be a Trusted Advisor: As an insurance agent, it's important to position yourself as a trusted advisor rather than just a salesperson. Your clients are looking for someone who can provide expert advice and guidance on their financial matters. Educate yourself about annuities, including the different types, features, benefits, and risks. Stay updated with the latest industry trends and regulations. Be prepared to answer questions, address concerns, and provide accurate information to help your clients make informed decisions. By positioning yourself as a trusted advisor, you will build credibility and confidence with your clients, leading to increased sales. 4. Customize Your Sales Approach: Not all annuity prospects are the same, and a one-size-fits-all sales approach may not be effective. Customize your sales approach based on each client's unique needs, goals, and preferences. Tailor your messaging to resonate with their specific situation. Use language that they can understand, avoiding technical jargon. Use visual aids, such as charts or illustrations, to simplify complex concepts. Be flexible and adaptive in your sales approach, and be prepared to adjust your strategy based on the feedback and responses from your clients. A customized approach will show your clients that you genuinely care about their individual needs, which can significantly impact your sales success. 5. Provide Excellent Customer Service: Excellent customer service is essential in any sales role, and annuity sales are no exception. Be responsive to your clients' inquiries, whether it's through phone calls, emails, or in-person meetings. Be prompt and reliable in providing information or assistance. Be patient and empathetic, especially when dealing with clients who may have concerns or questions about annuities. Demonstrate professionalism and integrity in all your interactions with clients, even after the sale is made. By providing excellent customer service, you will not only retain your existing clients but also receive positive reviews and referrals, which can contribute to your sales growth. Now that these tips are fresh in your head, it's time to reach out to your leads. Dig into your CRM or prospect pool and see how you can help them. Perhaps it's through providing some quotes or wealth transfer strategies, sending educational consumer materials, or maybe re-introducing yourself and remind them you're here for them. Just because a lead hasn't converted yet, doesn't mean they won't. Is Your Annuity Supply Low?We can help with that! Let us give you contact information for leads who are actively searching for annuity information. And the best part? Our in-house generated annuity leads cost around 1/3 of the price of other annuity lead vendors! Implement your sales knowledge today!
This was the first lesson drilled into me during the initial week of sales training at one of the most established and entrusted insurers in our industry. I’ve learned it’s much better to ask open ended questions, listen, ask permission to take notes, then repeat what you heard back to the client. This demonstrates that beyond listening, you seek to understand where they are coming from. This is step one in establishing yourself as someone worthy of trust. If you are smooth enough, use their name while doing so, and you’ll earn a few extra brownie points. After all, everyone’s favorite subject is themselves, their family, or their business.
Some advisors “wing it” or meet with a client with sales illustration in hand ready to go. However, I propose a different approach. By asking your prospects these 5 key questions during your initial meeting, you’ll find prospects reveal more about themselves when asked a thought-provoking question. This strategy change can move you from being perceived as “selling a product” towards being viewed as a problem solver, and who wouldn’t want that? Prospects often say things like, “Those are good questions, you’ve really got me thinking...” or “Wow, no one’s asked me this before!” Ask these questions, schedule your next appointment while you’re there, send a follow up letter, then share what you’ve learned with us. We can help you put together the product solutions and illustrations that work best. Create a great referral plan and your business will sustain itself for years to come. Yes, I know that the MYGA (Multi Year Guarantee Annuity) market is hot. With the Fed steadily raising rates over the last year, the marketplace has seen an explosion in fixed annuity business. And with the inverted yield curve, the short term rates are even better than long term rates! Lastly, with the stock market being rocky, clients are flocking to guarantees. While all of this equals great returns for short-term planning for your clients, we shouldn’t lose focus on long-term goals. I’d like to re-introduce you to the “other" MYGAs. I’m talking about guaranteed lifetime withdrawal benefits, or income riders. In my opinion, right now is the perfect time to sell these GLWBs. The products give your clients GUARANTEED growth to the income account value and GUARANTEED benefit payouts for life. I know many of our agents stopped promoting income riders to their clients during the bull market times of the last ten years. Historical projections looked fantastic due to illustrations relying heavily on returns of the last decade. But times have changed. Consumer attitudes have changed. Many clients believe we will have a recession soon and a topsy turvy stock market will continue. So what’s the solution? We need to get back to income planning by asking our clients, “How much do you need and when do you need it?”When we know this, we can solve for how much premium we need to put into an index annuity with an income rider to pay out that needed benefit for life. Of course we’re still tied to an index, since these are index annuities, and we’ll be able to capture significant returns when the stock market does bounce back. But you’re protecting your clients from another downturn, should it happen. In conclusion, I think we need to look outside of the short-term MYGA market and look to solve your clients’ long-term income planning needs. Call the Ohlson Group so we can help design your client’s next Personal Pension Plan to solve their biggest problem – GUARANTEED lifetime income!
Distribution Matters! Retirement planning encompasses two crucial phases: the accumulation phase and the distribution phase. During the Accumulation Phase, which spans our working years, individuals set aside and invest income to prepare for retirement. This results in an account balance that accumulates until the day of retirement. The Distribution Phase commences on retirement day and continues throughout one's life. It involves converting accumulated accounts into income, ultimately determining the retiree's lifestyle in retirement. While much attention is often given to maximizing the account balance for retirement, it's essential to consider non-financial aspects and limitations when evaluating alternatives. The table below highlights some of these: Here Are Some Key Considerations:
1. Taxes Are Likely to Increase: Reviewing historical trends suggests an increased likelihood of future tax hikes, given the correlation between national debt and GDP. As the U.S. national debt has surged, reaching $33.17 trillion, a 312% increase in 15 years, many anticipate potential tax increases. 2. IUL as a Tax-Free Retirement Income Solution: Indexed Universal Life (IUL) presents a tax-efficient retirement solution. In addition to leveraging Roth IRAs, IUL can complement and address gaps left by other retirement accounts. IUL policies offer the potential for cash accumulation, tax-free income, accelerated living benefit riders, and an income tax-free death benefit. Under the current tax code (section 7702), permanent life insurance allows for retirement income not counted or taxed as income. The cash value serves as collateral for a tax-free loan against the death benefit, providing flexibility in withdrawals and loans during retirement. 3. Initiating the Tax-Free Retirement Income Conversation: To guide clients, educate them on tax risk using historical data and proposed legislation. Assess their current tax diversification and its implications for their financial situation. Utilize interactive client presentation tools to showcase the advantages of cash value life insurance compared to alternative financial tools. Making informed decisions involves comparing and analyzing results. By mastering this skill set, your confidence in navigating retirement planning options will grow. If you seek tools to enhance your sales experience, reach out to Levon Justice, our life insurance expert at the Ohlson Group, for assistance. We're here to help! 😊 |
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