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/
Financial Advisor and Quarterback Sacked for Loss of Yards
Most of my estate planning engagements come from insurance advisors and CFPs, because among estate planning lawyers I recognize the benefits of life insurance and annuities where many attorneys just can’t get passed the ‘exhorbitant’ commissions being earned by the sales rep despite the value of the product to the client. For that reason, I have a pretty good sense of how all of the client’s advisors work together to put the client’s plan in place correctly and effectively and efficiently. That’s how I run my business and profession. The financial advisor is almost always the “quarterback” of the client’s financial plan; providing the broad outlines of how a client’s goals might be achieved. Unfortunately, I lost a big estate planning engagement recently which was in the works for months, and a potentially long term relationship with an advisor, because (in my opinion, obviously) the advisor didn’t actually understand the role of a quarterback.
The financial advisor (somewhat new to the business, but very successful in a short period of time) was aggressive during the client meetings regarding her role: “I am the quarterback,” came out of her month every ten minutes. Unfortunately, to me at least, she didn’t actually understand an important aspect of that position. Which is (at least it used to be before headsets), to setup the offensive formation and assign the routes for the wide receivers and backs, and watch the defense setup and call an audible where necessary. And then the ball is snapped and the quarterback’s plan is set in motion. The point now though is once the quarterback hands the ball off to the running back, the back gets to carry the ball according to how he does his job; cut left or right and juke and sidestep; whatever. Once the quarterback hands the ball off, it’s no longer his job to follow the back down the field and direct where he goes to gain yardage. The QB steps back and watches the play unfold, unless he’s blocking, of course.
Similarly, once I am handed the role of advising and drafting on the proper construction of a Grantor Retained Annuity Trust, for example, the financial advisor no longer has a role in watching over my shoulder to opine on the clauses I decide to use and how I word various provisions of the document. This advisor simply couldn’t understand that trust construction can be accomplished in a variety of ways, and that I was not going to let her nitpick and comment and have me explain the use and available alternatives of every sentence in my documents. Despite the fact that it was her client and her relationship, the financial advisor just couldn’t get over her need to control those aspects of the game plan which properly fell under my purview as the attorney on the team. Unfortunate; one meeting ended acrimoniously and I doubt the clients are going forward with their estate plan, or with the purchase of the insurance and annuities which were on the table. Most unfortunately, I had about $7,000.00 of billable time on this case, and I’m certain that’s money lost, along with a potentially good client relationship, and a relationship with the financial advisor. Fortunately, I was able to discuss what happened with the advisor’s managing partner, whom I’ve known for a long time, and who was aware of the advisor’s controlling nature. So at least referrals will still be coming from that agency, if not from that particular advisor. Oh well; we’ve all got to live and learn.
New York Life’s Mark Pfaff Promoted to Executive Vice President
One of the class acts in the New York insurance industry is New York Life’s Mark Pfaff, and the National Underwriter is reporting that Mark was just promoted to Executive Vice President of the US Life and Agency division of the Company. I met Mark for only about twenty minutes or so many years ago when I was interviewing around, and I’m certain he doesn’t remember me. Nevertheless, I recall being surprised at the way Mark brought to the table the qualities of sincerity, candor, warmness, and a no-nonsense business style, but without being brusque. Too many agency managers can only lead their agencies through scare tactics and intimidation; Mark leads his sales force via the true qualities of leadership: personal confidence in himself, knowledge of his company, their products, and competitors’ companies and products; treating his people as individuals and recognizing and distinguishing hard working agents who need support and guidance, from those who are blowing smoke or sell unethically.
Here’s a clip from a 2005 New York Life press release announcing Mark’s promotion to Senior Vice President:
NEW YORK, N.Y., December 14, 2005 — New York Life Insurance Company announced today that Mark W. Pfaff has been named senior vice president in charge of the Agency Department. Mr. Pfaff, who is currently senior vice president of the company’s agency field force in the Northeast Zone, will lead the Agency Department in the Manhattan-based Home Office, replacing Paul B. Morris who will be retiring in January.
