The Million Dollar Annuity
Two years ago I referred a retired couple who had come to me for estate planning to financial advisor Mario Govic, who is now out of Sarasota, Florida. The couple had about $3 million invested in more than 16 different financial institutions, qualified and nonqualified accounts, with ownership and beneficiary designations twisted and turned, and a portfolio of holdings which made no sense at all. Their RMD’s were causing a severely negative tax hit, and positions were bought and sold without regard to basis and tax liabilities. After a month of intensive work, Mario consolidated their holdings into a handful of annuities with various GMIB and GMWB riders and nonqualified accounts, and in general straighted the client’s nightmare portfolio into a well-managed and tax efficient retirement plan.
As it turns out, the positions which the clients held before meeting with Mario Govic lost almost half their value in the ensuing two years. The clients also withdrew $250,000 to purchase another retirement home. After two years, considering the decline of the market and income taxes saved due to the repositioning and deferral of RMDs, and the annuity guarantees, AND after the clients withdrew a quarter of a million dollars, the dollar value of their portfolio today remains almost exactly where it was when I introduced the clients to advisor Mario Govic. By my calculations, this advisor’s work prevented a one million dollar decline in my client’s portfolio over a two year period. Outstanding work!
Position with Top New York Financial Services Agency
One of my agency manager friends in the Manhattan financial services industry has asked me to reach out to my readers and gather resumes for a position they have available in the agency. What they’re looking for is someone who can come on board and prepare financial planning reports for the clients of the agency’s high producers. The producer gathers the necessary information, and the Financial Planning Coordinator (I actually don’t know what the exact title is) will enter the information into the software, manipulate and analyze the data, develop recommendations and alternate savings and investment strategies, and print and bind the report for the producer to review with the client. So the person already needs to be computer savvy, of course, and have basic knowledge of the insurance and financial services industry. The new hire will be expected to complete the CFP series of courses on a timely schedule, and grow in the position so as to be able to (within two years) begin teaching the financial advisors on current strategies for minimizing taxes and maximizing returns, and reducing risk, etc. The position is part salary, and part a percentage of the commissions which may be earned by the producer which come from the financial plan. So it’s a great position with a great company, and an opportunity to make a lot of money. You’ll need to have your life and health licenses, and the Series 7, since you’ll be making recommendations as to portfolio allocation and products, etc.
If you’re interested, send your resume to me at RBryan@RickBryan.com, and I’ll pass it along. Good luck.
Rachael Ray Talks About Estate Planning
I don’t enjoy Rachael Ray’s talk show as much as I like to watch her do-bop around the kitchen (and I bet you do too!), but I came across an interesting little segment on a website of a couple of lawyers (married) selling a book they wrote called “Trial and Heirs: Famous Fortune Fights.” The segment starts off discussing nothing new about Michael Jackson and Anna Nicole Smith’s estate wrangling, but the guest authors relate those estate battles to practical reasons why people need to get their estate planning done. Surprisingly good advice in a very short amount of time. It’s a good video clip to have your clients watch, because a) they get to see Rachael Ray; b) they get to hear celebrity gossip; and c) they actually hear some pretty convincing reasons for getting their affairs in order, which would obviously include estate planning and insurance. So check out the video, and forward your clients to Trial and Heirs so they too can hear more advice about why they need to take action and soon as possible.
New York Life Settlement and STOLI Legislation
It appears New York will actually pass and enact laws during the next legislative session to regulate the life settlement industry and put an end to premium financing arrangements in New York. Senate Bill Number S66009, available here, “would provide a new comprehensive statutory framework to regulate the life settlement business, including enhanced consumer protections.” This last part refers to ending Stranger Owned Life Insurance Contracts (STOLI) arrangements business in New York.
Among other things, life settlement brokers would now need to be licensed and supervised by the Superintendent of Insurance, and meet continuing education standards. Disclosure rules are put into effect, and the ‘unfair competition’ rules which apply to insurance sales in New York are extended to the life settlement business.
