Charlie Gipple, CFP, CLU, ChFC

If you get shivers down your spine in excitement like I do when you think of things like CVAT, GPT, Modified Endowment Contracts, and Section 7702, then I hope you are sitting down. If you are an insurance agent that sells (or wants to sell) accumulation focused policies like IUL and whole life (short pay or PUAs), then this article is for you.

The roughly 5,500 page, $2.3 trillion “Consolidated Appropriations Act of 2021” that was signed into law on December 27 had much more in it than $600 stimulus checks to say the least. From $600 stimulus checks for Americans to $15 million for “Democracy Programs” in Pakistan, the law has a lot of stuff in it that many of us will never know.

One area that you would be interested in is revisions to Section 7702 of the Internal Revenue Code. If you have been in the insurance business for some time, you are familiar with what this section does. Quite simply, Section 7702 was established in 1985 and defines the wonderful tax advantages of life insurance and, just as importantly, the rules that life insurance policies must follow to retain those tax benefits. These rules largely consist of limitations on how much money one could put into a life insurance policy relative to the death benefit. (By the way, anytime I have been told by the IRS that I cannot do something or can only do so much of something, it is probably a great thing to do!)

To forego the suspense, I will do this article a bit backwards and give you the punchline before going into the details. In short, effective January 1, 2021, policies can be funded at higher levels than before, depending on the client’s age. In some cases we are talking about seven-pay levels that are over two times higher, per dollar of death benefit, than before. So when you think of maximizing your IUL for cash accumulation and/or putting “paid up additions” on the whole life policy, this is great! However, don’t get too excited just yet because the carrier implementation process needs to happen.

Let us get into the details.

Back in the 1980s, right after the first universal life insurance policy was created (1979) by EF Hutton, one could cram a lot of cash into a life insurance policy. So much that it became obvious to Congress that the consumers were not using it as life insurance, but rather as an “investment.” Consider an exaggerated scenario of someone putting a $100,000 premium into a life insurance policy with a $100,000 death benefit. Clearly that hypothetical consumer is not concerned about the death benefit leverage, they are concerned with accumulating as much cash as possible while ultimately being able to take out that cash—plus interest—that is 100 percent tax free. Furthermore, that person would not be paying “cost of insurance charges” that should be the cover charge to enter the nightclub (remember those things?) of tax-free life insurance benefits.

What do I mean in my last sentence by “not paying COI charges”? Well, if there is no “Net Amount at Risk” in a life policy, then there are no COI charges. Check out my training diagram (Diagram 1) that demonstrates what COI Charges are based on. This diagram is from www.retirement-academy.com.

What are the “cost of insurance charges” based on? They are based on not the death benefit, but the “Net Amount at Risk,” contrary to what many smart insurance folks may know.

In Diagram 1, think of how efficient of a tax-free “investment” a life insurance policy would be if you could get the Net Amount at Risk down to $0! This would be achieved by cramming a single premium in that equals the death benefit. Clearly, that scenario—although a bit of an exaggeration—was too good to last.

So, back in 1984, our friends in Congress said, “We cannot allow consumers to continue to have the wonderful life insurance tax benefits without paying the cover-charge of COI charges.” Thus, through DEFRA (Deficit Reduction Act of 1984) you had the establishment of two “tests” that defined life insurance. These tests were titled, the Cash Value Accumulation Test and Guideline Premium Test. This created Section 7702 of the Internal Revenue Code. DEFRA was the law and Section 7702 was what governed the law. Remember, Congress makes laws (DEFRA), and the IRS enforces the laws (The Internal Revenue Code Section 7702).

Even after DEFRA and the creation of these two “tests” that limited the amount of premium and cash value in the policy relative to the death benefit, consumers were still able to have “short pay” scenarios that felt too much like “investments” to Congress. So, in 1988 we saw a new section added to the internal revenue code via a new law signed by President Reagan. The new law was the “Technical and Miscellaneous Revenue Act of 1988 (TAMRA).” This new code section was Section 7702A. This created the “7-Pay Test.” If you fail the 7-Pay Test, the policy is a “Modified Endowment Contract,” which effectively takes life insurance taxation and turns it into annuity taxation.

The 7-Pay Test was a new and separate test that was layered on to the policies in addition to the CVAT Test and GPT Test. Many folks lump all these tests together as being “Modified Endowment Contract Testing.” That is false. GPT/CVAT and 7-Pay/MEC are separate sets of tests. GPT and CVAT define whether the policy is “life insurance” and the 7-Pay Test determines if the policy is a MEC.

What were the repercussions of a policy becoming a MEC? In all my training, I simplify it down to:

“Although the Modified Endowment Contract is still technically a life insurance policy, think of the taxation as almost the same as an annuity except the death benefit which is still tax-free. Last-In First-Out, pre-59.5 penalties, etc.”

Now, to discuss what changed January 1, 2021, let’s discuss the “MEC Calculation” that congress and their actuaries created in 1988.

Diagram 2 is very simplified, but it is a good visualization of the MEC calculation. Basically, Congress said that for a certain life insurance death benefit to carry to maturity, what is the level of premiums paid over seven years that would accomplish that? The resulting level of premium that the calculation generates will be the “MEC Limit” for that policy. And, if you put more into the policy than this limit, just know that you have a MEC and are taxed as such.