Mr. Pfaff joined New York Life in 1985 as an agent. In 1988 he became a sales manager and in 1994 was promoted to managing partner for the Vermont General Office. In 1997 Mr. Pfaff transferred as managing partner to the Park Avenue General Office; later that year he was promoted to agency vice president of Northeastern Agencies. In 1999, he became the zone vice president of Northeastern Agencies, and in the fall was asked to take over the Manhattan General Office as managing partner. In April 2004, he was named senior vice president of Northeastern Agencies overseeing the recruitment, training and development of managing partners and partners, and made responsible for the sales production and overall supervision of the zone office and general offices within the Northeastern Zone. He won the prestigious President’s Trophy and scored a perfect 4.0 rating on the Company’s GPA system.
Mr. Pfaff holds a bachelor’s degree from Manhattan College and an associate’s degree from Westchester Community College. A native of Pearl River, N.Y., Mr. Pfaff and his wife, Claudia, reside in Charlotte, Vermont with their three children.
So here’s a guy who started as a sales rep, like most of the readers of this blog, and 24 years later is in the inner circle of one of America’s most prominent and well respected corporations. Congratulations Mark!
IRS Offers Criminal Amnesty to Offshore Account Holders
The IRS announced the other day that they were willing to forgo criminal prosecution of US taxpayers who held (and failed to report and pay tax on) accounts held offshore.
As reported by Thomson Reuters/IRS,
IRS Commissioner Doug Shulman has announced what is in effect a settlement offer for those that voluntarily and timely disclose unreported offshore income. Those meeting the terms of the offer will have to pay back-taxes and interest for six years, and pay either an accuracy or delinquency penalty on all six years. They will also pay a penalty of 20% of the amount in the foreign bank accounts in the year with the highest aggregate account or asset value. In other words, 20% of the highest asset value of an account anytime in the past six years. However, those who come forward on a timely basis will not face criminal prosecution.
Penalties and interest will be painful, no question about it. However it seems like a prudent move insofar as the Service has (or is in the process of) receiving data from foreign banks and financial institutions on US citizens which had been protected under foreign government secrecy laws.
Medicare Hospice Benefits
Here’s a pamphlet (at the bottom) from the Centers for Medicare & Medicaid Services which explains the benefits of the Medicaid program for people who are terminally ill. The program is is known as Medicare Hospice Benefits, and unfortunately is one of the most underutilized of all the Medicare programs, especially in New York. If you’re not familiar with the term, here’s how several authors writing for The New York Academy of Medicine define Hospice:
Hospice is a program of care for persons in the last phases of an incurable disease and their families or caregivers. Eligibility for this benefit is predicated on a physician’s estimate of prognosis of 6 months or less and the presence of one or more progressive illnesses. The goal of hospice is to manage the physical, psychological, spiritual, social, and practical issues that present as a result of the dying process and continue for the family in the yearlong bereavement period that follows death. Hospice is provided in both home and facility-based settings by an interdisciplinary team of professionals—physicians, nurses, medical social workers, therapists, counselors, and volunteers—who coordinate an individualized plan of care for each patient and family.
MetLife Getting No Love From the Market
I thought my buddy was joking last week when he told me “MetLife is at $11.50!” Are you kidding?! No, he wasn’t. And only a few weeks before that, MetLife had been downgraded by one of the ratings agencies. What’s going on? Even a casual observer of the industry can recognize MetLife is the best run company in the sector, and as a market leader outclasses just about every other company in the insurance business. The answer is, I think, that most analysts simply do not understand the insurance business and are not willing to put in the time and effort to dig deep under the hood, and simply follow the herd mentality when it comes to looking at the financial services sector.
