Charlie Gipple, CFP, CLU, ChFC

In last month’s part one of Demystifying IUL Illustrations, I made the point that the risk inherent in illustrations (that are typically 30 to 50 pages long) is that the consumer never even pays attention to the content of the illustration. I likened it to the documentation that one signs while getting a mortgage. I would tell you that I read everything in the fine print before I signed for my mortgage but that would be a lie! Thus the mortgage documentation becomes a moot point for disclosure purposes similar to what can happen with indexed universal life insurance (IUL) illustrations. Clearly, we do not want that! 

I then went on to elaborate that the IUL illustration can actually be used as a great tool as long as the agent knows how to explain it in a simple manner. However, in order to explain something in a simple manner, one needs to understand the content, the numbers, and why the numbers behave the way they do in the illustration. As Albert Einstein said, “If you cannot explain it simply, you do not understand it well enough.”  

I also stated that the agent must understand that caution needs to be exercised, because the only guarantee the illustration offers is the fact that the illustration will be wrong. We just want the illustration to be wrong on the conservative side. 

Then I explained that illustrations that are maximum funded, with loans coming out in later years for retirement income, can be some of the most complicated to understand and explain. However, these are the most common illustrations when IUL is being used.  I then used an example scenario of Jill, our 45-year-old client, to demonstrate how to simplify the IUL illustration conversation. This is where I laid out a track for the financial professional to go down. This track is five specific points on the illustration that are great places to stop and emphasize for the client. Below are the details of the scenario followed by the five point track.

Scenario: Jill, a 45-year-old female in good health, has a life insurance need of $500,000. She wants to maximum fund this policy because, when she retires in 20 years, she would like to begin taking loans against the policy as retirement income. We assumed a six percent illustration rate and solved for a fixed/wash loan amount that can be taken against the policy from age 65 until age 100. In this scenario we chose an increasing death benefit (option 2) switching to level (option 1) after the premiums are paid. This death benefit option allows more premium to be paid into the policy, versus a level death benefit which decreases the net amount at risk (death benefit minus cash value) in the policy, which, in turn, reduces the cost of insurance charges. The five points of emphasis on the illustration were:

Point 1:  What is the total premium (seed) going into the policy over the funding period? $358,443 ($17,922 over 20 years).

Point 2: The year that the client would like to retire—20 years from now in my example.  

What has the death benefit grown to?  $1,121,000.

What is the cash surrender value?  $621,700.

(Note: There should also be a discussion around the assumptions used in the illustration and the fact that they are not guaranteed. This is usually the point where I have this discussion.) 

Point 3: The loan amount in the first year of retirement—$41,283.

This warrants a discussion with the client about the loans that allow them access to that cash surrender value (harvest) without the 1099 coming.

Point 4: Approximate life expectancy—age 85 in my example.  

At this point, I emphasize the total seed that we discussed in Point 1 and compare that to the total nontaxable harvest.  Total premium ($358,443) vs. total loans ($825,660) plus death benefit ($477,348) which totals $1,303,008.

Once finished walking through the first four points, at that point the client may ask questions such as:

• How much does all of this cost?  
• What are the expenses?
• Is putting $358,440 into something that generates a value of $1,303,008 between loans and death benefit a good value?

Point 5: The aforementioned questions bring us to the main content of this month’s column, where I discuss the internal rate of return (IRR) reports that many carriers have as supplemental outputs for their illustrations. 

Based on Jill paying one premium of $17,922.16 and having a death benefit of $516,013 in year one, that is an IRR of 2,779 percent should she pass away in that year. However, suggesting death in the first year is a ridiculous scenario that will rarely happen, but I show that to make a point. My goal is to demonstrate that, from purely an IRR  standpoint, dying young with life insurance is the best case financial scenario and that the IRR on the death benefit tapers off as time goes by. Clearly, dying young is not ideal! 

If dying young is the best financial scenario, then what would the worst case financial scenario be from purely an IRR standpoint? It would be that Jill dies very old.  This is due to the fact that the leverage power of life insurance burns off as the policy ages because of the time value of money, and also because the loans, plus the interest that Jill is taking, goes against the death benefit. In other words, the worst case for Jill and/or her beneficiaries from a IRR standpoint is that she lives so long in retirement and takes so much in loans for her retirement needs that she spends the death benefit down to almost nothing.  

Again, in our scenario with Jill we illustrated the loans coming out to age 100, at which point there is almost nothing left in cash surrender value and death benefit. So, back to the questions our hypothetical client may ask about costs and charges. What was the cost to Jill in the case that she lives until 100?

To answer that, let’s look at the IRR that Jill would have at age 100 after she put in $358,443 of premium ($17,922 x 20 years) and took out $1,444,905 ($41,283 x 35 years) in loans. Because I optimized the policy’s death benefit for distributions to compress the cost of insurance (COI) charges, the IRR would be quite attractive. It would be 5.57 percent or a taxable equivalent of 7.43 percent assuming she was in the 25 percent tax bracket. But if we illustrated the policy at six percent, why is the IRR only 5.57 percent and not six percent? Because of expenses. Therefore, what would be the total expense drag on this policy over the life of the policy? It would be 43 basis points (six percent minus 5.57 percent) per year!  

Many would argue that this level of expense is not astronomical, especially considering that the 0.43 percent was buying life insurance over Jill’s lifetime so that, if she were to die young in those early years, her beneficiaries get multiples of what she put in—i.e. leverage! But even when that leverage has burnt off, it still was not a bad proposition for Jill because it cost her only 43 basis points.

Another method for looking at expenses is to look at the cash surrender value IRR in year 20, 30, etc., and check the disparity between that IRR and the illustrated rate. If you can get the disparity to around one percent or lower you have an IUL with low internal charges.

Again, these are not investments, but as you can see, if optimized correctly, this disparity between the IRR and the illustrated rate can be quite reasonable.

The value of putting in $358,443 of premium and taking out $1,444,905 is significant. Cost is an issue only in the absence of value, and nobody can argue that there is an absence of value with cash value life insurance if the policy is designed correctly based on the client’s needs.

And remember, with IUL you are paying taxes on the seed and not the harvest.

The information presented is hypothetical and not intended to project or predict investment results.  The numbers cited in the illustration are based on the Builder IUL 8 issued by North American.

The net cost of a variable interest rate loan could be negative if the credits earned are greater than the interest charged.  The net cost of the loan could also be larger than under standard policy loans if the amount credited is less than the interest charged. In the extreme example, the amount credited could be zero and the net cost of the loan would equal the maximum interest rate charged on variable interest loans.  In brief, variable interest rate loans have more uncertainty than standard policy loans in both the interest rate charged and the interest rate credited.

Indexed universal life insurance products are not an investment in the “market” or in the applicable index and are subject to all policy fees and charges normally associated with most universal life insurance.

Income and growth on accumulated cash values is generally taxable only upon withdrawal. Adverse tax consequences may result if withdrawals exceed premiums paid into the policy.  Withdrawals or surrenders made during a surrender charge period will be subject to surrender charges and may reduce the ultimate death benefit and cash value.  Surrender charges vary by product, issue age, sex, underwriting class, and policy year.

Neither North American nor its agents give tax advice. Please advise your customers to consult with and rely on a qualified legal or tax advisor before entering into or paying additional premiums with respect to such arrangements.

Builder IUL is issued on policy form series LS172 by North American Company for Life and Health Insurance, Administrative Office, Sioux Falls, SD 57193. Product, features, riders, endorsements or issue ages may not be available in all jurisdictions. Restrictions or limitations may apply.

I had a mentor once who asked me a question to demonstrate a very important point. He said, “Charlie, what would your wife’s response be if you approached her and said ‘Honey, do you know that your face could stop a clock?’” I said, “Well, my wife’s reaction would likely not be a positive one.” He then said, “OK, conversely Charlie, what would happen if you went up to your wife and said, ‘Honey, do you know that when I look at you time stands still?’” I then said, “It would likely be a better outcome.” He said, “What I just said was the exact same thing, but I said it very differently. In our business it is not what you say, it is how you say it!

The above was something that has always stuck with me. We are certainly in an analytical business, but the best salespeople I have ever met were those that understood that we are also in a language business. The best salespeople in this business, whether wholesalers or agents, are those that don’t avoid discussing the complicated, but rather communicate the complicated in a simplified manner.

It is human nature for the brain to shut down when it is receiving an overdose of analytics. If you have been in this business for any significant period of time you have been in a meeting where you were force-fed analytics on a mass scale. In these situations, you can be faced with “analysis paralysis” where the brain puts up a wall and wants to do anything other than continue to listen to the presenter. Since much of what we do requires a great amount of analytics, discussing analytics can be hard for us to avoid. However, what if you could deliver those analytics past that wall the brain puts up via a Trojan Horse? What is the Trojan Horse I am referring to? What I am referring to is stories, analogies, metaphors and simplification. If you can wrap those analytics in the “Trojan Horse” of a story or an analogy, the critical information the client needs to know will be transported into the brain!

A perfect example of the analytics that are involved in our business is sitting right in front of me as I type this column. As I sit here I am looking at an indexed universal life (IUL) insurance illustration that is 39 pages long. The “Tabular Detail Ledger” is 14 columns wide. So why not make this illustration the topic of this month’s column?

To the untrained eye the details of an illustration can be very daunting to look at because…where does one start? It’s a very important stack of papers, but yet the risk of “analysis paralysis” is high when the agent or client looks at it. As the agent one may think, “Where do I start to explain the illustration? Do I discuss every single value, every single year? Why does one column increase while the other columns decrease? How are all of these numbers arrived at?” Etc.

We need to be able to explain this to our clients effectively. After all, the client signing this illustration is required by insurance regulations. I am a believer in disclosing everything, but I am also a believer in being able to explain everything in a simple manner so the client understands everything. To me, the last thing an agent needs is for the client to completely disregard those pages and sign the illustration because it is just too daunting. To my point, if you have taken out a mortgage lately did you read all of the documentation that you signed? I didn’t think so. So, over-disclosure and over-illustration can present a risk in that it can completely dissuade the client from even paying attention to the illustration—when the client would have otherwise paid attention if the illustration were shorter.