Now, there are some assumptions in Congress’ calculation, right? The big assumption is the interest rate assumption that the premiums get credited on. This “Insurance Interest Rate” they assumed in 1988 and still did until 2021, was four percent. By the way, ever wonder why many whole life policies have guaranteed rates of four percent? To match the MEC calculation.

Here is what happened, effective January 1, 2021. After 35 years of dropping interest rates, Congress has finally adjusted the “Insurance Interest Rate” down to two percent for 2021 and a floating rate based on benchmarks for years thereafter. This was long overdue.

What is the impact of this lower rate? The MEC limit is increased by anywhere from 10 percent for older insureds to around 200 percent for younger insureds! In other words, if a policy would have had a MEC limit before of $10,000 per year, it would not be rare for us to now see that increase to $20,000, depending on the age of the client. Of course, this would be on new policies. I do however have questions about how carriers will treat “material changes” on already existing policies, but I digress.

Check out Diagram 3 on why this new “Insurance Interest Rate” affects the MEC limit as we discussed.

The way that time value of money works is, if you are getting a lower interest rate (two percent instead of four percent) on your premiums, then there is more money needed to guarantee a later value. Remember, that “later value” that congress uses is the death benefit at “maturity.”

In Diagram 3, we overlaid the new MEC limit (blue) with the old (green). These bars are not meant to be proportionate to the changes. Rather, just a simplified visual. Clearly, at a two percent rate, there would be more premium required than the four percent rate. Thus, you have higher MEC limits now versus prior to 2021. Point of clarification: I am not saying that life insurance policies changed where you must put more money in because of the lower rate the IRS uses. I am saying that you will generally have the option to put in more premium, once the carriers enact these changes.

What is the benefit to the client of more premium going in? As discussed, compressed “Net Amount at Risk,” which means less COI charges. This was illustrated with my first diagram.

Note that although we are talking about one test (the MEC Test), the CVAT Corridor calculation and the GPT calculation are adjusting as well. I will not inflict anymore mental gymnastics by going into details on those, but they are affected in a similar fashion as the MEC calculation.

A Few Notable Impacts:

• Consumers will be able to put more money in per dollar of death benefit. Of course, there will be a transition period with carriers.
• Products in the IUL space and the whole life space will be adjusted by the carriers. I would bet that the whole life products see more drastic changes than IUL. This is not a bad thing though.
• Whole life policy reserving will become easier since the carriers will have more flexibility on the guaranteed interest rates they offer to the consumers. You may see required premiums increase and thus lower guaranteed interest rates on policies.
• Whole life dividends will become even more important than they currently are. At least relative to the “Guaranteed Columns” in the illustrations. I believe the gap between the “guaranteed columns” and the “non-guaranteed columns” will widen.
• I think there can be a negative to insurance carrier profitability as well. Carriers are getting very little profit today via “investment spreads” in this low interest rate environment. Much of their profit is coming from the COI charges in the policies. So, now that those COI charges and the “Net Amount at Risk” can compress further, it might be interesting to see what the carriers do.
• The big one that I have gotten a lot of questions on: Commissions will likely be negatively impacted. Why? Think of it this way: If a client is putting into a policy, say $10,000 per year, the minimum death benefit may be, say, 50 percent of what it would have been before. What does that lower death benefit do to your target commission? It reduces it. Or, if you are a whole life producer, what does that generally do to the proportion of “Paid Up Additions” relative to the base policy? It increases it. And you generally do not get paid the same on PUAs as you do the base policy.
• What I just discussed is on new business only. However, in the law from the 80s there is a new 7-Pay Test that happens if there is a “material change” in the policy. What does that mean for material changes going forward on already existing policies? I will let the carrier attorneys handle that one.

If you would like to see the five pages from the Consolidated Appropriations Act of 2021, you can email me at [email protected].

(Part 2 Of 2)

This is the second article of a two part “mini-series” on discussing “what the flow” (WTF) of an annuity conversation should be like. Afterall, based on CG Financial Group’s surveying of agents, discussing annuities with GLWB riders is an area where agents would like some further “refining.”

As discussed last month, there are five areas that financial professionals cite as areas they would like help explaining.

• Can’t a “financial advisor” give the same amount of income from a stock/bond portfolio? Afterall, the stock market has gone up 10 percent on average since 1926 and only five percent withdrawals (example) seems paltry! Ken Fischer says he can do better!
• Only $5,724.50 in income on a $100,000 premium? That means the client is merely getting back their premium for the first 18 years! That is not very sexy!
• I do not understand the relevance of the “Rollup Rate.” Isn’t that seven percent rollup rate just “funny money?” Afterall, it’s not like you can just cash that value out like you can the contract value/green line (subject to surrender charges).
• Don’t these riders cost a lot? Suze Orman says they do.
• How do I, as the financial professional, articulate the mechanics of the product as well as the overall value proposition? What’s the flow (WTF) of an annuity conversation that is effective?

Objection Bullet Point #1: “Can’t A Financial Advisor Do Better?”
To jump right into bullet point #1 above, here is my belief that bears repeating: Consumers will likely not recognize the true power of annuity GLWBs unless they are educated on the traditional withdrawal rate rules of thumb.