At an insurance conference sponsored by JP Morgan last week, few of the speakers were positive on the industry, although there were some notable exceptions. One of the fellows running the meeting; I didn’t catch his full name (he’s referred to as “Jimmy”, I believe), did distinguish MetLife as one of the bright spots in the industry. I’ve excerpted a short segment of the conference call, FYI:
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At the conference, MetLife executives Eric Steigerwalt and John Rosenthal presented a nice powerpoint showing in great detail why the company is so well positioned, and the analysts and ratings agencies are just missing the boat when it comes to rating their company. Listen to this short clip from Eric Steigerwalt; of course he’s in a room full of friends and colleagues so must be cordial, but I think the undertone is “hey guys, you just don’t have a clue!”:
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Long Term Care Disclosure Bill Introduced
New York State Assemblywoman Ann Margaret Carozza, from Bayside, Queens, is a trusts and estate attorney and an active member of the local bar associations. Assemblywoman Carozza introduced recently bill number A6423B, titled “An act to amend the insurance law, in relation to disclosure of coverage in a long term care insurance contract.”
NYS Assemblywoman Ann Margaret Carozza
The purpose of the legislation is to make it more likely that purchasers of LTC contracts are made aware that the daily benefit provided by the LTC policy is probably only one-half of what will actually be needed for care in a New York City (and surrounding) facility. The bill would amend Section 1117(b) of the insurance law to require disclosure to the client regarding:
Read more
Flight to Quality Bodes Well for Insurance Advisors
It wasn’t so long ago when few people wanted to listen to boring insurance salesfolk talk about their boring products and pokey rates of return. In a truly unfortunate way, and hindsight being 20/20, of course, the state of the market is driving people to once again see their insurance advisor as their only true “trusted advisor.”
Insurance and Financial Advisor writer Keith L. Martin writes in this article how industry executives are forecasting a strong 2009 as consumers drive back to quality and stability and away from fortune-telling. This, of course, means now more than ever the insurance advisor is well-positioned to get back to the kitchen table and talk to people about the fundamentals of financial planning. Martin quotes K. Rone Baldwin, executive vice-president and chief operating officer for The Guardian as saying:
“This environment plays to our industry’s strengths. The guarantees and protection we offer are more attractive than ever in the current environment. There is the opportunity for insurers to differentiate themselves as a place of safety in a world more concerned with risk than ever before.”
AALU Director of Policy and Public Affairs
Sarah Spear, Director of Policy and Public Affairs for the American Association of Life Underwriters (AALU), points out that two-thirds of American households already own a life insurance policy or annuity contract. Spear continued:
“We need Washington, D.C., to know that we are a solution to a problem versus the problem,” she said. “We want a seat at the table, not to be on the menu. Insurance advisors are the ones people turn to in times of crisis to be sure they are OK.”
How right you are Sarah!
Employers to Pay for Employees’ COBRA Continuation Coverage
Law firm Holland + Knight attorney Maria D. Lumb reports in the firm’s Financial Institutions Alert of February 27, 2009 that the American Recovery and Reinvestment Act of 2009 makes some significant changes to the COBRA rules- most significantly that effective 2/17/09, employers are required to pick up 65% of a terminated employees’ monthly costs for coverage for up to nine months.
The American Recovery and Reinvestment Act of 2009 imposes new requirements on employers providing COBRA continuation coverage. Employers must act quickly to comply with the new requirements, which became effective February 17, 2009. Most notably, employers will be required to provide a 65 percent subsidy on premiums for COBRA continuation coverage to eligible COBRA continuation coverage recipients for up to nine months. In connection with the subsidy, new rules regarding notice to eligible individuals and COBRA coverage elections apply for COBRA continuation coverage, effective February 17, 2009.
It also looks like there’s an opportunity for employees who failed to timely elect COBRA continuation coverage to sign up for benefits via the “Special Election” provision. An involuntarily terminated employee has 60 days from when they receive the “special election” notice to elect COBRA continuation benefits, even if the employee had initially failed to so do.
Thanks to Holland + Knight for this insightful analysis of an important new provision of the law.