Clearly, I am not suggesting we do away with illustrations nor am I suggesting that you should not discuss the illustration. What I am suggesting is that it is important that the client not only signs the illustration, but also that he/she understands it! Granted, you are not going to make a non-numbers client an actuary in a conversation. But what if there was a roadmap as well as a method to explaining the illustration in a simple manner so the client can actually understand it? This may sound like a lofty task but it can be done.

Many times the most complicated illustrations can be those where the client wants to maximum fund the policy over X years, then take potentially tax-free loans out against the policy to supplement their retirement income. These types of illustrations are actually the most popular type that are run when IUL is being considered. As a matter of fact, Wink’s Sales and Market Report Q1 2017 reports that 78 percent of IUL is sold with the “Pricing Objective” of cash accumulation, versus other objectives like guaranteed death benefit, wealth transfer, etc. So using a scenario where accumulation, then loans, are illustrated, I want to focus on the “flow” in which you can explain the illustration in five key points, with the fifth point being discussed next month.

(Disclosure: The below demonstration is not all encompassing of the discussion of caps, spreads, expenses, etc. that should be incorporated into the agent’s conversation with the client.)

Scenario:

The scenario I would like to use is this: We have Jill, a 45-year-old female in good health, who has a life insurance need of $500,000. She wants to maximum fund this policy because 20 years from now at retirement she would like to begin taking loans against the policy as retirement income. We will assume a six percent illustration rate and solve for a “Fixed/Wash Loan” amount that can be taken against the policy from age 65 until age 100. In this scenario we chose an increasing death benefit (Option 2 Death Benefit) switching to level (Option 1) after the premiums are paid. This death benefit option will allow more premium to be paid into the policy versus a level death benefit. What this does is it decreases the net amount at risk (death benefit minus cash value) in the policy which, in turn, reduces the cost of insurance charges.

(Note: Although I am starting with a death benefit in mind in this example, many times the illustrations are done with the starting point as the premium amount that the client wants to put in and the illustration solving for lowest death benefit. In both cases the below points would apply.)

Illustration Point #1: The Seed

If the IUL is designed properly, one of the benefits of those retirement distributions (loans) are that they are potentially tax free to the client. Yes, the premium you put into the policy has already been taxed but if the policy is set up correctly, the distributions are not. I like to say that with IUL, you are paying taxes on the seed, but not always on the harvest. The first point on the illustration is to point out what the premium/seed is going into the policy—not just the annual premium/seed, but the total of those 20 premiums. In this scenario Jill would be putting in $17,922 per year, or $358,440 over the 20-year period until age 65. This is the first point on the illustration to emphasize. What can Jill get in return for that “seed” of $358,440?

Illustration Point #2: The Potential Harvest at Retirement

The second crucial point on the illustration is the year in which she would like to retire, which is typically age 65. In this year you want to discuss a couple different points:

Death Benefit: What does the death benefit look like in that year of retirement, before the loans begin to come out? In this scenario Jill’s death benefit has increased to a little more than $1.1 million. This is a point that presents an opportunity to discuss why you illustrated an increasing death benefit—the fact that it decreases internal expenses in the policy and it also offers the ability for the death benefit to offset inflation.

Surrender Value: At age 65 Jill’s surrender value is $621,700. This warrants a discussion around the fact that she put in a “seed” of $358,440 and is able to, at that time, take out a harvest” of $621,700. That is, assuming the illustration is 100% accurate, which it never will be. This is where you discuss the fact that the illustration was assuming six percent, which is merely a projection and not guaranteed. A conversation around the “guaranteed values” is important at this time.

As you discuss the “projected” $621,700 in surrender value in that retirement year, you can tell Jill at that point that she could request that money to be sent to her and the insurance company will send her a check. She could cash out that entire $621,700! However, the check is not the only thing the insurance company will send out in this scenario. They will also send out a 1099 for the difference between what she put in (basis) and what she took out. Any time a life insurance policy dies before the client dies, it is taxed like an annuity! Thus, she would get a tax bill on $263,260 ($621,700 —$358,440) in income. Clearly, we do not want this. So this is where you tell Jill how she can get access to that “harvest” without the 1099 coming. This is where you move on to point #3.

Illustration Point #3: The Loan Amount

In the first year of retirement for Jill (Age 66) she can take loans against the policy of $41,143 in this example. As you point this number out you want to explain two different things to Jill:

Again, the loan is typically not taxable. Why not? Because loans generally are not taxable! When she goes to the bank to get a mortgage or a loan, those transactions are not taxable to Jill, correct? This situation is no different, assuming it is a non-MEC contract of course!

You projected the loans to run until age 100. If she wanted the loans illustrated longer, age 120 for example, you can run it that way as well.

When I am training agents I like to point something else out: Have you ever been asked by the client, “Why do I have to take a loan from myself? That is my money I am taking out!” Here is my explanation:

The client is not taking anything out of their policy. What is happening is the client is going to the insurance company and the insurance company is making a loan to the client; in this example to the tune of $41,143 per year. These loans are not much different than Wells Fargo giving the client a loan. However, how does the insurance company guarantee they would get their loans plus interest back should the client die or surrender the policy? This is where the insurance company collateralizes the surrender value and the death benefit of the client’s policy year by year as those annual loans are taken. The ability for the insurance company to do this is great because the loans, plus interest, are fully protected by the policy. This is why you see the “Surrender Value” and “Death Benefit” columns on the illustration decreasing once loans are taken, not because money has been taken out of the policy, but because a portion of the death benefit is being used as collateral! Furthermore, this is also why the accumulation value, also known as cash value, is not decreasing—because the client did not take one penny of their cash value out of the policy. The client merely got a loan from the insurance company and the insurance company used the surrender value and death benefit as collateral. Again, on the illustration the accumulation value usually continues to grow while the surrender value and death benefit decrease.

Illustration Point #4: Life Expectancy

Although Jill, as a 45-year-old female, has a life expectancy of 82 (per the Social Security Tables), I will generally use the next five-year increment because of the fact that insurance company illustrations usually sum up the premiums and loan amounts in five-year increments. Thus, in the example using Jill, I will have a discussion around the numbers at age 85.

This is where I will reemphasize the fact that she would be putting in a “seed” of $358,440, but in exchange for that “seed” she would be allowed total loans over her lifetime that add up to $822,860 ($41,143 X 20 years) that will not be taxed. Again, the illustrations will generally add these numbers up for you in 5 year increments. I then point out that the $822,860 was not the total “harvest” the policy would have generated. Why not? Because if she happened to pass away in that year there is also a death benefit that is passed on to the beneficiaries that is tax free. The death benefit in this scenario is $507,727. In this scenario there is a total “harvest” generated from the insurance policy of $1,330,587 (total loans + death benefit) versus a “seed” of $358,440. Again, this is based off the projection of six percent, which is just that—a projection.

At this point in time, especially if the client is more on the analytical side, the client may want to discuss the costs in the policy. In other words, is putting in $358,440 into something that generates a value of $1,330,587 40 years later a good value? Unless the client is savvy with the cash flow functions in a financial calculator, that can be hard for them to quantify. This is where I like to utilize the Internal Rate of Return Report that usually can be included in the insurance company’s illustration. To me, these reports are invaluable when it comes to quantifying the value of the policy, and also in quantifying the expenses embedded in the policy. 

This fifth point, Internal Rate of Return Report, warrants its own column and is “to be continued” next month.

Neither North American nor its agents give tax advice. Please advise your customers to consult with and rely on a qualified legal or tax advisor before entering into or paying additional premiums with respect to such arrangements.

Indexed Universal Life Insurance products are not an investment in the “market” or in the applicable index and are subject to all policy fees and charges normally associated with most universal life insurance.

The opinions and ideas expressed by Charles Gipple are his own and not necessarily those of North American or its affiliates. North American does not endorse or promote these opinions and ideas nor does the company or agents give tax advice. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed as to accuracy. All presentations are for agent representative use only and cannot be used, in whole or part, with consumers.

Income and growth on accumulated cash values is generally taxable only upon withdrawal. Adverse tax consequences may result if withdrawals exceed premiums paid into the policy. Withdrawals or surrenders made during a Surrender Charge period will be subject to surrender charges and may reduce the ultimate death benefit and cash value. Surrender charges vary by product, issue age, sex, underwriting class, and policy year.

For most policies, withdrawals are free from federal income tax to the extent of the investment in the contract, and policy loans are also tax-free so long as the policy does not terminate before the death of the insured. However, if the policy is a Modified Endowment Contract (MEC), a withdrawal or policy loan may be taxable upon receipt. Further, unpaid loan interest on a MEC may be taxable. A MEC is a contract received in exchange for a MEC or for which premiums paid during a seven-year testing period exceed prescribed premium limits (7-pay premiums).

The net cost of a variable interest rate loan could be negative if the credits earned are greater than the interest charged. The net cost of the loan could also be larger than under standard policy loans if the amount credited is less than the interest charged. In the extreme example, the amount credited could be zero and the net cost of the loan would equal the maximum interest rate charged on variable interest loans. In brief, Variable Interest Rate Loans have more uncertainty than Standard Policy Loans in both the interest rate charged and the interest rate credited.

The information presented is hypothetical and not intended to project or predict investment results.

For my friends out there who have seen my head and how it can cast a blinding reflection if the sun is at the right angle, you may wonder how it is possible that I even need haircuts, let alone a haircut that costs $86? It will make sense by the end of this month’s column.

I have been brainwashed by what I have learned in my college finance classes as well as my almost 20 years of experience in financial services. I have been brainwashed by the ocean of statistics that you and I have swum our professional lives in that emphasize the large amounts of money needed to pay for children’s education, our retirement, medical costs in retirement, long-term care expenses, etc. Thus, my wife accuses me of overanalyzing everything that is financial, and being one of the cheapest people around. I am frugal for a couple different reasons.  

The first reason is because of the aforementioned statistics that have been burned into my brain and the need to avoid instant gratification so that I can otherwise save for those expenses decades down the road.  