Like most “consumer protection” legislation, it’s unclear whether several of the exemptions and exceptions in the proposed legislation where inserted after lobbying by the life settlement industry, and therefore whether the Life Insurance Settlement Association (LISA) and/or those advocating the benefits of STOLI were actually able to save the majority of their business model. I hope so. For what it’s worth, the rise of life settlements and premium financing has benefited consumers, not harmed them. The insurers are the ones who have been screaming like mad (more or less) to have life settlements and premium financing regulated and banned. It’s not all together clear how mom and pop consumers were being harmed in any of these transactions. For 100+ years, for example, the insurance company issuing the policy was the only company with whom the contract owner could surrender their policy and obtain hard cash. The life settlement industry provided an alternative, and policy owners suddenly were being paid significantly more for their contracts than the cash surrender value offered by the original insurer. In fact, many insurance companies have setup their own life settlement subsidiaries to get in on the action themselves.
In addition, the insurers were the ones who developed and put premium financing into general use in the 1970′s as a way to sell more life insurance. For thirty-plus years premium financing was a perfectly legitimate and astute way to use and pay for life insurance in the business context. Unfortunately, like Doctor Frankenstein’s monster, it got out of control and the actuaries did not plan for their invention to become a financial derivative commodity. So the insurance industry has been putting on the full court press for the past five years to stamp out STOLI in the states, and for the most part the most egregious abuses are being controlled by the insurers themselves through internal policies and procedures. Many insurers as well continue to play both sides of the hand though: lobbying against STOLI in the state capitals, while simultaneously issuing the big premium contracts which they know full well (and often market themselves) are intended to be packaged and resold.
And on and on it goes.
Estate Planning Organizer
An excellent way for your clients to save money (perhaps a lot of money) on their estate planning engagement is to have much of the preliminary work done ahead of time. In other words, much of the cost of having an estate plan prepared is caused by the time and effort it takes for the attorney to educate the client about the options available, gather and sort the various documents which are needed to develop the plan, and then discuss your clients’ goals and objectives. As you well know, I run my estate planning practice by sending clients to financial planners who can spend time with the client at a lower cost than I can. The client and financial advisor then can come back to me with a fully developed fact finder and asset allocation questionnaire; a description of the clients’ family situation, and a description of their estate planning goals and objectives. In the alternative, and this is something which you can do as well, I recommend that my clients purchase and complete the Estate Planning Organizer system. This system is a series of educational and practical tools which allow your clients to learn for themselves what “estate planning” really means, and helps them organize their important documents and think about what they want to achieve with their estate plan. This system can save thousands of dollars in legal fees, depending, of course, on how complex a client’s estate planning needs are. Otherwise, a client may have to spend hours in my office while I explain what estate planning is all about, and go item by item through their documents. While I would rather refer my clients back to you for face-to-face work, this is an option which I have now added to my practice. I am an ‘affiliate reseller’ of this program, which means that I earn money when your clients purchase the program. The cost of the program is less than one hour of my $310.00 per hour rate!! This program will save your clients thousands of dollars, and it will save you time and aggravation too, if you are not charging to prepare a financial plan. Have the clients do it themselves, and then you do the financial analysis. It’s a triple win situation.
Wall Street Journal Article Regarding Online Wills and Ethical Dilemma
My friend in the insurance business sent me last week an article from the Wall Street Journal which generally came out favorably towards online Will preparation systems. Usually I would have gone on a rant as to the ignorance of people who believe they can get an estate plan done over the internet for $15, but at that particular moment I instead found myself in an ethical dilemma.