By educating consumers on these rules of thumb, you can “re-anchor” their expectations to reality and the fact that traditional withdrawal rate “rules of thumb” at retirement are anywhere from 2.3 percent to four percent, depending on which study you want to go by.

Many consumers know that the S&P 500 has gone up double digits on average for the last century and therefore overestimate what withdrawal rate they should utilize. Well, even though the S&P 500 could average 10 percent over the coming years does not mean the client will not run out of money by taking only four percent of the retirement value from their “stock and bond” portfolios! How is this possible? Because of sequence of returns risk that the “stock” portion can subject the client to and the low interest rates that the “bond” portion can subject the client to. And because of these two risks (sequence of returns and low rates), a client should not overestimate what a “financial advisor” can do as far as withdrawal rates. If you would like a graphic that helps you explain “sequence of returns risk” to your clients, email me.

Following are a few diagrams I use to help educate consumers on what their “financial advisor” might do as well as what an annuity might be able to do.

I first educate them on the old four percent withdrawal rule of thumb, (see diagram 1) even though that is being generous as the pundits are saying 2.3 percent to 2.8 percent is more like it today! I rationalize with them by drawing the diagrams on an “example” 63-year-old wanting to retire two years from now. Our 63 year-old has $100,000 in a stock and bond portfolio.

I discuss how this 63-year-old may have the expectation that her $100k grows by five percent or so per year between now and retirement in two years. Well, based on her $110,000 value at that point, what withdrawal should she take in her first year of retirement? This is where I discuss the old four percent withdrawal rule, which is contrary to popular belief. I also discuss the reasons for the withdrawal rate being only four percent. Hence, sequence of returns risk and low interest rates. But the end result of this diagram is a payment of $4,400. But that is only if her expectations Actually happen!

I then draw a second diagram (see diagram 2) that demonstrates the possibility of her expectations not coming true. As in, maybe between now and two years from now her portfolio loses 20 percent, versus gaining 10 percent that she had hoped for. This means she only gets $3,200 a year in income, a 27 percent pay cut relative to her “expectations.”

Lastly, I draw a diagram (see diagram 3) using the example GLWB rider that I showed you in last month’s column. This GLWB rider gives a “rollup rate” of seven percent per year then a payout factor of five percent at age 65. This particular rider is able to guarantee her 30 percent more income ($5,724 versus $4,400) than what she “hopes for” in her securities portfolio. No ifs, ands, or buts!

Usually, the response by the time I get done with the third diagram is, “How is that possible?” or “It seems too good to be true.” That is where I discuss longevity credits with her. (Email me for my conversation points on longevity credits.)

Objection Bullet Point #2: “Only $5,724 in income?”
We already discussed why these “rules of thumb” are so low—because of sequence of returns risk and also low interest rates—and why a guaranteed payment of $5,724 is quite attractive. However, if the client is only getting their premium back over 18 years ($100,000 divided by $5,274), they may question the worth of these riders.

This is where I discuss with them (diagram 4) that I showed you last month. Their contract value (dashed green value) is still available to them and still gains interest based off the index, although it likely will be reduced if withdrawals are taken out. Note, many consumers think annuities are just locking them into a “lifetime payment.” Obviously not so with the innovation of GLWB riders that began almost twenty years ago with VAs!

I then discuss with them that all we are doing with a GLWB rider is buying an “insurance policy” on their longevity. And that insurance policy is what gives us that additional blue “Benefit Base” line.

Objection Bullet Point #3: “Isn’t that blue line just “funny money”?
This is a good question because a carrier could just do away with the “Benefit Base” and the required algebraic formulas, and instead just list payout percentages for certain ages and deferral periods. An example would be our 63-year-old having a guaranteed payout factor at age 65 of 5.72 percent ($5,724 withdrawal on her $100,000). Some carriers have in fact taken this route! However, for marketing reasons or what have you, the bulk of the carriers use the benefit base rollup and payout factor design.

I have two responses to the “funny money” question:

1. I don’t care if the benefit base is “funny money” if the end result is that the client is guaranteed a very large withdrawal amount after the calculations are done. It is also important that agents not market the “Benefit Base” guarantee of seven percent like that is a liquid “contract value.” Lawsuits.
2. When I explain the blue “Benefit Base value,” I draw a comparison to cash value life insurance. It goes something like this.

“Now the blue elevated value is a value the insurance company gives you in addition to your green “contract value.” This is the longevity insurance you are paying for. Do you get to just “cash out” that blue value? No. Instead, there are various rules the insurance company mandates you follow in order to get that blue value. Kind of like cash value life insurance where you have your “cash value” that you can cash out and you also have another value that is usually higher than your cash value, right? Except that “blue value” on the life insurance policy is the death benefit and, as we all know, you need to follow certain rules for that death benefit to pay out, correct? (Chuckle) Yes, you must die! Well, for this blue value on the annuity, you don’t have to die. The insurance company just says that you cannot take any more than five percent per year of that blue value out in order to not have the blue value/blue line decrease. That is the main rule you have to follow.”

Objection Bullet Point #4: “Suze Orman says annuities cost a lot”
Most indexed annuities without GLWB riders have no fees. The high-fee objection has its roots in the variable annuity world where subaccount charges, M&E, and rider charges can very easily get above three percent.