Another reason I am frugal is because of two very simple economic concepts that I live by and believe every high school and university should teach students before they venture out into the world of financial independence. The two concepts I am referring to are “time value of money” and “opportunity cost.” I believe that if the education system is not going to educate on these concepts, it is an opportunity for those of us in financial services to fill that gap which, in turn, will create client opportunities for us.  

As you may know, the notion of time value of money is that a dollar today is more powerful than a dollar in the future. Why? Because a dollar today can be invested to be worth more than a dollar in the future. As Warren Buffett once said, “Someone is sitting in the shade today because someone planted a tree a long time ago.” Warren is referring to the fact that if you invest a dollar today and it gets a hypothetical five percent average return for 20 years, it will then be worth $2.65.  

Opportunity cost, my second concept, is the notion that if you have a resource (such as time or money) that you allocate to “something,” there is a missed opportunity that you experience by not choosing the alternative to that “something.” This concept is the guiding hand of how we spend our lives! This is the very foundation of how we use the limited resource of time that is given to us over our lives. We all think, “If I do X today, then missing out on doing Y is less of a missed opportunity than if I did Y and missed out on X.” We all do this, whether it’s instinctively or not so instinctively. In other words, day after day, we allocate our time to the activities that we believe will result in the least amount of opportunity cost, whether you recognize you are following this economic principle or not.  

An example of opportunity cost using money would be, if my seven year old pays $1 for a candy bar, he gets a candy bar, but the opportunity cost is the pack of gum he could have otherwise gotten. In essence, opportunity cost is the opportunity or opportunities you lose by choosing something.

Now let’s combine the two concepts of time value of money and opportunity cost using a real life example of a situation I went through several years ago. I had an eight year old vehicle that had over 150,000 miles on it, again, because I am cheap! Well, after the vehicle stranded us a couple of times, my wife implored me to trade this vehicle in for something else.  As I went through the debate with my wife on whether or not to get another vehicle, here is the logic that went through my strange mind:  If I were to trade in my eight year old vehicle that now is worth $10,000, for a brand new one that costs $40,000, the real cost to me will be somewhere around $130,000! 

Right now you are thinking I am either crazy or I missed the subtraction part of my math classes in elementary school. Allow me to explain. Enter opportunity cost and time value of money. 

By forking over $30,000 today, I am foregoing an opportunity to have that money invested elsewhere. Thus, there is an opportunity cost of what that investment could grow to be. This means that if I were to not give up that $30,000 today, but instead I would invest it where it can capture interest of, say five percent on average per year for 30 years, what would that value grow to? I would have $129,658 in this hypothetical account when I am 69 years old. That money could help with my retirement, pay for my grandchildren’s education, etc. That is the power of time value of money and opportunity cost.   And that’s why I’m not ashamed to drive an old beater!

A couple of other examples would be: 

• If I were to spend $20 on a haircut today, I would technically be paying out $86 in future value 30 years from now assuming a five percent rate.  
• If I were to buy a $5 latte every day for 30 years, I would technically be paying out $127,000 in future value 30 years from now assuming a five percent rate.  

Anyway, back to the vehicle. After explaining this logic to my wife, she exclaimed, “So do you suggest never getting a new car then?” I said, “Fair point,” and hesitantly agreed to it. (Note: I am embellishing a little as it is not like I get out a financial calculator every time I spend money.)

As we drove to the dealership, I asked my wife what her requirements were of the new vehicle, even though this new vehicle was going to be mine! She said she had two simple requirements. The first requirement would, of course, be cost! She knows I would not be on board with spending a fortune on something that depreciates the moment you fire it up. The second requirement she sought was capacity, i.e. the capability to comfortably transport our two sons and a million of their friends to and from sporting events along with all of their equipment. With this last requirement, my wish of buying a pickup truck immediately disappeared.

As we walked into the dealership, right there in front of us was a vehicle for which she immediately proclaimed, “I love it!” Again, this vehicle was supposed to be mine and the vehicle she was falling in love with was a minivan. Apparently this minivan satisfied her two criteria. This is when I enlightened my wife that I had a third requirement that the minivan did not fulfill. My third requirement was the horsepower and towing capabilities, should I decide to purchase something later on that needed to be towed—a boat for example. She agreed, and we went to the Sport Utility Vehicle (SUV) section.

As we looked at the SUV we liked, we realized this decision was going to be a bit more complicated than what we thought. That is, the SUV required a premium of $5,000 over the minivan. At this point we essentially had a value triangle for each of these vehicles that we needed to analyze, since this decision was not just about “cost” in isolation or “capacity” in isolation.  It was more complicated than that.  

As you can see above, the value triangles lay out our three requirements and the corresponding data. The bottom left side of the triangle was equivalent on both vehicles. They both had the capacity to transport several kids, as my wife was seeking. The differences came in the top corner (price) and the bottom right corner (horsepower and towing). Effectively, if we went with the minivan to save $5,000, there would be an opportunity cost of not having the horsepower and towing I was looking for. After debating for an hour, she let me buy the SUV.  

To me, the opportunity cost of paying the $5,000 extra and getting the towing capabilities was much less than saving $5,000 and not having that capability. There is a reason why one of the fastest growing segments of the U.S. automobile market has been SUVs in recent years.  They have the versatility of being able to haul a million people around like a minivan, with the horsepower and towing capabilities of a pickup truck. The SUV has the best of both worlds where opportunity cost may often be minimized.

With that being a primer, let’s discuss opportunity cost as it relates to guaranteed universal life insurance (GUL) and guaranteed index universal life Insurance (GIUL). I believe this is a conversation that is not discussed enough because of our (the entire industry) comfort level around GUL. However, if we start analyzing and discussing the concept of opportunity cost, I am confident that the industry will start selling a lot more GIUL. 

Let’s use an example of a 50-year-old male (preferred non-smoker) that has a death benefit need of $1 million. Because this individual has an absolute need for the life insurance to be in force for his lifetime, I illustrated the death benefit to be guaranteed until age 120, as long as he pays the premiums until age 100.

At this point, a picture is worth a thousand words. Below you will see the value triangles of these two products.

As was the case with the minivan/SUV example, the bottom left corner is equivalent in both examples.  Regardless of how interest rates or any index perform, the death benefit is guaranteed to age 120 as long as the client pays the premiums as illustrated. Where do these products differ? If you look at the top corner, the cheapest product is the GUL, with an annual premium (to age 100) of $10,380 per year. Thus, by looking at just these two specs/corners in isolation, one would believe that the GUL would be the way to go. However, we need to consider all three corners of the value triangle and the tradeoffs/opportunity costs that exist. Even though the GUL is $508 cheaper than the GIUL, choosing the GUL comes at an opportunity cost in the form of cash value. As you can see the cash value on the GIUL in year 20 grows to $215,675 (assuming a six percent illustrated rate), which is almost a return of the total premiums paid up to that point.  

I would estimate that if I were to ask a room of 10 prospects which one they would choose, a good majority of them would choose to pay the roughly five percent more premium in exchange for the cash value potential. GIUL is flexible and versatile so that if the consumer’s needs change later in life and cash value is needed to subsidize retirement, it’s there. Just as the SUV had both the capacity of a minivan and horsepower of a pickup, the GIUL has the death benefit guarantee of a GUL while also providing cash value potential that indexed universal life (IUL) insurance is known for.  

If there was an overarching message I would like to communicate in this month’s column, it would be two things:  

1. The first is, my desired features of a couple of life insurance policies I own today are different than what I thought they would be 15 years ago when I bought them. Why? Because as much as we believe we can determine what we will need in the future, time changes a person and their financial goals. Products that have the flexibility and versatility to change along with life are important. I bet when Walt Disney applied for his life insurance policy he never thought that he would ultimately use that policy’s cash value to finance and create what would be Disneyland.
2. As mentioned, life is about tradeoffs and opportunity costs, and many times the cheapest product is not the cheapest when you factor in opportunity costs. This is especially true with life insurance pricing. So let the client decide if saving $508 is worth the opportunity cost of not having cash value. Even though it may be an easier sale to just give the client what they want when they ask for the cheapest permanent coverage, discussing the tradeoffs/value triangle should be our responsibility as we cannot assume our clients know about the opportunity cost of buying the cheapest product.  

For the reader that has a keen understanding of the two concepts I have been discussing, time value of money and opportunity cost, you may be thinking, “What if my client were to buy the GUL and invest the premium difference of $508? Could they achieve the same level of cash value in that investment?” My financial calculator tells me it is possible only if the investment performs to the tune of 24.9 percent compound average return over the 20 years in order to get the same $215,675.  Furthermore, this is not taking into consideration the potential tax benefits of cash value life insurance. 

In closing, GUL is a great product and there are, of course, many scenarios where GUL would be the more appropriate product for that respective client. I am merely advocating that financial professionals and consumers heed the tradeoffs that may exist from product to product.

“As I hurtled through space, one thought kept crossing my mind—every part of this rocket was supplied by the lowest bidder.” —John Glenn 

Neither North American nor its agents give tax advice.  Please advise your customers to consult with and rely on a qualified legal or tax advisor before entering into or paying additional premiums with respect to such arrangements.

Indexed universal life insurance products are not an investment in the “market” or in the applicable index and are subject to all policy fees and charges normally associated with most universal life insurance.

The opinions and ideas expressed by Charles Gipple are his own and not necessarily those of North American or its affiliates.  North American does not endorse or promote these opinions and ideas nor does the company or agents give tax advice.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed as to accuracy. All presentations are for agent representative use only and cannot be used, in whole or part, with consumers.

I believe that all species go through similar stages throughout their lifecycle; birth, dependency, youth, maturity, adulthood, then death. I was going through some old pictures a couple of weeks ago and saw our beloved family dog (Max) that left this Earth two years ago. He had been with us since college when he was 6 weeks old and had a life many dogs dream of; dog owners looking to provide their best friends with long and happy lives may want to protect them with something like Pets Best dog insurance. Max hung out with us in our college dorm as a puppy, he then moved into our first house with us, he moved across the country with us for my job, he was there when our first and second sons were born, then later was best buddies with my kids as they grew old enough to play with him. He had seen it all. After spending 15 great years (over 100 dog years) with us I had to make that call to the veterinarian, which was one of the hardest calls I have ever made. We loved Max like he was one of our kids and it broke our hearts when we had to end his pain.

