Whether or not you consider yourself a producer in the “advanced” markets, the odds are good that what happens in the more complex areas of the life insurance business directly affect you and how you operate. That’s one of the reasons that the editors at Life Insurance Selling have always been so closely in tune with what happens within organizations like the Association for Advanced Life Underwriting (AALU).

Often, those producers who are deeply involved in estate planning, business insurance, executive benefits, and other such higher-level markets are the very same producers who are on the front lines of the legislative and tax battles that constantly threaten the business. And that stands to good reason, as typically the stakes — in terms of both opportunities and threats — are higher when the planning is more advanced. In short, how legislators react to what is happening in the more advanced markets — either positively or negatively — can and often does have a direct effect on your business, no matter your market.

Since what happens at the advanced market level has such a ripple effect throughout the business, we wanted to get the perspectives of some of the top advanced producers regarding the current state of the advanced markets and the outlook for the months ahead. To do so, we invited the following producers to join our discussion: Guy E. Baker, MSFS, CFP, MBA; Michael Corry, CLU; and Michael Weintraub, CLU.

1. Charles K. Hirsch, CLU: How did you start working in the advanced markets?

Guy E. Baker, MSFS, CFP, MBA: After I decided to work in the advanced markets, I had to figure out how to get there. I had been a full-time agent for three and one-half years and decided I needed to move toward my strengths. I soon discovered that having a good education was not enough. I had to have a marketing plan, too. The first time I tried to break into this market, I discovered I was woefully ill-prepared. I was underfinanced and not adequately trained to move the cases through to sale. I had to learn how to open a case, fact-find, problem solve, and then close the case. My “kitchen table talk” training was not sufficient. I tried unsuccessfully for six months to survive in this new market. But I saw my income drop and my overall sales decline as I “invested” in my new market. I scurried back to where I knew I could be successful and had a proven track record.

The second time I tried, which was about six months later, instead of going into the market full tilt, I decided to devote two days a week to the market. I was prepared this time, because of my previous experience. I also was able to keep my sales and income up in my natural market while experimenting in the business market. This time the results were much different. I was able to sustain my activity in both places and not abandon the business market as I did the first time. I focused on meeting advisors. I showed them ideas they had not seen before and asked for referrals. I also tried to upgrade my natural market into business connections. You get what you ask for. It was a slow process, but after about 36 months of working diligently, I found I was in the advanced markets full-time and had enough results to sustain my new business model.

Michael Corry, CLU: I was determined to develop a practice in working with business owners. I was fortunate to have the opportunity to partner with a couple of senior agents in my agency who were specializing in the business market. I then developed relationships with legal and accounting professionals. I made them aware of the expertise and experience of our team of advanced insurance professionals. I studied, took all the courses available, joined an advanced study group, and joined The Society of Financial Services Professionals and AALU.

Michael Weintraub, CLU: I was a horrible salesperson and needed to work in a market that was more difficult and challenging. It helped differentiate me from others selling life insurance. In my 20s, I was young, foolish, and had no idea what I was getting into, so luck played a great part as well.

2. Hirsch: In the advanced markets today, there appear to be a number of important issues — such as the estate tax, proposed financial services regulatory reform, and stranger-owned life insurance (STOLI), to name a few. In your view, which of the major issues in the advanced markets has the potential to have the greatest impact for the broader life insurance business, and why?

Corry: Stranger-owned life insurance has the most potential to cause congressional and regulatory reform that could damage the life insurance business. Fortunately, the industry is
self-regulating. Most states have passed legislation to restrict or eliminate the sale of STOLI transactions. The fiduciary harmonization standard being proposed for registered representatives could have a very negative impact on the life insurance business. It raises the potential for increasing the cost of competent financial services for middle- and lower-income consumers, which will lead to reduced access to these services. It will result in an unwarranted increase in professional errors and omissions. It will be difficult for broker-dealers to operate under the same “fiduciary standard” because they provide very different services to their clients.