Now, if you are adding a GLWB to the indexed annuity, a common fee might be one percent. What I have found is, if you have done a good job explaining the diagrams above, old rules of thumb, blue line versus green line, etc., a one percent fee per year should not be a huge hurdle for that client that is concerned about outliving their money. If they do take issue with the one percent, it may not hurt to put the risk of outliving one’s money into perspective:

1. There is an 18 percent chance you will total your car over your life. You buy auto insurance to hedge that risk!
2. There is a three percent chance your house will burn down over your life. You buy homeowners insurance to hedge that risk.
3. Morningstar says there is a 52 percent chance today that a stock and bond portfolio will not last a 30-year retirement by using the “old” four percent withdrawal rule. Why not hedge that risk as well? Afterall, there aren’t many things more important than not outliving your savings.

Objection Bullet Point #5: “How do I, as the financial professional, articulate the mechanics of the product as well as the overall value proposition?”
We all think differently, process information differently, and speak differently, but I hope these articles at least gave you ideas on how you should articulate the GLWB conversation as well as ideas for “napkin diagram drawings” that you can use with your clients.

(Part 1 Of 2)

Recently I have been surveying financial professionals across the country on topics related to practice management, annuities, life, and long term care insurance. The purpose of these surveys is to get a better understanding of areas of confusion, training they feel they are lacking, and also what kinds of training they desire. The ultimate goal of my IMO is to then address these areas via videos, whitepapers, and ongoing coaching so that the agents can help consumers more effectively and make more money! (Shameless plug: This online training platform and sales community will be launching March 1, 2021, and it is called “The Retirement Academy”—www.retirement-academy.com.)

In these surveys, there is one particular question about annuities that goes like this: “What areas of annuities could you use more education and coaching on in order to be more effective at selling?” A common response to these surveys has been, you guessed it, around the withdrawal benefit riders (GLWBs). These surveys show that, even if financial professionals understand how the riders work, they may still struggle with how to effectively communicate the value proposition of those riders. I have known for some time that this was one of the top areas of annuity confusion, but these surveys have been an interesting confirmation. It is clear that agents would like more help with explaining the value proposition of GLWB riders in a simple and effective manner.

So, I figure since this month’s Broker World topics are on Retirement, Estate and Legacy Planning, what better item is there to cover than explaining the value proposition of indexed annuities and GLWBs for retirement income! In this article we will discuss how an agent starts the conversation, what the agent should point out to the client, what’s the flow (WTF) of the conversation, etc.

In an effort to make this topic manageable to the readers (and my friend and Broker World publisher Steve Howard) this is a two-part article, with the second half coming in the January column.

Background:
To give a little bit of background on where the issues lie, refer to my simplified illustration below of an example GLWB rider design. This is a greatly simplified visual representation of a rider design that I often use as an example with the numbers removed for ease of viewing. What the numbers and values are doesn’t really matter for this part, but usually I use the example of the blue “Benefit Base” line that the client gets representing their premium plus a “guaranteed benefit base rollup rate” of seven percent. That means that my blue benefit base line would be growing by seven percent per year on top of the premium the client puts in. Usually the premium I use in my examples is the good ole fashioned $100,000. The green dotted line is quite simply the client’s annuity “contract value” based on how the client’s $100,000 actually performs—whether the product has a cap, a participation rate, a spread, etc.

You can see that the green line has some good (five percent) years and some “flat” years. Remember, with indexed annuities you cannot lose value because of a market decline. There can be rider charges however that can slightly erode your contract value/green value, which I leave out in this demonstration for the sake of simplicity. This visual is merely a representation of what the “benefit base” typically does when there are no withdrawals/income being illustrated or “activated.” I will show you a diagram of WDs being activated in a bit.

GLWB Confusion
As the surveys show, there are many financial professionals—from new to seasoned–that experience a lot of confusion around how to explain the three main components of GLWBs:

• The “Benefit Base” value;
• The Payout Percentages of the benefit base that determines the ultimate income; and,
• The ultimate lifetime income at various ages.

To be clear, when I say that there is “confusion” around explaining how these three items work, I am not saying that financial professionals lack the ability to discuss the mechanics. Afterall, most of us understand that #1 multiplied by #2 will equal #3 (benefit base x payout percentage=lifetime income) at the age the client chooses to activate their withdrawals/income. Rather, the confusion lies in how to explain the power of those three values in a logical and linear fashion that allows the clients to recognize the value of what these wonderful riders do!

The illustration below is the same except zoomed in and now illustrating income that the client “activates” after the second year (as an example). Once the client activates income from the annuity, she can only take three to six percent (depending on age of client and the product) of the benefit base/blue line per year in order for the blue line to not decrease or disappear.

A payout starting at age 65 might be around five percent of the benefit base, although that is a little on the high end nowadays. This would mean that if the client elects income in the second year and she is age 65, she would be able to get income of $5,724.50 ($114,490 x .05) for the rest of her life. With many products, at the time we “activate” the income the blue line will stop growing and the income level will be a percentage of that static benefit base forever! (Note: There have been innovations in GLWBs in recent years where, even if you are taking withdrawals, the blue line continues to increase.)

Even if you live until age 150 and even if your green “contract value” hits $0, your income of $5,724 will continue forever in our example.