I think of the last six months of his life, which is equivalent to a few human years. He was about 90 percent dependent on us. He was blind, he didn’t know where his food was, he couldn’t move very well, etc. Many of us have seen this decline happen with their pets; and family, which I will touch on in a bit, and many of us turn to medication such as CBD for Pets to help ease their pains during those times.

What would Maxs final days have been like if he didn’t have a loving family to take care of him? Without getting morbid, we all know how nature and predators take care of elderly animals that cannot care for themselves. However, as a domesticated animal whose family had an obligation to take care of him, he had an additional stage added into his lifecycle that I mentioned in the first sentence of this column. If he wasn’t eating, we would search for tips if your dog isn’t eating, or if he wasn’t drinking, we would try and find out why. We had a duty of care and we made sure we were the best possible owners for our beloved furry friend. That additional stage was Late Life Dependency. We as humans many times have this additional stage as well. Unlike other animals, we as humans have an obligation to take care of our fellow man/woman when they cannot take care of themselves. What I am referring to is long term care. As many of us know, there is a 70 percent chance that if you are over the age of 65 you will indeed need long term care services.

My point to the previous comparison is that every species on Earth ages and becomes frail where many times they cannot take care of themselves. If you have never seen this happen with a family member than you probably have with a pet. This is the way that nature works and cannot be denied by anybody even those that really believe themselves when they say I will not need long term care. The difference between us and other species is, we have an obligation to care for one another and we have the long term care resources to do so. Of course, this introduces a problem to us, humans, that the simpler species are not subject to how to fund this late-life dependency.

To state that long term care funding is a problem is an understatement. In 2013, total nationwide expenditures for long term care were a whopping $339 billion versus only $30 billion in 1980.* Furthermore, in 2013, 43 percent of the long term care services were paid for by Medicaid and only six percent of those expenditures were paid for by private insurance.* Today only 13 percent of individuals thought to be eligible for long term care insurance actually own it.

The size of this problem, the size of the market, the fact that the market has not been penetrated, and the vast number of innovative solutions available represent one of the biggest opportunities for agents today. I believe that when you look at the long term care risk that faces many of your clients today, it is a problem too large to ignore. Furthermore, I believe from a legal standpoint you should not ignore this risk facing your clients. To demonstrate, Harley Gordon, one of the nations foremost long term care legal experts cites an example of an agent Adams that got a call from the son of a client of hers.

Adams received a call from a good clients son, a local attorney. He proceeded to tell her that his dad was in a nursing home and paying for it with his life savings. He then told her, You have 15 minutes to produce evidence that you recommended a long term care plan in general and long term care insurance in particular. Fortunately, she had discussed the matter and had a letter recommending the sale of long term care insurance. Without it, she believes she would have been sued.

I am not an attorney but here is what I believe: I believe that lawsuits in the future will not just be about what you recommended that was wrong, but also about what you did not recommend that was right!

Again, the fact that there are 111 million Americans over the age of 50 along with the innovations in product development, there are many reasons to be excited about incorporating into your practice a solution to this problem. Below I would like to discuss just a few possible solutions as well as a concept for your consideration.

Stand Alone LTCI:
Although the stand-alone long term care insurance marketplace has gone through some significant de-risking, these policies are still superior to what they were when first offered. When first offered in the late 70s by the handful of carriers that offered it, LTCI only covered expenses associated with nursing home/skilled nursing facilities. This is in contrast to the policies today that also offer coverage for in-home, adult daycare, and assisted living facilities. Claims experience shows that the expanded list of covered expenses has indeed been taken advantage of. To demonstrate, based on the Medicare and You 2014 study by the US Department of Health and Human Services, 51 percent of those that go on claim choose in-home care, 31 percent choose the nursing home, and 18 percent choose the assisted living facility or adult daycare. These numbers are important because they demonstrate the flaw in the notion that long term care insurance is nursing home insurance. It is important to discuss with clients that LTCI is insurance that can actually allow you to stay out of the nursing home and allow you to choose between the options above! And claim statistics show that people do indeed choose to stay out of the nursing home. In other words, because of the expanded services covered, the old label of nursing home insurance is no longer appropriate. As a result, the demand for these products has increased among more broad age groups. This shift can be seen in the fact that the average issue age on LTCI has gone down steadily over the decades. In 1990 the average buyer was 68 years of age. In 2016 the average issue age was less than 59 years of age. This is a favorable development as LTCI is not just a product for the elderly40 percent of people who need care are under the age of 65.**

Combination/Hybrid Products: Because many people discuss combination products, acceleration products, and linked benefit products as if these terms are synonymous, I would like to spend some time differentiating the terminology as these terms are not synonymous. Combination/hybrid products are the broad category of products that can be on a life insurance chassis or an annuity chassis. Thus, a combination/hybrid product is an annuity or life insurance policy that has some form of long term care benefit, usually in the form of a rider. These products can be life insurance with accelerated death benefit riders, annuities with long term care riders or they can be true linked benefit products. With what has happened in the stand-alone LTCI marketplace, in 2016 there were twice the amount of combination life insurance policies sold as there were stand-alone LTCI policies sold. Clearly the flexibility of these combo products is very appealing to financial professionals and consumers, and will only continue to grow in popularity.

Even though annuities can be a combo/hybrid product, I would like to just focus on two subcategories of the combo/hybrid world. These are products with accelerated death benefit riders and linked benefit products.

Accelerated Death Benefit Type Products: This is a subcategory of the broader combination product/hybrid world. These are usually life insurance-based products where the death benefit (and no more than the death benefit) can be accelerated for the purposes of a long term care event or a chronic illness. When I present this product I like to point out that the life insurance of the old days typically had one trigger in order to access the death benefit death. However, today’s life insurance is life insurance, not death insurance. This is where the insured can actually get enjoyment out of the product during their lifetimes in the event of a chronic illness or a long term care event. Thus, the two prominent rider types offered within this category are chronic illness riders and long term care riders. Note that chronic illness riders were predominantly previously filed as requiring a permanent condition. There are now some chronic illness riders coming to the market that do not require permanence.

Linked Benefit Products: Again, linked benefit products is a subcategory of the broader combination product/hybrid world. These are usually life insurance products where there is a long term care pool that is created that can be multiples of the death benefit on the underlying life insurance product. Of course, the additional long term care pool would come at an extra cost and possibly additional underwriting relative to just an acceleration product. A linked benefit product may give two to six times the death benefit in the form of a long term care pool. The long term care benefits that go beyond the total death benefit are through the use of a continuation of benefits or extension of benefits rider. Thus, the COB/EOB is the primary difference between the linked benefit category and the accelerated death benefit category.

The Flexibility of Hybrid Life Products:
To end this column I want to add to a concept created by Moshe Milevsky (Professor of Finance at York University). Above I created a graphical representation that shows two forms of Capital that we have throughout our lives. We start life with a great amount of human capital, which is the present value of all of our future earnings. As we age and go through life we start to lose our human capital because we are getting older and therefore our future earning power diminishes. Thus, on the graph, you see the human capital line descending as one gets older. However, as we get older our financial capital (401k plan, IRAs, investments, etc.) should be growing. Thus, the financial capital line is ascending. In other words, think of life as converting your human capital into financial capital as you go. The problem with both of these forms of capital is, should a catastrophic event happen, you can lose it! This is where insurance comes into play.

How does one ensure human capital? As you can imagine, your human capital can be insured via life insurance or disability insurance. For example, should your human capital drop from $1 million to $0 in one day because of death, it would be ideal if your beneficiary would then be given $1 million in financial capital/death benefit as an offset. This is done via life insurance. Same thing should a disability happen. Above is a yellow-colored period of time where human capital insurance is needed. Of course, this is generalized for simplicity of illustration.

How does one ensure financial capital? There are many ways one can lose financial capital, one of which is via long term care costs. Of course, this risk can be insured via LTCI or combo products. Another risk to financial capital may be longevity risk, which can be insured via annuities.

I started this column discussing the various phases of our lives and the fact that our lifecycles are a little more complicated than other species on earth. For these complicated lifecycles, which will only get more complicated as life expectancies increase, we need products that are flexible enough to cater to various risks as we go. This is the very reason I believe financial professionals like the flexibility of life insurance with riders (chronic illness or long term care). In the early years, life insurance can protect human capital via a death benefit. Later in life, the financial capital can be augmented by the cash value in the life insurance policy while at the same time that same policy can provide a level of insurance for the financial capital via a chronic illness or long term care rider.

References:
*Fact Sheet: Long-Term Services and Supports (AARP)
**The State of Long Term Care Insurance 2016 (NAIC)

About ten years ago I had a 6:00 am Southwest flight out of Omaha to Phoenix.  I was dead tired because I had to wake up at 3:30 am to get on the flight but I dragged myself to the airport. Waiting at the gate to get on the airplane seemed to take forever. All I wanted to do was get on the plane and take a nap.  As I boarded the plane I was happy because there were probably about 50 people on the flight which would mean that I would likely have plenty of room to get comfortable and take my nap.  Indeed, after I sat down I noticed that in my row it was just me and somebody across the aisle in the other seat that looked like he was probably a frequent traveler. Some frequent travelers have a projection of arrogance to them. Without going into detail, this guy definitely did. Anyway, as I sat there in my seat I started to doze off into a half-conscious state. I could feel the plane pull back from the gate and go through the long process of idling out to the runway. The feeling of the plane lumbering along through the obstacles to get to the runway is actually kind of a soothing feeling, a lot like rocking a baby to sleep.  In my half-awake state of mind I could then feel the plane’s full thrust kick in when I was pushed back in my seat.  It was obvious we were now making our way down the runway.  As we made it down the runway we were nearing the final stage, where you just begin to feel the front wheel lift up as we go airborne.  Then, all of a sudden, BOOM! This is the point when my whole world got rocked.  It felt like we hit a brick wall as I was jolted wide awake. We were then skidding down the runway as I pulled myself to the window in panic to see where the end of the runway was because we had to be close. I also glanced over at Mr. Frequent Traveler across the aisle, whose eyes were the size of dinner plates. He was looking back at me for confirmation we were going to live, which I could not provide him. He was panicking, the other passengers were panicking and, worse of all, the flight attendants were panicking! What felt like a lifetime finally came to an end. We finally slowed down and got it under control.  As the dust settled and we began that slowly idle back to the gates I could hear people sobbing toward the back of the plane. That is when the captain came on the intercom to tell us what had just happened. What did he say?  In a very calm voice he comes on and says “Hello folks, sorry about that somewhat uncomfortable take off attempt. As we began to get airborne we had a code tripped that the right side engine was failing so we had to abort our take off.  We will have to take you back to our gate and see what we need to do to get you on your way home. We do apologize for the inconvenience and greatly appreciate your patience as we get you home safe and sound.” All of the sudden, with the calm words from the pilot projecting that nothing unmanageable had happened, everything seemed OK! You would have thought that the pilot had been there and done that a million times! 