Weintraub: The issue of raising revenue by taxing life insurance can have serious negative implications in advanced markets. If this passes, in little time all life insurance will likely be taxed, no matter how small the policy. That will impair the capital gathering of life insurance and reduce in the aggregate what life insurance companies invest in mortgages, bonds, etc.
People will be more interested in term insurance, as cash value life insurance will become less attractive without the existing tax benefits.

Baker: While estate taxes, proposed regulatory reform, and STOLI are all issues, I have chosen not to let them affect my marketing and sales activities. I have felt for several years now that business exit planning is the big coming market. Why? Look at the baby boomers. How many will have businesses they need to sell? How many buyers are there for those businesses? This supply demand disparity means opportunity.

In my experience, most agents approach this market solely from the buy-sell funded with life insurance perspective. While this is definitely an important aspect to working the business market, I have discovered that insurance agents have abandoned almost entirely the exit planning element.

Statistics show nearly 90% of all business owners live beyond age 65. This one fact has led me to conclude that the buy-sell agreement is only a contingency plan, not an exit plan. It does not solve or contribute to the ultimate problem, “the 90% problem,” — how the owner is going to disengage from the business. My firm focuses on this problem with their advisors. In most instances, I see even bigger life insurance sales than the traditional buy-sell approach. In addition, we are able to capture the Section 401(k), the health benefits, and key person coverage. In some cases, we also are able to put in an executive compensation plan. More importantly, we are able to work with the owner to identify their long-range financial planning objectives. This often leads to money under management.

There are specific questions which must be answered to make a successful transition. Most business owners think their business is worth far more than it really can bring on the open market. There are only four ways to exit a business: 1) sell to an outside buyer, 2) sell to an inside buyer, 3) transfer to family, or 4) liquidate. The wonder of our process is that we often can get the seller more closely what the company is worth through an internal sale to the management team or family. The key is building a team of buyers in that next generation of leaders. If this can be accomplished, magical things can happen. But if not, then this is where we have to help them sort out their real options.

3. Hirsch: As you look at your own practice in the advanced markets, where do you see your greatest opportunity, and why? Specifically, can you talk for a bit about any practical steps you are planning in order to take advantage of that opportunity?

Weintraub: Growing a retirement planning business continues to provide a great opportunity because small businesses will continue to need retirement plans for themselves and their employees. The field is complex, and even when the government announces a new “simplified” plan, things tend to get even more complex. So for qualified and nonqualified plans, staying informed and being able to help ordinary people as well as accountants and attorneys understand and get through the chaos is and always will be a great way to help others and a great way for us to make a reasonable living.

The IRS guidance plan for 2009-2010 is important because it provides taxpayers with a blueprint of those projects on which the IRS intends to spend its resources over the next year. As usual, the projects related to employee benefits are the largest in number. That list, totaling about 72 projects, includes projects concerning retirement benefits and projects involving executive compensation, health care, and other benefits. Two of the listed items are “lifetime income from defined contribution plans” and “certain annuity distributions from defined benefit pension plans.” These projects may reflect the new interest by the administration in having the private retirement system provide to retirees secure lifetime income that is less likely to be volatile in the face of an economic downturn and helps solidify things for those of us working in the retirement plan space.

Baker: As I look at what is emerging in the years ahead, I feel business exit planning remains the most fertile ground for our firm. But I don’t want to mislead anyone. I also have always, dating back to 1977, used what I call my “Three Circles of Wealth” story with business owners. This addresses issues common to almost all successful business owners. They need to deal with these simultaneously — wealth accumulation (retirement and liquidity); wealth succession (transfer of business plus retention of key people); and finally wealth preservation (estate planning and liquidity risk management).

I have three marketing strategies I am implementing to take advantage of this growing market. First, we are going back to all the companies I have met through the years (clients or not) and reintroducing the concept of exit planning. Second, we are aggressively using Internet marketing tools to introduce several booklets and white papers we have written for this market. Third, we are building strategic alliances with other advisors in the field to cooperatively market together to our combined spheres of influence.