Areas of Objection:
Now, whether in the minds of well-intentioned financial professionals trying to articulate the value of these products or in the minds of consumers, there can often be confusion on the value proposition of the GLWB. Examples of confusion can be:

1. Can’t a “financial advisor” give the same amount of income from a stock/bond portfolio? Afterall, the stock market has gone up 10 percent on average since 1926 and only five percent withdrawals seem paltry! Ken Fischer says he can do better!
2. Only $5,724.50 in income? That means the client is merely getting back their premium for the first 18 years! That is not very sexy!
3. I do not understand the relevance of the “Rollup Rate.” Isn’t that seven percent rollup rate just “funny money?” Afterall, it’s not like you can just cash that value out like you can the green line (subject to surrender charges).
4. Don’t these riders cost a lot? Suze Orman says they do.
5. How do I, as the financial professional, articulate the mechanics of the product as well as the overall value proposition? What’s the flow (WTF) of an annuity conversation that is effective?

Now that we have laid out the background in GLWB product design as well as areas where many financial professionals would like help, let’s dive in.

(Note: This month’s column will address my thoughts on #1 above. January’s column will address #2, #3 and #4 above. Of course, the overarching intent of both columns is to address #5 above!)

The Re-Anchoring (Confusion Area #1):
As we know from the field of behavioral science—or just plain sales coaching—anchoring is a remarkably effective strategy as we sell and explain complicated concepts. It is because of the power of “anchoring” that it’s been said hundreds of times over the years that:

“Consumers will likely not recognize the true power of annuity GLWBs unless they are educated on the traditional withdrawal rate rules of thumb.”—Me

In other words, I believe that consumers are anchoring their retirement income expectations on the wrong thing and therefore should be “re-anchored” in reality. Hence these consumers should be educated on the fact that William Bengen’s study in 1994 showed that in order to sustain a stock/bond retirement portfolio for 30+ years in retirement, the consumer should take out no more than four percent of their retirement account balance that first year in retirement. Consumers should also be aware of the new updated studies by Morningstar and Wade Pfau that show “rules of thumb” of 2.3 to 2.8 percent.

I am not suggesting an agent go into a big dissertation on these individual studies. I just believe that going over the simplified math—specific to the client’s portfolios—based on these new “rules of thumb” should be done in order to show the power of annuity GLWBs. Heck, even using the old four percent rule of thumb will suffice in explaining the annuity value proposition. By demonstrating this math to the clients, you will be “re-anchoring” their expectations to realistic numbers. And only then do I believe they will realize the true power of GLWB riders. (An example of going over the math with a hypothetical client will be in the January “Part 2”.)

Why Do Consumers Need “Re-Anchoring”?
Re-anchoring is important because consumers are generally unaware of what a reasonable withdrawal rate should be from their retirement portfolio. They have seen the glorification of the stock and bond markets and have likely seen the mountain charts like the Ibbotson SBBI Chart. You know what charts I am referring to—those that show that the stock market has done double digit returns forever and that their one dollar invested back when Adam met Eve would be worth enough to purchase their own private island today. Thus, if a consumer has in their brain that “stocks and bonds” have always performed at seven percent, eight percent, 10 percent, 12 percent…then they will tend to believe that their retirement withdrawal rate is beyond the four percent or 2.3 percent that the research shows. Even if a consumer has heard of the “four percent withdrawal rule,” they may not have had the math laid out for them yet that is specific to their situation.

To demonstrate my points in the previous paragraph, I want to cite a study by Charles Schwab. In their 2020 Modern Retirement Survey they asked 2,000 pre-retirees and the newly-retired about how much money they had saved for retirement and also how much money they expected to take from their retirement portfolios. The answers from the participants were that they had $920,400 in retirement savings (on average), that they planned on spending $135,100 per year from those portfolios (on average), and that they were generally confident in those dollar amounts allowing them to live the retirements they would like.

I would argue that a 14.68 percent withdrawal rate ($135,100 Divided By $920,400) defies any retirement research I have seen! Naturally, Schwab then points out that—contrary to these participants’ beliefs—a $920k portfolio will run out in only seven years (obviously not including interest/appreciation). Clearly, these consumers should have the math explained to them. Even if the consumers understand the new “rules of thumb,” they may be experiencing cognitive dissonance that should be addressed by the financial professional. By doing so you will “re-anchor” their expectations to the new realities of 2.3 or four percent withdrawal rates, which will set you up for the annuity conversation that we will discuss next month.

To hammer home my main point here. Again, I believe the ensuing GLWB conversation will resonate most only after you anchor the client’s mind on the fact that their stock and bond portfolio will likely not last if they are withdrawing at five percent, six percent, seven percent, or 15 percent rates. If you would like more information on those previously cited “rule of thumb” studies, feel free to email me. See you next month!

I remember as a kid occasionally being forced to watch old western cowboy movies. That is because, like every other household back then, we only had one TV growing up! Crazy, I know! And unfortunately my dad’s choice of what to watch took priority over mine. Anyway, I remember being perplexed as I would watch a cowboy pull up to a bar and get off his horse to merely throw the little leather “horse leash” one time around the post outside of the bar. I thought, “How does that loosely wrapped small leather string keep those big strong horses tied to the post?” Afterall, the slightest effort by the horse to “unleash” itself would show the horse that it can easily run off.