Isn’t it amazing how a few calming words can put you at ease?  I had flown hundreds of flights a year up to that point and I knew that this incident was not normal for me or for anybody else.  I knew that flight was a near death experience.  I knew this, my friend across the aisle knew this, and the flight attendants knew this.  Even more interesting is, even though I also knew that it was the pilot’s job to project a sense of calmness even if he knew we all were going to die, it still worked!  A lot like when you tell yourself a salesman is going to try to sell you something and you aren’t going to buy it.  But yet once you hear the pitch you buy it hook, line, and sinker.  The calm reassuring voice of the pilot put me and everybody else at ease even though I knew it was his job.  The pilot became an instant hero.  As a matter of fact, as we were deplaning I noticed several people hugging the pilot as they walked past.

When we got into the gate I called my friend who worked for another airline who pulled the incident up in his system.  He said that incident I had just gone through was indeed a very big deal.  He said that the airplane had actually been so far into the takeoff process that it passed what is called “V1” which is basically the speed of no return.  He had stated that for the pilot to make the call to abort the takeoff at that point was a tough call because it was a choice between either getting airborne and having the plane fail in the air or aborting and running out of runway and crashing on the ground.  Fortunately, it was neither one.

My point is, you are your clients’ airplane captain.  When they call you up because they are hitting turbulence in their lives, whether because they are losing money in the market, have a death claim, a long-term care claim, etc., your value in these times lies in the way that you handle the situation. This is your opportunity to become a hero by doing the opposite of panicking and assuring those that are panicking.  This is what seven-figure financial professionals do.  They project a sense of “I have been there and done that and this is no big deal.”  Furthermore, there is professionalism in not panicking in any situation—not just times of crisis.  These times I am referring to may be:  

• When a client is panicking because of a claim, losing their money in the market, etc.  Are you that calming voice even at times when you are also scared for the client?
• When a client asks you a question you don’t know the answer to, do you panic or very calmly say “I don’t know but I will get you the answer ASAP.”
• Getting tough questions in a seminar.  Does the audience see you panic or are you calm and cool?  
• If your computer or projector goes down in a seminar, do you stumble and panic?
• When a client is critical of you and/or your business, do you panic and get defensive?

When I was getting started in the business there were times where I would get “panicky” because of a big meeting I had to conduct, a bad message I had to give to somebody, or a large audience I had to present to.  I had a mentor back then who would always say, “You have done this a million times and have you failed yet?  No you haven’t.  So why panic now?”  He would then go on to say “So what is the worst that can happen if you were to fail?  It’s not like they can kill you.” For some strange reason those words have always stuck with me, “It’s not like they can kill me.” We take our business very serious but keeping a perspective of what is really important in life will also help you to not panic when things get stressful.  We tend to let the negative trash in our heads believe that it’s a life or death situation if we fail at a task.  It is not.  This creates fear and fear is what holds us back. 

Not panicking is not only healthy for you, it is also healthy for your clients and your relationship with those clients. This is because having a positive mindset is a self-fulfilling prophecy.  Meaning, if you are always positive and never panic, clients feel that and will in-turn be positive and will not panic. You are looked at as the “pilot” and therefore the creation of a positive environment is in your hands.  Prospects/clients look to your mindset in order to form their own. Again, it is a self-fulfilling prophecy. 

For financial professional use only. Not for use with consumers.

In 1835 there was a significant development in the firearms industry. This was the year a gentleman named Sam Colt received a patent on a handgun called the “Revolver.” Although there were previous versions of the revolver, they were rare. Sam Colt’s design would be the first one to get mass-produced.  This innovation was groundbreaking, as now one could fire five shots (later to become six shots) just as fast as one could pull the hammer back then subsequently pull the trigger. This was in great contrast to the “single-shot” designs that were widely available prior to this creation. By the mid, to late 19th century, this handgun was the standard for good guys and bad guys alike. And it is still the same today. Many people are now drawn to the idea of becoming a responsible gun owner, and nearly all of these people will have been required to oversee concealed carry gun laws – https://gunlawsuits.org/gun-laws/concealed-carry/ if they want to keep their gun out of the sight of others. So, with this innovation came the old west adage that “God Created Men and Sam Colt Made Them Equal.” In other words, it didn’t matter how big or tough you were. If somebody else had a Colt you were inferior to them, or if you both had a Colt you were equal-they called the Colt Revolver “The Great Equalizer.”

Fast forward to today, even though we are no longer slapping leather in the streets, I believe we have a new “equalizer” and it is the 8:00 to 5:00 work schedule. Let me discuss my “belief” by using a very hypothetical example. Today, two people graduate from college at age 22 and enter financial services as insurance agents. These two individuals will each go through their careers and, like clockwork, will start work every day at 8:00 a.m. and end the day at 5:00 p.m. for the next 43 years until they both retire. My belief is that their career trajectories would not diverge a significant amount. I will concede that one may be smarter than the other and one may be naturally more efficient than the other during that nine-hour workday, but I don’t believe you would see a situation where one of those people would be making huge amounts of money by age 65 and the other would be destitute. Why? Because if we are all in the same profession, like being an insurance agent, we all are doing basically the same thing between those hours. It is the treadmill of phone calls, prospecting, client meetings, putting out fires, etc.

Again, one may say, “But what if one person was just a pure genius and the other was not the sharpest tool in the shed?” I would argue, as Angela Duckworth does in her bestselling book Grit, that IQ is secondary. I do not believe that our Maker can create one person that is so far superior to another that the difference cannot be offset by hard work. As a matter of fact, in some of Duckworth’s studies she found that in some cases she has seen a negative correlation between how smart people are based on IQ and how successful they turn out to be in certain functions like national spelling bees, college graduation, etc. This is because the “smart people” may rest on their laurels while those that do not have natural talent work to offset their shortcomings through hard work and perseverance, i.e. grit!  And in the end the person with the grit usually wins. Duckworth defines grit as “perseverance and passion for long-term goals.”

I travel the country a lot and conduct a presentation called, The Seven-Figure Mindset.  It explores the top 10 traits or habits that agents at the top echelon of our business have. None of the top 10 traits or habits that seven-figure agents possess has anything to do with a high IQ! As a matter of fact, the number one habit that I cite that seven-figure level agents have is exactly about “grit.” It is exactly how those agents address what I call the “great equalizer” of the 8:00 to 5:00 work schedule. What do they do that ensures that their paths “diverge” from their peers? Here is what top agents do: They wake up early. They don’t follow the 8:00 to 5:00 work schedule-they cheat the great equalizer. They make their days have more hours in them so they are not “equalized” with their competitors.

 My challenge to you would be the same challenge that I have given to hundreds of people over the last year to whom I have spoken on this topic. I will tell you as I told them-if I am wrong, call me up six months from now and tell me that I was way off and am full of it! I have not received any calls yet other than calls confirming my belief. My challenge would be to set your alarm clock 30 minutes earlier in the morning. If you do this I can promise you that you will feel as though those 30 minutes were much more meaningful than just 30 minutes. During this period of time this is your time. I wake up at 4:30 every morning, and for 3 hours or so I have uninterrupted time to read and catch up on emails that the “treadmill” of the 8:00 to 5:00 workday will not allow me to do. I believe that if you are going to “cheat” the 8:00 to 5:00 work schedule it is best to do it in the morning-because the morning hours are your hours!

In discussing the power of long work hours and grit, I would like to share a personal story. I grew up in a small town in Southwest Iowa. I was always a head taller than the other kids in my grade but yet I didn’t even touch a basketball prior to the seventh grade, as my family was not much of a “sports family.” Therefore I never had much of an interest in basketball even though many of my friends loved it. Plus, I never had natural athletic talent like many of my friends. I was very uncoordinated and could barely walk and chew gum without tripping when I was young and growing fast. My lack of desire changed one day, however, when I was in seventh grade. It took one person, Coach Hook, who was our varsity basketball coach, to light a fire of “grit” under me. By the way, Coach Hook was known in Southwest Iowa as a coach that had a long history of building some of the best basketball teams in the state by investing time in his kids year after year. Well, that day, he ran into me while I was outside the middle school waiting for the bus. He took an immediate interest in how tall I was relative to the other kids. He then started speaking with me about how I could be a great basketball player and he wanted to see me work to be a star by the time I came into high school. He continued these conversations with me every time he saw me and eventually convinced me that I could be a good player if I wanted to be.

As I worked to get better at basketball I remember looking up to some of the “stars” that were juniors and seniors on the varsity team of that time. I remember thinking about them and wondering how much practice it took them to get to the skill level they achieved. Did it take 50,000 practice shots? Did it take 100,000 practice shots? Did it take a million practice shots? Then I remember thinking that whatever that number was, it didn’t matter because I would pass that immediately. In other words, I would “accelerate” the development process by relentlessly practicing every chance I got so that I would not be “as good” as those people by my senior year, I would be better than them by my sophomore year. This was a cool thing because the number of “practice shots” I took every day was 100 percent in my control. Day after day it was my choice how much I practiced and thus how quickly I would surpass the number of hours that those “stars” had ever practiced.

