Don't Rely On Sales Illustration

CPAs, tax attorneys and trustees are the gatekeepers for the most-coveted clients and prospects. High-net-worth individuals look to these fiduciaries for advice, even when questions may be outside their specific areas of expertise, because their advice is required by state law or codes of ethics to be in their clients' best interest.

As such, a key to landing more high-net-worth clients is to demonstrate to their gatekeepers that you can speak their language.
 For instance, the meaning of “client's best interest” in the language of fiduciaries is not subjective.

On the contrary, the term is clearly defined by well-established and proven principles stated in the Uniform Prudent Investor Act (UPIA), which include: the duty to incur only costs that are appropriate and reasonable; the duty to set reasonable performance expectations; and the duty to exercise reasonable care, skill and caution.  While these duties are old news to many financial advisers in most areas of industry practice, support for these duties is nearly nonexistent when it comes to life insurance.

 

Currently, the prevailing tool for determining whether a policy in force can be improved upon or deciding between two or more proposals from competing agents or brokers is a comparison of illustrations of hypothetical policy values for some limited number of products. However, these illustrations do not support fiduciaries' duties to examine costs and establish the reasonableness of performance assumptions, but are a comingling of actual cost disclosures with often incongruent and unrealistic performance assumptions.

DIFFICULT TO REVIEWClearly, policy reviews that merely compare hypothetical policy values from some limited number of illustrations do not provide gatekeepers with the information they need. What's more, the widespread use of such misleading, inappropriate and unreliable information from such policy reviews has contributed to life insurance's ranking as among the worst performing asset types, relative to client expectations, for the past 30 years.

It's no wonder CPAs, tax attorneys and trustees get frustrated with such an opaque asset and resist incorporating such a historically poor performing asset into their planning. A key to landing high-net-worth clients, therefore, is to talk differently about life insurance with CPAs, tax attorneys and trustees.

Talk about supporting the duty to examine costs under UPIA Section 7, and show them the year-by-year breakout of the cost of insurance charges and policy expenses to differentiate yourself from those who continue to compare projected hypothetical premiums that aren't reliable.  Also talk about supporting the duty to set reasonable performance expectations under UPIA Section 2, and show them the historical performance of invested assets underlying policy cash values to distinguish yourself from those still relying on comparisons of projected hypothetical cash values based on some performance assumption that isn't dependable.

TALKING POINTSTalk about how the Financial Industry Regulatory Authority Inc. states in Finra Rule 2210 that “it is inappropriate to compare a … life insurance policy with another product based on hypothetical performance …” because “omission of … costs and expenses … would cause the communications to be misleading.” Talk about how the Office of the Comptroller of the Currency cautions in its booklet, Unique and Hard-to-Value Assets, that “policy illustration[s are] subject to a high degree of fluctuation” and thus are unreliable.

Finally, talk about how prudent investor principles about examining costs, setting reasonable performance expectations and avoiding outdated life insurance industry practices now considered “fundamentally inappropriate” can remedy the performance issues of the past. Life insurance is the last, largest, most-neglected asset on clients' balance sheets. Clients and their advisers are in desperate need of help from someone who can speak their language. Discussing the prudent selection and proper management of life insurance in ways consistent with state law and codes of ethics with the gatekeepers of the most coveted clients can thus lead to more referrals, eliminate competition and close bigger sales faster.

In other words, the key to landing high-net-worth clients is to talk about life insurance in their language — the language of fiduciaries.