The reason is that by and large will and trust preparation is simply not a good profit center in my practice for couples in the $100,000 – $300,000 income bracket, and with assets less than than a few million dollars (including the house and 401(k)’s). This is because those folks, generally couples in their 30′s to 50′s, simply are not going to (by and large) pay $3,500 or more (depending on complexity) to have their Wills, Trusts, and Advanced Directives drafted. But I know from experience that such a couple is going to come into my office for a first interview and talk to me for an hour or more about their assets and issues and ask a ton of questions; and then I’ll draft their documents, and the couple will want to come in again and review and ask more questions and make changes, and then I’ll have to draft the documents over again; perhaps another telephone conversation, and another draft of the corrected documents, and then the execution ceremony, where things perhaps need to get changed again. In short, a couple in the middle income market really does need sound legal advice with respect to setting up their affairs, but I cannot spend the time to do this and make a profit for myself at the price point these clients are willing to pay. I also have rent to pay and a family to support. I just can’t do it. If I rush the job and give out documents which are poorly worded and filled with typographical errors (and have the corrections made in pen and ink before execution, which looks ugly), and give the clients short and abrupt answers to their questions and give the impression that I want them to leave as quickly as possible (which I am), they just will not be satisfied clients. I’ve done this long enough to know this for sure. For better or worse, people often cannot distinguish between “price” and “value.” Sure, many couples do understand ‘you get what you pay for,’ and understand the importance for their families of getting their affairs in order properly, and genuinely understand and are agreeable when I explain my pricing structure. I enjoy working with these clients, because not only am I certain to make a profit for myself, but more importantly I can now focus on them and their needs and spend the time to do the work properly and professionally. This is how I want to run my profession, and these couples will absolutely be satisfied customers and come back to me over the years time and time again. But a lot of people want a fixed price based on what they believe a few dozen pages of typewritten paper should cost. I understand that; I want to know up front too how much a painter is going to charge to paint my apartment. If the guy told me “it depends on how long it takes,” no way in the world would I agree to that. So I understand why couples are reluctant to engage an attorney before knowing upfront how much it’s going to cost. Fair enough.
But from my standpoint, since I’m probably not going to make a profit anyway, I’m not really so put-off that people want to do their estate planning using LegalZoom or Suze Orman or LegacyWriter or Build A Will. Those clients are just not a good fit for my practice, and vice-versa. I provide legal advice and counsel, not pre-printed forms which are ‘fill in the blanks.’ And the harsh and honest truth is that when it is discovered, almost always when it’s too late, that either the documents are defective (because New York is quite strict on adhering to the formalities of Will executions), or the documents don’t meet the clients’ needs (because there was no attorney to have an in-depth conversation to flush out those needs in the first place), or significant tax and probate issues were created, or usually ‘all of the above’ . . . the honest truth is that I profit much, much more by straightening out someone’s affairs after death or incapacity. And at that point, there’s no negotiation involved: the family pays my full hourly rate with a minimum billing increment of two-tenths of an hour. Legal fees and taxes and probate costs and accounting costs can skyrocket, and the family suffers because mom and dad chose the wrong place to be penny wise and pound foolish, or were led astray by television personalities who where either ignorant themselves, or worse, intentionally mislead people to line their own pockets. It’s a really sad state of affairs.
But the bottom line is that I am always honest with people, in person and here on my blog, and I am honest with your referrals as well when you guys send clients over to me. You get what you pay for; that’s a truism in life that most people understand. Yes every now and then you can find a ‘steal’ on a 42″ Sony AQUOS, or the like, but generally if you pay $7 for a haircut on 14th Street, you come out with a $7 haircut. That’s just the way it is. So my ethical dilemma involves telling people the truth as to being mislead and wrong as to being able to get their wills done over the internet for a few dollars, or not saying anything and waiting to scoop up the profits by cleaning up the mess afterwards. But, I don’t live my life that way, so I’ll tell you please, help me help your clients understand that estate planning is just not the area where they want to bargain shop.
Financial Planning Association of NY Invites Allied Professionals to Network
FOLLOWUP: THE UPSTAIRS BAR WAS PACKED AND EVERYONE HAD A BLAST!! UNCLEAR HOW MAY FPA MEMBERS VERSUS ALLIED PROFESSIONALS SHOWED UP; NEVERTHELESS THANK YOU ALL FOR COMING!!
The New York chapter of the Financial Planning Association of New York (FPANY) is hosting an event on November 10, 2009 at the Public House, 140 East 41st Street (just East off of Lexington Avenue) from 6:00 to 8:00 PM where professionals in various service industries can network with each other and members of the financial planning community. The event is being organized by the Allied Professionals Committee of FPANY (of which I am a member), and the goal is to bring together financial planners and accountants and lawyers and investment advisors and bankers and in generally really any other profession where the client may be better served by coordinating the actions of the client’s various advisors, versus having each advisor working independently and without seeing whether if what they’re recommending is in line with all of the client’s other goals and objectives. The client is always best served when all of their advisors are on the same page, obviously.