At our house we had a very primitive basketball hoop where the pole that held the backboard was basically just “buried” in the gravel driveway. That was my basketball court, a gravel driveway. Many nights under the flood light that hung from our garage I would stay up until the morning hours practicing as my hands became coated in dirt and gravel dust. Sure enough, by my sophomore year in high school I was starting Varsity and was all conference for three of my four years in high school and ultimately went on to play in college.

To me those years are confirmation that, although I was an uncoordinated seventh grader relative to my peers, there were no shortcomings that could not be offset by hard work. In other words, we are all humans and therefore we cannot be created that much different than one another. The difference is grit, practice and perseverance.  

To wrap up this month’s column:  We work in a great business that deserves effort beyond what the “average” business requires. In 2016 the national median income for an entire household was $55,775. I would argue that in our business we have the ability to make much more than what the “median” household makes, but do you do what the “median” person does? Do you fall victim to “the great equalizer” and go to work at eight and come home at five? Or, do you accelerate the process of developing your talents, developing your book of business, developing your team, etc., by getting up early and leveraging “Grit”?

“Nothing in this world can take the place of persistence. Talent will not: nothing is more common than unsuccessful men with talent. Genius will not: unrewarded genius is almost a proverb. Education will not: the world is full of educated derelicts. Persistence and determination alone are omnipotent.”  – Calvin Coolidge

For financial professional use only. Not for use with consumers.

Many years back I was speaking with a relative about different options available for the $50,000 401(k) that he currently had with his old employer. He was concerned that he was paying high fees in this plan and he was also concerned that his mutual fund options were very limited.  As we spoke I mentioned there were options out there like CDs, annuities, forex brokers south africa, stocks, bonds and mutual funds.  As I began to ask questions about his risk profile, I did sense that maybe market based products were going to be the flavor he preferred.  Therefore, I went into detail on various mutual fund companies, on different mutual fund styles and strategies like value funds, growth funds, balanced funds, blended funds, tactical management, strategic management, portfolio models, etc.  After providing what I thought was a very well-articulated and very “impressive” explanation of all of the options, I looked at him and asked him what he thought.  He then looked at me and said “what is a mutual fund?”  

This was a learning experience for me and was the birth of my new way of thinking regarding how I worked with clients and agents.  Once I changed my ways because of this “new way of thinking,” it immediately improved the way I connect with people one-on-one, as well as in large groups, when I discuss financial matters.  This “new way of thinking” has been solidified for me over the years by working with clients and by hearing a million stories from small to seven figure income agents.  What is this “new way of thinking?”  Simplification!

Although this notion of simplification may seem like common sense to a financial professional today, I don’t think it has always been the case.  I believe that at one point in time, like the late 90s for example, consumers, as well as much of the financial services business, believed that there were financial professionals that were so intelligent that they had it all figured out.  It was thought that these financial professionals knew which stocks to select to make their clients unbelievably wealthy.  By the way, in the late 90s those stocks were usually tech stocks that a monkey could have picked.  Or, if a client was working with a financial professional that was not a big stock picker, then maybe that financial professional, because they were so brilliant, could construct a beautiful asset allocation model comprised of domestic stocks, international stocks, REITS, gold, bonds, etc., and then profess how scientifically and mathematically perfect the portfolio was-how each of the components had nice negative correlations with the rest of the portfolio.  And by the way, if that client “bought and held” this masterfully created portfolio and leveraged Harry Markowitz’ Modern Portfolio Theory, then in the end that client will be a multi gazillionaire.  Also thrown into that sales presentation would be nice pontification on the “efficient frontier” to add to the validity.  Of course I am being somewhat facetious to demonstrate a point; it did not matter how complex the language and models these technicians used, clients were very willing to listen to them because of trust-not so much in the financial professional, but rather in the markets.  And why would they not trust the markets?  After all, we had experienced two decades of raging bull markets!  

By the way, although many of us do not deal with market based products, it is important to discuss the markets in this context because that is what drives, whether directly or indirectly, the behavior of our clients and thus the financial services business.  In other words, I believe the mentality around the “markets” is the bellwether for our industry whether we deal with them directly or not.

Needless to say, those beliefs in the 80s and 90s have disappeared.  Remember the “geniuses” of the hedge fund Long Term Capital Management that possessed PHDs and Nobel Prizes?  They almost sank the entire global financial system.  Remember tech stocks with triple digit PE ratios that didn’t work out?  Or the big one-the “buy and hold strategy” that prior to the new millennium was often talked about?  That did not work out well either, especially for those consumers that “bought and held” the S&P 500 for the first 10 years of the new millennium.  The S&P 500 lost 22 percent over the entire 10-year period from January 2000 to January 2010! 

Thus, times are different today.  We have seen the traditional “beliefs” and “models” fail twice over the last 17 years.  We are back to the basics.  I believe that today clients do not expect us to be the Nostradamus of financial services.  Nor do they want to be force fed technical information that they do not understand and where they have to blindly trust it will work.  Today I believe clients want two simple things:  The first is to understand and to make sense of their finances and the options available to them. The second is to have the feeling that the person that is making the recommendation is trustworthy.   

What’s cool is these two needs are linked.  In other words, a big part of getting #2 (trust) is by giving the client #1 (understanding and financial literacy).  If I can teach somebody something they did not know they will view me as a credible resource.  This is where we come in and where we are most needed!   How badly are we needed?  The National Institute on Retirement Security reports that 62 percent of workers between the ages of 55 and 64 have retirement savings that are less than their annual income.  This is clearly not enough money for people nearing retirement.  Furthermore, I believe the reason consumers are not saving more is not so much because they are lazy or unmotivated, but rather it is because they are not “literate”-not aware that there even is an issue.  Here is another personal example: 

On a recent Sunday morning I posted some of my “random thoughts” to my family and friends on Facebook.  A post I thought was very simple and nothing Earth shattering.  The content of this post is below:

“Doing some planning for a friend here and thought I would share some deep thoughts. If it helps one person, it is worth my time. The “rule of thumb” withdrawal rate for a 30 year retirement today is around three percent (technically 2.8 percent) from a stock and bond portfolio per Morningstar.  This means in your first year of retirement if you wanted say, $75,000 in that first year of retirement and adjusting each year thereafter for inflation, you would need $2.5 million.  Again, taking three percent out of that $2.5 million will give you your $75,000 in that first year and adjusting thereafter for inflation. Punching the numbers into my financial calculator, let’s say you are 40 years old and have not planned for retirement and you plan on going off into the sunset at age 65. How much would you have to save each year to get $2.5 million in 25 years?  The answer to that question is over $39,000 per year based on a seven percent hypothetical rate of return!  What if you are a procrastinator and you figure you will wait another 10 years until you are 50 before you start getting serious about saving?  What is that “cost of waiting?”  In that scenario it would require over $100,000 per year. The point is-save a lot, save early to leverage time and, lastly, having a million dollars is not that much anymore!  By the way, if you are only 30 years old and decide to save today, it requires a little over $18,000 per year. Leverage time!”

Nothing real profound right?  Well, the amount of feedback I received from this post was voluminous.  No less than 15 or so of my and my wife’s friends made comments about how surprised they were with how large the numbers have to be once they retire and how small the “Rule of Thumb” withdrawal rate was today.  They also had made comments about how they need to get busy with retirement.  This is an example of what I mean when I say it is not as much about laziness as it is financial illiteracy.   

To add to what I mean with consumers being financially illiterate: In 2016 FINRA released the results of a study conducted in 2015 entitled “Financial Capability in the US 2016” that posed the below question to 27,564 American adults:  

Suppose you owe $1,000 on your credit card and the interest rate you are charged is 20 percent per year compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double?

(A) Two years;

(B) Less than five years;

(C) Five to 10 years;

(D) More than 10 years;

(E) Do not know;

(F) Prefer not to answer. 

Only 33 percent of the respondents got the answer correct.  The answer is B.  This is fairly straightforward to many of us as we know without compounding at 20 percent per year it would take five years to double.  When you add in compounding, it would take less than five years.

This study also asked a question of what happens to bond values when interest rates fall.  Only 28 percent got this answer correct.  The answer is, bond values increase.

For each of the respondents to this survey there were three additional questions, or five total, to round out the financial literacy test.  How did the respondents do overall?  Only 37 percent of the respondents could correctly answer four out of the five questions, which was the target for getting a “passing” grade.  Almost two thirds failed.  This “pass rate” of 37 percent was a decline from 42 percent experienced in a similar study conducted in 2009.  The decrease in financial literacy is thought to be because of complacency as a result of the bull market.    

Thus, increasing financial literacy is paramount.  But in order to provide literacy we must do it in a way people understand, which sounds easier than it is.  For those of us that have been in the business for a majority of our lives, we are living inside the jar.  When you live inside the jar you cannot read the label on the outside.  Many times what that label says is that we know too much for our own good and we need to distill it down.  This complicated world of finance, insurance and financial products has become a part of our DNA.  We are like the marathon runner that finds it hard to comprehend that there are people out there that cannot run three miles without stopping for a breather.  We have normalized the financial intelligence that we possess and therefore fall victim to the assumption that others know that which is basic to us-but it is not so basic to the American public.  This financial illiteracy that mainstreet America is plagued with is no fault of their own, it is the policymakers’ fault for not creating programs to enhance financial literacy.  I also believe that the financial services industry should shoulder some of the blame.  If every client in America was more welcoming of conversations with financial professionals, financial literacy would be much increased.  Why don’t clients “welcome” conversations with financial professionals?  I believe the core reason is because of the lack of trust that has been a result of a few bad actors committing fraud and financial abuse, stealing, and giving just plain bad sales pitches!

Do not normalize your intelligence.  When you prepare to explain something to somebody, use a benchmark.  For example, if I am going to speak with a 65 year old couple about financial issues, I will prepare a talk based on asking myself this question:  “Would my mom and dad understand what I am saying?”  Or, if I am preparing to talk with a 40 year old stay at home mom, I would ask myself this question:  “Would my wife understand what I am saying?” 