The reason the horses never tried to pull the leash off the post–even though it would be easy to do–is because they have been conditioned to believe that it is a lost cause. Once upon a time that horse was broken by a real leash that was very much tied down to a very solid post. I once worked for an old cowboy neighbor of mine where I would feed his horses and I once helped him “break” a young horse that had never been tied down and never ridden. For this horse who had not yet been “conditioned” to be tied up, he actually ripped the post out of the ground.

There is also a process for horses to get “broken” when it comes to being ridden. Needless to say, horses aren’t born being comfortable with a 200 pound man crawling on their backs. Conditioning a horse (also known as breaking a horse) is the process of getting the horse to realize that pushing back is more of a risk than just conforming.

Although the horse is likely correct by “just conforming,” that mentality of being “broken” rears its ugly head in many areas of a human being’s life, whether it is in our finances, our work, or our personal life.

Being “Conditioned” With Financial Products
Our brains are one of the most complex things on earth. These little three pound organs between our ears have over 100,000 miles of blood vessels in them. We as humans are the smartest species on earth, outside of maybe a dolphin. Paradoxically, because we are so smart, we can be so “not smart” because we tend to overthink things and allow our brains to condition us to believe that the world is different from reality.

For instance, we have all seen the Ibbotson “Stocks, Bonds, Bills, and Inflation” chart. Of course, when many people look at this chart going back to 1926 they conclude that stocks are the way to go. Afterall, this chart is one of the most widely used charts by money management firms that has ever been created. Over the years I have heard many securities focused folks point at this chart as proof that stocks are the way to go. Well, although I do like securities for those with a long-term time horizon, I don’t focus on the top two lines so much as I do the bottom two lines; Treasury Bills and Government Bonds.

What do the bottom two lines tell me? They tell me that our perception of risk versus risk-free can be warped. Those bottom two lines were the only two lines to not keep up with inflation over the long run. Thus, Treasury Bills and Government Bonds were the only two on this chart to lose money (after inflation) over the long run. Yes, at the beginning of the chart during the great depression, stocks were horrible. However, if you had your money in T-Bills or Government Bonds from 1926 to 1980, you lost money after the effects of inflation. But at least the investor “felt safe” right? Perception is not always reality.

The point here is not about stocks versus bonds. The point is, risk is in the eye of the beholder. I’ve included my bar chart for inflation versus the average 5-Year CD rate over the last 10 years. By looking at this bar chart I would say the orange bars represent a fairly risky place to put one’s money! Yet for decades consumers have always looked to CDs and the massive brick and mortar banks that sell them as “safety.” (You can email me to get a copy of this graph.)

Furthermore, today a five-year “Jumbo CD” is yielding .38 percent per FDIC.gov. Thirty-eight basis points! So, if inflation is two percent over the next five years, you would be guaranteeing yourself a loss of 1.62 percent per year. Risk is in the eye of the beholder and consumers have grown accustomed to believing that CDs, Government Bonds, and T-Bills are “safe.”

Consumers need to know that their retirement savings are equivalent to the horse being tied to a flimsy post with a flimsy leather string. There are other options.

Being “Broken” in Your Career
If you are one of the 30+ million that has recently lost his or her job and has ever contemplated opening your own business, this is for you. Or, if you are a financial professional who is “captive” and has thought about going independent, this is for you. For those of you that have taken this step already, you probably can connect.
Two years ago, October 2018, I decided to leave corporate America after almost 20 years. Some people would have considered me crazy because I had done well in the corporate world and some would have thought of me as a “lifer.” Plus, why would I not continue the corporate route? When you work “for“ somebody you have the comfort of that paycheck that comes in every-other week, right? Conversely, when you work for yourself, you do not have that security blanket.

I would argue that society in America has “conditioned” us to believe that the guarantee of a paycheck is the definition of security and safety in our careers. I would argue that this can be the equivalent to the horse being tied up to a post by a tiny string.

December of 2018 is when I officially created my LLC, CG Financial Group–an Independent Marketing Organization. Around that time I was sitting with a good friend of mine talking about business. Twenty years ago he was an executive for a major transportation company, and he decided that he had enough of what he was doing. He left a comfortable job, a comfortable six-figure income, and started his own agricultural manufacturing business. To say the least, he has done very well from a financial standpoint as well as from a personal standpoint. He has a ton of money, a great family and has been married for a long time.

As we sat in his multi-million-dollar house there was something he told me that I thought was very well articulated. Effectively, he said that we as humans are conditioned to think of risk in certain ways. We are conditioned to think of risk as just uncertainty. We have been conditioned to expect that paycheck every-other week and by not having it we would be fed to the wolves. The “certainty” of a paycheck is the tail that wags the dog. He went on to say the below:

“So many employees go through their careers dealing with the volatility that their employers can subject them to with bad corporate decisions, misguided decision makers, layoffs, pay cuts, etc. All for that guarantee of a paycheck! For those employees that are in debt up to their eyeballs, that paycheck is probably a reasonable security blanket. However, if one has the liquidity, the skills, and the gut feeling that they could make it on their own, it’s a different story. For these folks, to stick with what they have always been “conditioned” to do brings on more risk and less reward than them opening up their own business.”