In any event, see if you can come to this event on 11/10/09, which is next Tuesday. The Public House is a pretty cool place, and the event is free if you’re not going to drink. Open bar is a good deal too. Check it out.
Here's the Event's Flyer
Like “Financial Planning,” “Leaving a Legacy” Means Different Things to Different People
I had a breakfast meeting this morning with Alli Joseph, creator of Seventh Generation Stories, who shared with me her vision as to the meaning of the word “legacy.” Customarily, in the financial professions and in the estate planning field, we generally think of “leaving a legacy” in financial terms, or otherwise with respect to property and inheritance. A life insurance death benefit, for example, held in a dynasty trust or otherwise, can be used to fund education, or for a home purchase, or to build a business, etc., and can last for generations. But Alli Joseph considers the phrase legacy more broadly, to include a person’s oral and pictorial recollection of family, friends and events which have shaped their life. Seventh Generation Stories offers ‘personal historian services,’ and their projects range from collating someone’s old photographs, to a full production video and published volume which recalls a person’s entire lifetime. Alli Joseph writes:
“Sometimes, we lose family members before their time and before their stories are told. Unlike material things, your family’s value to you never changes. They are our past, our present, our future.”
Family history projects are unique, emotional, and fun. What was it like when you were growing up? Where did you live? What were your parents like? Your room? Your home? What significant events were going on in the world at the time? How did you decide what to do for a living? What made you love it/hate it? Did you do community service work, or perhaps belong to a faith-based community? These are some of the questions we may ask you to consider, and the answers are ones only you can give; your memories are the gems your family will treasure for many generations to come.
Founder Alli Joseph or one of our skilled interviewers will then guide you through a conversational interview recorded on a digital audio device, if you’re doing a book or other print project, or on digital video, if we’re working on a video project. Interviews can run from two to twelve hours and can be completed over a period of days or weeks.
Alli Joseph lives near me in Peter Cooper Village/Stuyvesant Town, and so our circle of connections overlaps. Hopefully we’ll be able to converge our work for the community, and make the term ‘legacy’ mean a great deal more than dollars and cents.
Check out Seventh Generations Stories , and consider whether you can offer an additional value-added service to your clients by way of expanding on what it means to ‘leave a legacy’ to one’s children and grandchildren.
Prudential HD Lifetime 7 Plus Variable Annuity
Thanks to Prudential for inviting me to a presentation (and dinner!) by Prudential Regional Vice-President Gary Woodward on Prudential’s HD (Highest Daily) Lifetime 7 Plus Variable Annuity product. As you well know, the primary purpose of a variable annuity is as a mechanism to save money during a person’s working years which can then be used to draw upon as an income stream during retirement. It’s not available as a lump sum, obviously. The “highest daily 7″ qualifier to this particular variable annuity refers to the product’s feature wherein a fixed 7% interest rate is applied to the highest value that an account reaches before the investor actually starts withdrawing money. The effect of this feature is to protect the investor’s downside risk. Here’s a snip from the product brochure which may help you understand what’s going on:
How It Works
You can read more about this particular product here:
HD Lifetime 7.
The upshot of using this variable annuity (either inside an IRA wrapper, or as a supplement to a current IRA or 401(k)) is that the investor is protected from severe market downturns and volatility. For the most part. Like all annuities, there are various withdrawal options available, and one of the key features of this product is that annuitization is not required in order to begin taking an income stream based on the 7% projected value in the account.
Obviously, when something is ‘too good to be true,’ it usually is, and like all annuities, there are lots of “gotcha’s” in this product which detract from the beautiful graphics in the marketing materials. The folks at Prudential are not stupid; it’s not a non-profit organization, and they’re not in business to give away guarantees for free. All of the fees and charges and “gotcha’s” are buried in the prospectus, which I think for this product exceeds 500 pages, so gets read by exactly no one. Which is the primary reason the advisor-client relationship of trust and confidence is so much more important than the actual nuts and bolts of the contracts. All of the large insurers have great annuity products which have similar features to Pru’s HD Lifetime 7 variable annuity. And all are ‘no-brainers’, in my opinion, as far as being an investment vehicle which is suitable for the overwhelming majority of Americans, whose 401(k)’s are now 101(k)’s. Is Pru’s product better than MetLife’s or John Hancock’s or Mass Mutual’s or AXA/Equitable’s variable annuity? I don’t know, because that’s an investor-specific question. They all have different features and costs; which one is right for your client is why you really, really need to do your homework and ask hard questions of your annuity wholesalers.