Think about this for a second.  Take a friend or a family member you know who is 65 years old (and not in the business) and ask yourself these example questions using this “test person.”  I also included some provoking thoughts for you to consider.

Question 1:  Does he/she even know what an annuity is? 

Thought:  If not, why would you start a presentation by discussing all the attributes of annuity XYZ without first explaining what an annuity even is?

Question 2:  Does he/she know what the S&P 500 is?

Thought:  Have you ever discussed how an indexed annuity or IUL can give upside linked to the S&P 500 without even asking the client if he/she knew what the S&P 500 was?  Maybe an explanation of the S&P 500 is warranted.

Question 3:  Does he/she know what a GLWB is?  

Thought:  Never use acronyms!

Question 4:  Does he/she know what the definition of “chronic illness” is? 

Thought:  Would you just go into a spiel about what a chronic illness rider would do for them or would you start out with what the definition of a chronic illness is first?  I know what I would do.

Question 5:  Does he/she know what universal life insurance is?

Thought:  If you were doing an indexed universal life insurance presentation, would you even think of explaining first what universal life is?  Or would you just jump right into IUL?  Don’t assume they know universal life versus whole life versus term.  

These are merely examples of random questions to ask yourself about your audience.  With the ocean of knowledge many of you have, there are thousands of examples I could have used above.  The point is, engrain simplification in your DNA and do not normalize your intelligence.  Not everybody knows what you know but with time and the right communication methods we will make the country more financially literate! 

References:
Financial Capability in the United States 2016
S&P 500 return numbers were gathered from Finance.yahoo.com

This material is intended for educational purposes only.  For financial professional use only.  Not to be used for consumer solicitation purposes. You should not treat any opinion expressed by Charlie Gipple as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion and experiences.

Partners Advantage does not warrant or guarantee the accuracy or completeness of the information contained herein, and shall have no liability (including but not limited to) for any direct, indirect, special or consequential damages, loss of anticipated profits or other economic loss arising out of, in connection with or relating to the information contained herein, its use or reliance, or from the pursuit or provision of interested parties.

Affluent individuals, whether they reside in the United States or overseas, often have similar financial objectives. Among their chief considerations are how best to protect, grow and transfer their wealth; enhance their asset portfolio; limit their tax liability; and protect what matters most to them—their families, their businesses and their futures.

For American citizens, life insurance has long been a traditional vehicle for meeting those financial needs. What many foreign nationals do not realize is that, with the right plan structure, they can also benefit from U.S. life insurance products.

Provided that the affluent individual is not a U.S. citizen or resident, they are eligible for U.S. dollar denominated policies that are fully compliant with the applicable U.S. regulations and subject to privacy standards.*

The life insurance market in the United States is mature and generally offers better rates and higher quality products than are available overseas. This increases the value to foreign nationals who want to safeguard their financial security and peace of mind. 

Diversification into U.S. assets, and particularly life insurance, is also an excellent way to mitigate the impact of global economic and political turmoil on an individual’s personal financial situation. This type of integrated planning is often at the center of conversations about real estate and stocks, but it is equally relevant to life insurance. 

A best in class life insurance solution can offer flexible coverage that allows the policyholder to accumulate cash value, access that cash value though a selection of different withdrawal mechanisms, and at the same time ensure that, if they were to pass away, their family’s financial future will not be compromised. **

There is an old saying that you should not put all your eggs in one basket. For foreign nationals, U.S. life insurance products are the perfect “second basket.”

* Potential clients should be advised to consult with their tax advisors
**Insurance companies must check the insurance solicitation rules of the country of residence of the Foreign Nationals.

Conducting presentations is one big mind-game.  I believe it is the mind-games that presenting plays on us that makes presenting the number one fear in America in study after study.  Just google “America’s #1 fear” to see my point.  I therefore believe that the mindset of the presenter is what will determine the success or failure of a seminar presentation.  A lot like the statistic that 85 percent of a person’s financial success is determined by their “soft skills” versus technical knowledge,1 I believe that 80 to 90 percent of a person’s success in delivering a seminar presentation is determined by the presenters mindset.  So, allow me to address different areas of “mindset” that are of huge importance.

Preparation: Practice How You Play
I was rehearsing an important presentation out loud in my office when my 10 year old son walked in.  He asked, “Daddy, why are you talking to yourself?”  I then told him I was preparing for an important talk that I had to give to 400 financial professionals.  He said, “But it seems stupid you are talking to yourself.”  This was one of those opportunities for me to get on my fatherly soapbox! So I did.  I said, “Seth, most of life is about preparation.  Remember how I tell you when you are practicing basketball alone that you need to quit just going through the motions slowly and instead pretend there is somebody guarding you?  And I also tell you to practice how you play?  This is the same thing.  I am practicing exactly in the same manner in which I am going to play.”  He then said, “What does talking to yourself have to do with basketball?”  He clearly missed the point!  

Per my column from last month, the PowerPoint deck should be very little of the total time you put into the “preparation” phase. To me, preparation is rehearsing.  A lot of people have this backwards-they spend more time on the PowerPoint slides than the rehearsing.  As mentioned, don’t fall victim to that.  

I joke a lot that for every new presentation I do there is that poor man or woman in the adjacent hotel room that heard my talk at least five or six times at 4:00 or 5:00 a.m. the morning of my talk.  Rehearsing out loud is crucial.  I stress out loud because even though the words and the flow may sound smooth while rehearsing silently, it can be a night and day difference when the words are actually coming out of your mouth.  Your brain works at a much different pace than your vocal cords and your tongue.  Just like a drummer works at a different pace than the singer.  Thus, the importance of rehearsing out loud; so the drummer (brain) can be in tune with the singer (vocal cords and tongue).  Do you think the members of a band rehearse separately from one another?  No way.

A very large chunk of my preparation is spent on the first five to ten minutes and the last five to ten minutes of the presentation. Why is this?  Well, this is where I would like to introduce you to two behavioral finance concepts: “Primacy Bias” and “Recency Bias.”  Primacy bias is the first impression.  This is formed in the audience’s mind within seven seconds of you opening your mouth.  This “first impression” has such a powerful effect that if you do poorly in the first five minutes of the presentation, it will likely scar much of the remaining presentation in the audience’s mind.  You need to knock it out of the park in the opening!  Conversely, what is Recency Bias?  This is our tendency to remember what happened last more so than the other parts of the presentation.  This is the ending of our presentation.  Spend a disproportionate amount of time on the opening (Primacy Bias) and also the closing (Recency Bias).  

By rehearsing (out loud) to the point where you have done one full presentation to yourself that flowed well, had the right pauses, right energy, right content, etc., you will knock it out of the park.  Most important, you will have the confidence that you cannot be phased when it is time to deliver!

“One important key to success is self-confidence.  An important key to self-confidence is preparation.” -Arthur Ashe

I don’t care how long you have been in the business and how many presentations you have done, if you believe you are good enough that you do not need to rehearse every now and then, then I would encourage you to compare your presentation to one of someone who does rehearse.  You will see a difference.

Embrace the Butterflies
I read a great book about Navy Seals (Way of the Seal, Mark Divine) that discussed the Seal mindset when approached with situations that “suck.” Divine says the Seals have a way of “Embracing the Suck,” where sometimes he would even laugh at tough situations and try to find humor in situations that would kill anybody else.  Many people view being nervous before presentations as a bad thing.  I believe that being nervous can have a positive impact on a presentation.  As a matter of fact, the positive effect of being nervous is a chemical and biological fact, not something I am speaking about theoretically.  Our Maker has given us something called adrenaline, which is a blessing!  Let’s discuss.  We have something at the base of our brain called the pituitary gland.  This gland is also known as the “master gland” which controls all of our endocrine glands, including the adrenal glands which sit on top of each of our kidneys.  When we get nervous the pituitary gland instructs the adrenal glands to secrete a hormone into our bloodstream called adrenaline.  Adrenaline actually increases our glucose levels, dilates our blood vessels, increases our heart rate, and increases blood flow to our crucial organs.  You can feel all of this happening by that “butterfly” feeling in your stomach.  Well, all of this can actually make you perform better than you would without it!  Have you ever been very nervous prior to an event and then went on to perform at a level above and beyond what you would have ever dreamed imaginable?  Whether presenting or playing sports? This is the “fight or flight” effect of adrenaline that makes us superior to our “non-nervous selves” and allowed us to survive the saber toothed tiger back in 12,000 BC.  The point is: Embrace the nerves, breathe deep breaths and channel that adrenaline in the right direction!  

As you are walking up on stage the number one thing you should have in your mind is almost a verbatim “script” of the first couple of sentences of your talk.  Once you have successfully articulated those first couple of sentences, your nervousness will have gone down significantly and your preparation/training will then kick in.  Furthermore, after the first couple of sentences that very important first impression mentioned earlier would have already been formed in the minds of the audience.  The opening determines everything!  Embrace the butterflies!

Confidence
I believe the core mindset variable that determines your success or failure in this mind-game of presenting is confidence.  If you went to a doctor and he was a little wishy washy as he was presenting a diagnosis of your illness, or they weren’t really confident as they were explaining a cure for your illness, you would likely seek a second opinion.  People sense confidence, or a lack thereof, and reflect it back to you in a positive or negative manner.  This is the case whether presenting to a large group or having a one-on-one conversation.  Thus, confidence is a self-fulfilling prophecy.  If you come across as confident to the audience (even if you aren’t confident), your audience will feel this confidence and reflect positive body language back to you which in turn creates confidence in your own mind.  Now, if for whatever reason you do not feel confident, the term “fake it till you make it” has some truth here because of that self-fulfilling prophecy. Say you are starting out dating again, your confidence may be at an all-time low, however, there are ways you can build that up and not just mentally. Using pheromones for men and women can help you attract and promote that confidence you’ve been lacking, your date will see that in you and be intrigued. 

How does one project confidence?  Well, as mentioned, the number one item that builds confidence is preparation.  Again, preparation is everything-but in addition I would like to provide a couple of thoughts to help you build your confidence or at least the projection of confidence.