Corry: My practice is non-qualified and qualified retirement plans. There is tremendous opportunity to help corporate executives diversify their personal investment portfolios. The biggest challenge they face is over weight in equities due to the amount of company stock they must own, choose to own, or receive in compensation. We can provide fixed-rate assets with rates that are only available to eligible participants in non-qualified deferred compensation plans. This option can reduce the volatility in their portfolios and bring a greater peace of mind.

4. Hirsch: What do you view as the greatest threat to your own business, and why?

Baker: I am my greatest threat. I have a large staff that is aging like I am. So I there are two issues. First, how do I bring my successors (my daughters and grandson) up to speed so they can take over and effectively manage the client needs and opportunities? The second is to create a succession plan for the key employees in the organization. This includes providing them with a sufficient retirement benefit and finding replacements that can step in and support my successors. Finding good people and keeping them has not been a problem for me over the years. Almost all of the staff members have been with me for longer than 10 years. The key staff members have been with me more than 20 years. So this means I have to help my successors identify talented people who will want to replace them. This is a timing issue as well as a training issue. So it will take some real coordination and management skill to accomplish this transition.

Corry: The biggest threat is that of Congress changing the tax treatment of life insurance, non-qualified deferred compensation plans, or both.

Weintraub: I think the biggest threat is the increasing appetite of big companies to commoditize our products and services. In addition, the ongoing need to have cutting-edge technology to effectively compete at competitive price points is becoming more of a challenge. My guess is that we will see continued consolidation at the retail level so that what was a business that required little capital just 10 years ago is becoming one that will require more and more capital to grow and thrive in the future.

5. Hirsch: What would you advise the young producer who is now working in the role of a “general practitioner” but who is interested in moving into more advanced markets?

Corry: I would advise him or her to study advanced materials, read business journals, obtain both the Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC) designations, if qualified join the AALU, find a mentor, and find a way to develop relationships in which he or she can jointly work cases.

Weintraub: The old concept was to “continue doing what you are doing …” and gradually move into advanced markets. That may no longer work, because if you hold yourself out to be an expert, you better be an expert! Here’s a better way: Once you know you want to work in advanced markets and have proven sales skills, start studying in the field you wish to master and either work jointly with someone who will share a prospective customer or find a practice that is looking for someone who wants to work in their company and help grow their organization.

Baker: Unlike when I was making this transition, today’s young producers need to become a specialist in something and then work at becoming known by the problems they solve instead of the solutions they sell. When I was making this transition, specialization was not preached and rarely practiced. But today, with all of the intricacies and skills required to help clients focus on their concerns and options, being a specialist is valued. Today’s clients are less likely to appreciate a general practitioner, I think. They want someone who does this all the time and really knows their stuff. This thinking is similar to a surgeon who does heart transplants all the time. So a young producer needs to get a general education, but then pick one area and really learn it.

Most of my education was on-the-job training. I would study it in a CLU or ChFC course, but then I would go out and find practical applications for the knowledge. I learned through trial and error. I had no mentor available who knew what I wanted to learn. In my early days, people had no access to the strategies and ideas I was learning except through qualified agents. Today, with the Internet, many clients and prospects are looking for help with implementation and role clarification more than strategic planning. They are more interested in experts who have already learned the ropes and can help them avoid the pitfalls. They are going to be wary of someone who dabbles.

Baker: Exit planning starts with determining realistic value

Current MDRT President Guy E. Baker, MSFS, CFP, MBA, says business exit planning presents the greatest opportunity for the continued success of his practice, and he is aggressively marketing to make the most of it. Here he shares his thoughts on working through the initial challenge of the process:

I have learned that business owners all start virtually in the same place: “How much is my company worth?” They want the capitalized value of their gross income times some multiple. So if they are earning $300,000 a year, they want upwards of $3 million for their company. Maybe this is a fair number, but often it isn’t. More importantly, they rarely take into consideration capital gains taxes, asset allocation returns, inflation or other economic factors such as negotiation skills and time value of money. They are not professional sellers, yet they are often up against professional buyers.