Of course, I am not suggesting quitting your job today. I am merely saying that this wonderful country we live in has given us luxuries that can skew our perception of risk/reward.

Do you ever wonder why it is that those that came from very little can turn into such a success? Because they have never been “conditioned” or “broken.” One of my best friends is now a very prosperous doctor who grew up in some very rough streets in India where he never experienced the security of a semi-monthly paycheck. Not long ago he came to America and now has several GI clinics across the country. Typically I would say, “He came to America and took risks,” but that would be inaccurate. By him leaving India, where he had no paycheck, to come to America, where he also had no guarantee of a paycheck, was not a “risk” for him because he had not yet been conditioned/broken.

What do these numbers represent: $3.4 trillion or $111,000 per household? Those numbers represent how much money retirees have left and are leaving on the table by making the wrong Social Security Retirement Benefit elections!

Even if the correct Social Security filing decisions were made by your clients/prospects, Social Security was not designed to replace much of their “pre-retirement income.” As a matter of fact, in our Social Security statements it clearly states that:

“Social Security benefits are not intended to be your only source of income when you retire. On average, Social Security will replace about 40 percent of your annual pre-retirement earnings. You will need other savings, investments, pensions, or retirement accounts to make sure you have enough money to live comfortably when you retire.”

To me, those few statements straight from the U.S. Government equals some of the best marketing a financial professional could utilize! Make sure you are helping your clients and prospects see these statements by going to SSA.GOV. Here is another one below that I like that is also in the Social Security statement:

“Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2035, the payroll taxes collected will be enough to pay only about 80 percent of scheduled benefits.”

The fact that Social Security was designed to replace around 40 percent of pre-retirement income is interesting. This is because 21 percent of married elderly couples and 45 percent of unmarried elderly persons rely on Social Security for 90 percent or more of their income! There is a big disconnect between what Social Security was designed to do and what it is being relied on for. Also, the average monthly benefit paid for Social Security retirement benefits is $1,503 per month. Not much!

The reason I point out the above facts and statistics is to demonstrate a few things: 1. Retirees are not maximizing what the program can offer them because they are making the wrong filing decisions (hence my first paragraph in this column); 2. Tens of millions of people (65 million currently receiving benefits) love and rely on their Social Security; and, 3. Many of them need more of what Social Security provides.

The above statistics and the fact that 90 percent of Americans will use this system called Social Security is why I think that helping your prospects with Social Security filing strategies is one of the best, if not the best, prospecting tools you could utilize. This is a service that is completely different from some of the concepts that are out there that only target the “rich,” like estate tax planning for instance. Nothing wrong with targeting the rich but we all know that that market is very saturated by our competition. To the contrary, this concept appeals to the masses. And when you appeal to the masses is when you get more prospects and clients than you can handle!

With the above being said, when I initially talk with agents about leveraging Social Security planning I hear a few “myths” that I need to address with the agents.

Myth 1: “Social Security will be going away so why pay attention to it?”

My Answer: False! Although this statement is made tongue in cheek many times, I do think there can be the thought that Social Security is so much in flux right now that financial professionals tying their wagon to the Social Security horse will not get them anywhere. The concern for Social Security is certainly warranted. Afterall, when Social Security was launched in 1935, to get full Social Security retirement benefits you had to be age 65. Considering that the life expectancy of a person back then was age 62, it does not take an actuary to tell you that it was actuarially flawless! Times are different today which means there is stress on the system and changes will likely happen. However, Social Security will never go away. As the aforementioned Social Security statement says, even if it was to become insolvent, we can support 80 percent of the benefits by the payroll tax revenue the federal government receives.

Again, although this “myth” is sometimes used tongue in cheek, it is a legitimate concern. However, Social Security will stick around.

Myth 2: “Now that ‘File and Suspend’ is no longer an option because of recent legislation, there are very few areas of feedback that I can provide to my clients. Filing for Social Security is more clean-cut then it used to be, and financial professionals cannot provide much value!”
My Answer: False! Although it is correct that “file and suspend” has gone the way of the mullet, there are plenty of areas where you can help your client. For instance, if a client was born prior to January 2, 1954, there is something potentially available called a “Restricted Application.” This is where he or she would be able to “restrict” their application to just the spousal benefits and continue to let his or her own benefit continue to earn delayed retirement credits.

Myth 3: “OK, so if my clients were born on or after January 2, 1954, then the opportunities for me to help my clients are really limited.”

My Answer: False! Although the conversation about filing for Social Security retirement benefits is largely a timing issue at this point, do not mistake that for being simple! Take me for example. The Gipple’s rarely make it out of their 70s in a vertical position. I don’t even buy green bananas anymore. So, that means that on the surface one would think I should just file for Social Security as early as possible (age 62) right? Wrong! This is wrong because my wife, Noelle, will live forever. She can eat eight pounds of brisket and not gain a pound. Amazing.

Anyway, by taking my benefits early I am locking her into a smaller survivor benefit once I die. So, in the end, the total lifetime value of our Social Security payments will likely be more if I delay taking SS benefits instead of taking them early. It’s not just about me, it’s about both of us. This is where CG Financial Group helps agents and their clients optimize their filing options by assessing the four chronological phases of Social Security filing:

• The first spouse files—what is the monthly benefit?
• The second spouse files—what is the total of the monthly benefits between the two spouses?
• The first spouse dies—what is the survivor benefit?
• The second spouse dies—what was the total benefit over both lifetimes?