Nevertheless, as an advisor you need to checkout Prudential’s HD Lifetime 7 variable annuity product and consider it carefully as you’re advising your clients on their retirement planning.
Also, you want to talk to your client about the various beneficiary selections available when they purchase the contract. In other words, annuities are unbeatable investments while people are alive and during retirement. At death, they can be taxed pretty heavily. The tax treatment of annuities at death is a pretty complex topic, partially because of the available of the product inside and outside of an IRA, and because of the various living benefit features; whether the contract owner has or has not started to take withdrawals at death; whether the contract is the ‘spousal’ variable annuity product; whether the named beneficiary has predeceased the owner, and so now the annuity becomes part of the decedent’s probate estate. What type of post-mortem planning is available when the contract owner dies? Are there different options available depending on whether the decedent had a will, or died intestate? Are there Private Letter Rulings which may be applicable to answer these questions? The answer is ‘yes.’ All reasons why as a financial planner you should call in an experienced estate planning lawyer to help develop the client’s financial and estate plan.
Thanks again to Prudential and Regional VP Gary Woodward.
Financial Wellness Coaching Takes Hold
A couple of months ago my friend Lora Sasiela was explaining some aspects of modern psychology and psychiatry and Sigmund Freud’s theories; much of which went over my head, but fascinating nonetheless. Lora is a licensed psychotherapist, and much of her work in the last ten years has been helping people understand the psychological causes of overeating and related health and well-being issues. Recently, Lora and others have discovered that many of the psychological issues behind overeating are the same or similar to the reasons why people spend beyond their means, and are otherwise unable to achieve financial health and well-being. Over eating and over spending are different reactions to the same psychological roadblocks.
Lora and others practicing in this field have demonstrated that the same counseling techniques which help people overcome eating issues can be transferred to help people with financial management issues. Lora’s work has nothing to do with life insurance or annuities or mutual funds, but financial planners know that an awareness of budgeting and the emotional aspects of saving and investing are more important than effective yields on investments. Here’s Lora’s press release from her Financial Wellness Coaching website. I think it’s a great and non-competitive seminar to refer your clients to, and I’ll be there as an added bonus!
FOR IMMEDIATE RELEASE
PRLog (Press Release) – Apr 09, 2009 – WHAT: An innovative financial wellness seminar for those looking to learn powerful tools to eliminate current money anxieties in addition to developing effective strategies to manage one’s own “personal economy” during these turbulent economic times.WHY: 80% of Americans are reported to be stressed out about money right now. The key techniques given by Lora Sasiela can break the cycle and create a powerful financial transformation.
WHERE: 1133 Broadway, at 26th Street
New York City, New York
Pre-Registration Required: http://www.financialwellnesscoaching.com/WHEN: Saturday, April 25th
10am-12 noonHOW: In this comprehensive two hour seminar attendees receive the following: Easy-to-use techniques for making peace with money, freedom from the isolation surrounding money struggles, 5 daily disciplines to prevent money anxiety, an understanding of the importance of money being “just money,” simply a tool, identification of unique limiting money beliefs and how to get rid of them, how to cultivate an attitude of gratitude – which will attract more abundance into your life, a take-home booklet of beneficial tools to continue developing ease in your relationship with money.
WHO: Lora Sasiela, founder of Financial Wellness Coaching, is a psychotherapist and money coach, guiding clients in the powerful transformation of limiting money beliefs that prevent them from enjoying full and rich lives. She has trained at the Financial Recovery Institute and the Women’s Earning Institute.
Financial Wellness Coaching
80 East 11th Street
New York, NY 10003
917.673.3867
Website and Event Registration: http://www.financialwellnesscoaching.com/