The second thing they often never realize is the adage, “There is no such thing as new money.” They think the buyer is going to actually pay them for the business. They are going to get a check and then walk away. They fail to realize they are actually going to be bought out with their own money. When this truth seeps into their consciousness, they become much more willing to consider viable alternatives.

It is always important to start with value. I insist on a valuation done by a bona fide appraiser before I even will begin to seriously discuss strategies with them. If the seller is unwilling to be realistic, I think the advisor needs to walk away. It is a waste of time. Once, though, a realistic value is determined, then the next obvious question is, “Who is going to pay this?” And then the more important issue: How are they going to pay for it?

These questions all must be seriously addressed, and once this is accomplished, the world of opportunity opens up to the advisory team. But until they are logically and honestly answered, the advisory team is wasting its time.

The exit planning market is an exciting market and will offer more and more opportunity during the next 20 years because of the aging baby boomers and their need to convert equity to capital. Advisors who are ready to help with this process will have a ready market that will continue to grow.

Charles K. Hirsch, CLU, is president of Hirsch Communications Consulting, LLC, in Florissant, Mo. His company provides consulting services to life and health insurance companies and marketing firms. Before launching his Hirsch Communications Consulting, Hirsch spent nearly 27 years in business-to-business media. He served on the editorial staff of Life Insurance Selling for 18 years, becoming editor in 1993 and publisher in 1999. He is also a former vice president of Summit Business Media, parent company of Life Insurance Selling.

Guy E. Baker, MSFS, CFP, MBA, is an experienced financial planning professional based in Irvine, Calif. He is the current president of the Million Dollar Round Table. In 2009, he was named by Worth Magazine as one of the nation’s top 250 planners. Guy was a founding board member of the National Association of Family Wealth Counselors and The Stewardship Alliance — a group of professionals dedicated to providing legacy and wealth planning to high-net-worth donors to Christian ministries. He has lectured at various estate planning council meetings, spoken at several CLU Institutes, and has been featured in many CLU Tele-video Conferences. A highly respected writer and speaker, Guy has spoken to advisors in several countries. His most recent book, “Market Tune-up,” details how he has qualified for Top of the Table 32 times. He is active in many other industry organizations in addition to MDRT, including the Association for Advanced Life Underwriting.

Michael Corry, CLU, has 36 years of experience as an executive benefit consultant and has been a partner in The Todd Organization since 1980. The Todd Organization serves qualified and non-qualified retirement plan sponsors as a consultant, asset manager, and third-party administrator. Based in St. Louis, Mike is the immediate past president and a member of the board of directors of the Association for Advanced Life Underwriting (AALU). Mike has been very active on Capitol Hill and at the Treasury. Mike is also a past president of the International Forum and the St. Louis Chapter of The Society of Financial Service Professionals. He is a frequent speaker, having spoken recently at the national conferences of the International Forum, AALU, the Society of Financial Service Professionals, and the Institute of International Research. Mike has been published on the topic of executive benefits, including several articles for The Journal of Compensation and Benefits and The Journal of Taxation of Employee Benefits.

Michael Weintraub, CLU, is the president of Contemporary Pensions, Inc., in Walnut Creek, Calif., a third-party administrator (TPA) offering financial services including plan design, ongoing administration of 403(b) and 401(k) plans, and a wide range of other retirements plan types. He is a 34-year MDRT member with two Court of the Table and 13 Top of the Table qualifications. He has been a speaker at MDRT Annual Meetings and is currently chairman of the MDRTF’s Past President’s Task Force. Michael is a former member of the board of directors and a current member of the Qualified Plans Committee of the American Association for Advanced Life Underwriting (AALU). He is also a member of the board of directors of the Life Insurance Foundation for Education (LIFE).