The Presenter’s Edge
Lack of confidence can come because the devil in your ear is telling you that your audience knows more about the topic than you do.  It also comes from being humble.  Some of the most talented people I know normalize excellence.  Meaning if they knew that they were as great as they actually are, they would be much more confident than they are.  To that end, you always need to remember that you are presenting on the topic for a reason.  You are in this position of authority because you know this topic well.  If you have prepared adequately you should know that, if for no other reason, because you prepared more than any members of the audience did you know more about the topic at hand.  There will always be one or two people in the room that know the topic as well or better than you do and that is OK.  In short, tell yourself that you are worthy of this, you are there for a reason, and that the audience is going to like what they are about to hear.

Half-Caff
In my prior life I did a lot of “media tours,” where I would go to Wall Street and get on some of the financial shows to educate the audience on financial matters.  In preparation for this I did “PR Training” with a PR firm in New York so they could fine tune how I presented myself on camera.  Anyway, this PR firm said something that has always stuck with me.  They said, “Charlie, remember to be Half-Caff! This is the notion that in front of an audience and in front of a camera you should not speak the same as you would in a casual conversation.  You bring the volume of your voice up a little more and you slightly exaggerate your body language.  Almost where you feel you are halfway loaded up on caffeine.  And, if you feel just slightly outside of your comfort zone in speaking this way, that is probably about right.”  I took it and ran with it and it works!  If you have somebody that seems “half-caffeinated” up on stage, will you question whether he or she is lacking in confidence?  Not usually.  Conversely, somebody who talks quietly and lacks positive body language will be more likely to appear not confident.  If the audience perceives a lack of confidence the presentation goes into a death spiral, because that lack of confidence is also a self-fulfilling prophecy to the presenter. 

Reference:
1. Jensen, Keld-Contributor.  Intelligence Is Overrated: What You Really Need To Succeed. Forbes article APR 12, 2012 Web. 8 March 2017.

This material is intended for educational purposes only.  For financial professional use only.  Not to be used for consumer solicitation purposes. You should not treat any opinion expressed by Charlie Gipple as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion and experiences.

 Partners Advantage does not warrant or guarantee the accuracy or completeness of the information contained herein, and shall have no liability (including but not limited to) for any direct, indirect, special or consequential damages, loss of anticipated profits or other economic loss arising out of, in connection with or relating to the information contained herein, its use or reliance, or from the pursuit or provision of interested parties.

I have done 100-150 presentations a year for as long as I can remember.  I have done thousands of presentations.  But most important, I have also been on the receiving end of thousands of presentations and here is what I believe when it comes to the use of PowerPoints slides: I believe wholeheartedly that the purpose for PowerPoints has been lost on many presenters because of those presenters’ own shortcomings at presenting.  Let me explain.  For many that do presentations wrong, the idea of putting together a long deck of beautiful slides that are extremely wordy automatically makes them think the presentation will be well received.  Thus, the amount of time preparing for what is really important—practicing the words you use and how you use them—has gone by the wayside.  In a people business, where people want to connect with people, this is the wrong way of presenting yourself.  Creating PowerPoint slides should be secondary and should take you only a fraction of the amount of time that it takes you to think through and rehearse the delivery of your words to the audience.  If you have this backward you are simply choosing   priorities and needs over those of the audience.  There is no way that even a powerful PowerPoint could ever offset shortcomings in the presenter’s word and concept delivery.

How did everything go so wrong?  Let’s discuss.  The predecessor to the PowerPoint was the overhead projector.  For the really young folks reading this, the overhead projector allowed you to write with an erasable marker on acetate pages (transparencies), and as you wrote it would project that drawing on the same screens we use today with PowerPoint slides.  Overhead projectors used light bulbs and shadows, very similar to how I play finger shadow games with my kids on the wall.  Back in the 70’s this “technology” was great because it would allow professors or any other professional who was presenting to large audiences to display pictorial items that were visually much larger than what that presenter could do with a chalk board.  Notice:  I said “pictorial items,” not words!  Thus, if professionals were explaining something that could be easily drawn as a picture, it was displayed on as big a screen as you could buy.  People are visual and therefore the power of “chalk and talk” is huge and it has always worked!  This is why some of the best presentations you will experience will be with merely a flipchart or whiteboard. Well, things started to go sideways in the 1970s and 1980s with the proliferation of printer technology that would allow you to preprint the acetate sheets.  Now you had professionals/instructors that could very easily print a million sheets for one presentation.  Furthermore, many times those sheets had way too much information on them.  This meant that once all of those busy preprinted sheets were thrown up during a presentation in rapid succession, audiences either experienced “death by a million transparencies” or they would read ahead to the other “preprinted content” on each respective sheet.  Thus the power of the instructor’s words was greatly diminished.  Does this sound familiar?  Does this sound like presentations that our industry tends to conduct today?  Well, it evolved from there when, on May 22, 1990, Microsoft released an easier way for presenters to put their audiences to sleep—Microsoft PowerPoint.

With that as a primer, I want to share with you five quick tips that I teach people for using PowerPoint slides so they are not falling victim to the traps I just outlined.

1. Less is better.  Paradoxically you are competing for the audience’s attention when you use PowerPoint slides.  Therefore, I believe if you are going to use PowerPoint slides, there should be no more than one slide for every two minutes of speaking you do. Thus, if I’m going to speak for an hour, you will rarely see me have more than 30 slides. I will actually likely have no more than 10 slides.  And, those slides have very few words and are more “pictorial” to add to my presentation versus competing with my presentation.  As I tell the folks I have coached over the years, if you can speak to an audience for a couple of hours and keep them engaged without one PowerPoint slide you have hit the major leagues. I’m not suggesting that you not use PowerPoint slides, I’m just suggesting that you not use them as crutches.  What would happen if you were at a major conference with 1,000 people and somebody came up to you and said “Hey, one of our speakers with a two hour slot just got sick and cannot present.  The presentation is in 30 minutes and we have no time to upload PowerPoint slides.  Can you fill in?”  What would you say?  I know what I would say!  “Put me in coach!”  

One last word on this point:  Just because you want to say it does not mean it has to be in PowerPoint.  A while back I was planning a presentation with a colleague of mine and anytime we had a new item that came up to discuss, he would say “Ok, are you going to make that slide or am I?”  This mentality needs to go away unless you are teaching people how to fall asleep easier.

2. Know your transitions.  A few weeks ago I was thumbing through my PowerPoint deck at Mach speed before a presentation while a colleague was looking at me like I was crazy. What was I doing? Remembering the order of slides! The transitions are more important than anything else! This is the beauty of not having a ton of slides—the fact that you do not have to remember a million transitions from slide to slide. I do not “memorize” the content of the slides because the content is pictorial.  But, what I do memorize is knowing which slide is next before I hit the clicker. Having smooth transitions makes the presentation one cohesive message, as opposed to starting and stopping 30 times which is equivalent to Ambien.  It has always amazed me when presenters act surprised by the slide that comes up next after they hit the clicker.

 But if you must, add context to the point. For example: If I were to have agenda bullet points on a PowerPoint, as I usually do, I will read each bullet point but only while adding context to each bullet as I go. If I had an agenda item that was “The Power of Seminar Selling,” I would not just read it off and move on to the next bullet.  I would say something like, “Bullet point #2, ‘The Power of Seminar Selling.’  You know, I was at a seminar a while back that had top producers discussing how they prospected.  Of those 10 top producers that spoke, eight of them prospected by seminars.  Seminars work and that is why I want to discuss this in bullet point #2.”  This is completely different than hypnotizing the audience with the rhythm of reading the bullet points verbatim. And, again, PowerPoint content should be merely bullet points or pictorials to tee up a much broader conversation. Paragraphs in PowerPoint are deadly to a presentation. PowerPoints are points—with you elaborating on them verbally.

4. Favor stage right.  This is an interesting technique I learned from a nonverbal communications expert.  Our brains have grown accustomed to starting to observe or starting a thought on the left side and then moving to the right.  Why is this?  Because we spend our whole lives reading from left to right.  Of course, stage right is on the left-hand side for the audience.  So as you speak on the left-hand side of the projector screen, from the observer’s standpoint it is subconsciously more natural.  The audience is able to look at you on their left and then to the right to the PowerPoint.  All important thoughts start with you, not the PowerPoint. Although I like to casually walk around to mix it up, if you are to favor any side make it stage right.

5. Learn and rehearse stories and jokes.  If this were a column on presenting in general, storytelling would be number one on my list.  The power of storytelling is paramount and will be a topic of future columns.  Why do I bring storytelling and jokes up as it relates to PowerPoints?  Because PowerPoints can abandon you!  We have all been there.  That awkward moment where your computer dies, or the projector dies, in the middle of your talk.  This is awkward for the audience. Not because the audience believes you screwed up and you must be an amateur, but because the audience believes it is awkward for you and feels “embarrassed” for you.  We have all had that “embarrassed” feeling even though we were merely in the audience.  However if you, as the presenter, can show them that it is not big deal to you, the “embarrassment” doesn’t happen.  So here is what I do when something crashes.  As I am pulling everything back up I will tell a story or a joke in order to fill what otherwise would be an awkward silence.  When you do this you are showing that you are in control, not panicked, and have been there and done this before.  Now if the problem is going to take more than a couple minutes to remedy, take a five minute break!

“The highest-paid person in the first half of the next century will be the storyteller. The value of products will depend on the story they tell.” -Rolf Jenson, Director of the Copenhagen Institute for Future Studies.

In closing, I am a PowerPoint fan if it is used correctly.  The problem with this wonderful technology is that it has made our lives so much easier that it is easy to rely on this tool too much while cannibalizing the important stuff—delivery.  And good delivery is hard because it takes a ton of elbow grease.  I tell people all the time that for every new presentation I have done there was always that one person (or family) in the hotel room adjacent to mine that heard my presentation at least five or 10 times at 4:00 or 5:00 AM the morning of my talk.  Yes, I have gotten that unpleasant knock on my door!  There is no way around it.  A good presentation takes work—not more slides!

“The single biggest problem with communication is the illusion that it has taken place”—George Bernard Shaw