At The Leaders Group, we see three to four private placement cases a month on average, usually as a variable universal life policy but sometimes as a variable annuity. That may not sound like a whole lot, but it is significant due to the sheer size of the cases (minimum premium of $2 million). Although we only have a handful of brokers and BGAs who write these cases consistently, it has been a product that significantly helps our registered reps attract new prospects as it works as a differentiator. I like to think of it as having a nuke in your military arsenal; you may rarely use it, but the fact you have it puts you on a whole new level of significance. In our nearly 25-year history as a broker/dealer for wholesale distributors and agents, we have rarely seen such interest and enthusiasm for a product group.
Who are the players in this marketplace and how do you become involved either as an agent, a BGA, or both?
Private placement is a product for a specific type of clientele and is exclusively suitable for the ultra-wealthy ($20 million+ net worth). About two years ago, we decided to position ourselves as a leader in the PPVUL/VA market. It is a black and white market in which you are either “in” or “out”; our decision to be “in” the market resulted in our becoming 100 percent engaged in understanding, developing, and promoting that business.
It is logical to start with identifying the insurance carriers offering private placement products. There are several, and they all are equally capable of delivering a terrific private placement solution for clients. Outside of Prudential, most BGAs and insurance agents likely haven’t had a whole lot of contact with the carriers listed below.
Private Placement Carriers
The path to getting involved in the market is similar to most products you work with: Reach out to each carrier directly to get a regional rep to come to your office, conduct an online presentation, or get you the necessary product specs. The first step to being able to offer this type of solution is finding a partner to help you at the carrier level. Private placement is a complicated product, and it is best to work in tandem with the carriers or an agent/BGA actively involved in the space to tap into their knowledge and resources.
A second logical step is to understand the type of client for which private placement is good, because it isn’t for everyone. Even if a client has a couple million dollars in net worth, they’re not going to cut it. You could simply use a standard accumulation design VUL product for their needs and make it easy on yourself. For private placement, we are talking about clients with $20 million in net worth and above who are accredited investors. Particularly, someone who can dedicate at least $5 million to a PPVUL/VA strategy and has interest in hedge fund or advanced investment strategies within a tax-favored wrapper. Individuals who qualify for hedge fund strategies and are invested in a few already are the best type of prospects. A broker may only have one or two of this type of clients in their book if they are lucky. As a BGA, one probably will have a handful of agents with client profiles that fit. However, this is also a great solution to bring to a prospective client, especially that uber-wealthy friend-of-a-friend you’ve been trying to get ahold of for years. As a BGA, it is something that will enhance your credibility and image as being able to serve the highest echelon client type and will set you apart from the competition.
The biggest misconception that I think agents and BGAs face is how private placement compensation works. This isn’t a standard off-the-shelf VUL product. There usually isn’t any built-in override, for instance, for the BGA. Prudential is the only PP carrier that offers a standard wholesale override and trail, the rest are all negotiated on a case-by-case basis. Don’t let that deter you, they are all willing to work with you on crafting a solution that works. The compensation isn’t front-loaded like most standard insurance products—it is spread out over years with basis-point trails based on AUM (most often). The design is also different than most standard products because it is built for efficiency and low cost, usually either an overfunded MEC or non-MEC design depending on the client need. About 95 percent of the time this isn’t built for death benefit, but rather for accumulation and maximum investment buildup within a tax-advantaged wrapper. So for those agents and distributors who are used to selling no-lapse guarantees and death benefit, this will be a shift from that mindset but one that can be made. This sale is about the investments, so understanding what carriers offer the hedge fund your client is looking for is equally important. The carriers also have some standard investment options that are more commonplace if the client chooses. Otherwise, if the investment manager isn’t offered, the carrier may be willing to conduct the due-diligence to bring them on board for this sale. If the client isn’t particularly insurable, or prefers something other than a life insurance contract, a private placement variable annuity may be a good solution. You lose the tax-free death benefit, but maintain the tax-deferred accumulation potential for those otherwise tax-inefficient investments.
There are additional solutions some of these carriers have developed that step outside of the traditional private placement solutions. One, for instance, is called Catalyst, offered by Lombard International. It is a product where you can take an existing GUL policy and add-on a cash value bucket for accumulation without the need for additional underwriting. So it gives the BGA and producer an additional solution in the policy review process, to make use of some of that fixed insurance that normally can’t be 1035’d or enhanced. You would have to talk with Lombard for more information about it, but it undoubtedly will be a great solution. A few other carriers are also working to develop a similar reinsurance style product to help make private placement products more accessible, so keep any eye out as the marketplace continues to develop.
Being able to offer these types of solutions will set you apart as a producer or agent, even if you rarely use them. Having an understanding of the concept along with access to a couple of key carrier relationships to help you in the event you have a case is the critical part. The main thing to understand here is that you aren’t alone. You have resources at the carriers to tap into, to guide you through the sales process and client meeting. On our Private Placement page of VUL Source, we have listed available resources (www.VULSource.com). Reach out to them and get an understanding so you can begin to carry the big stick even if you don’t swing it very often.
Charles L. Arnold
is the national director of BGA marketing at The Leaders Group. His duties include maintaining relationships with TLG’s brokerage general agents, recruiting new agencies, and serving as an active member of the TLG marketing team. In his marketing role he is primarily responsible for assisting BGAs and their salespeople to effectively position and wholesale life insurance to financial advisors. He holds the Series 7, 63, 65, 24 and 51 licenses, as well as a Colorado resident producer license for life and variable products. The Leaders Group is a broker/dealer for BGAs with more than 130 BGAs registered and more than 20 years experience serving the BGA market. Prior to joining The Leaders Group, Arnold was a financial advisor in the Greenwood Village, CO, market. Before moving to Colorado, he worked in external sales as a regional vice president for a national wholesaling organization in Chicago, IL. He graduated from the University of Notre Dame in 2007 with degrees in finance and economics. Arnold can be reached at The Leaders Group, Inc., 26 W. Dry Creek Circle, Suite 575, Littleton, CO 80120. Telephone: 303-797- 9080 ext. 123. Email: [email protected] LeadersGroup.net. Website: www.LeadersGroup.net.