The goal is, by the time we get to the end of number four above, the total payout from the Social Security Administration was the largest possible. As you can surmise, the amount of filing options from a timing standpoint for both spouses are numerous and we have not even gotten into Social Security taxation. That is a topic for next month. In short, do not mistake a discussion around “just timing” as being simple! Clients still need your help.

Myth 4: “There are no opportunities for me to make money by helping clients with their Social Security filing options.”
My Answer: False! The fact that you can build trust by showing your Social Security prowess will lead to you getting their other assets. Plus, those other assets need to be optimized for the various Social Security scenarios. Are the clients going to delay until age 70 and therefore need an “income bridge” from an annuity? Or, conversely, should a client file early and let their annuity with a GLWB continue to build up? By the way, there are also parallels in how annuity GLWB benefits work relative to Social Security retirement benefits that you can emphasize.

What about taxation? Is most of the client’s Social Security going to be taxable because they will have too much “provisional income?” Well, you can provide those clients with solutions (Roth IRAs) and products (cash value life) that do not add to their provisional income.

Myth 5: “I don’t want to be an expert at this because it is complicated and takes a ton of time to learn. Therefore, there are no opportunities for me to leverage Social Security in my practice.”
My Answer: False! Although Social Security is complicated, if you have clients in their 50s and 60s that you can invite to zoom calls, virtual seminars, etc., you can make money without much effort! This is by partnering with an IMO that can give the presentation for you, assess their situation for you, and design the recommendations for you. I believe that it should be the job of every financial professional to either know Social Security or be partnered with the right folks who do know Social Security.

Feel free to email me if you would like a video where I go over “Charlie and Noelle’s Social Security Case Study.”

Trillions of dollars of lost productivity. This pandemic has led to immeasurable harm to our industry and our economy. We will never know exactly how much this pandemic will shave off of our nation’s Gross Domestic Product (GDP) because of its impact across multiple industries. This pandemic has led to a massive amount of lost productivity and lethargy—literal sleepiness! What am I referring to? I am not referring to the pandemic that you may think. I am referring to the pandemic of what I call “PPT” or “Presenter Preferential Treatment.”

Now, what do I mean by presenter preferential treatment? In short, this is the presenter’s mindset of putting his/her own needs and convenience over that of those that are listening to the presentation. This can lead to a heavy reliance on pre-canned slides/material, rigidity, and an ineffective presentation. More on this in a bit.

For years I have been discussing this “pandemic.” Of course that terminology, which I have used for about a decade, is strong terminology. After all, what I am referring to is not a literal pandemic. However, I do passionately believe that the impact on one’s business over the long run can be equivalent to that business experiencing a disease. If your business relies on how effectively you communicate a message, and if your message is falling flat, I do not think it is too harsh to use the analogy of your business experiencing a serious illness.

Conversing Versus Presenting
In an environment (COVID-19) where many financial professionals that are reading this are now forced to “present” in a fashion that they are not used to—via video conference for example—I felt it was appropriate to discuss this topic. On many occasions over the years I have been told by financial professionals things like “I am not good in front of an audience, but in one-on-one settings I am fabulous.” Another way of saying that may be, “I am good with conversations, but I am not good at presenting.” If you are one of those folks, you may find value in this column.

There is something about conference calls and video calls (Zoom, Webinar, WebEx, etc.) that add an extra layer of formality to what would otherwise be a “conversation.” This means that for the folks that are maybe more comfortable with just a conversation, well you are now finding yourselves having to conduct your meetings in more of a “presentation” format. This column is designed to address that.

By the way, paradoxically, the best presentations are those that are conversational in nature. More on that in another column. My points below still hold true even if you are “conversing.”

My Observation
To be clear, I have spoken about this PPT topic for years, and have also written about it, because I have observed many speakers in our highly technical and analytical industry that exhibit “room for improvement” in their talks. Lately, it has just become more important to address this issue with the new communication styles that COVID-19 has forced us to adopt.

By the way, this PPT issue is not just in the insurance/finance industry, it is everywhere! I have several friends that are executives in other industries and many times they complain about witnessing what I am referring to here. So, when I cite lost GDP as a result of this “pandemic,” I am not using hyperbole.

Technology Murdered the Communicator
Let me explain in more detail what Presenter Preferential Treatment is through the lens of a history lesson.

I believe that 50+ years ago the proportion of great communicators/presenters was higher than what it is today, largely because of the PPT that we have today. The reason has to do with technology!

Because there are certain information processing traits that all humans have in our DNA that will never go away with time, there are certain components that great presentations have that will never go away with time. A couple of examples would be storytelling, the power of humor, the power of presenter voice inflection, etc. And lastly, our tendencies to be visual learners! This leads me to the notion of “chalk at talk,” as Max Atkinson discusses in his book Lend Me Your Ears. That is, the power of explaining something while drawing visual diagrams simultaneously. Most of us are visual learners and by the presenter drawing visuals while simultaneously narrating his/her drawing, that can add great power to the presentation. Therefore, some of the best presentations you will experience will be with merely a flipchart or whiteboard. I have been laughed at a lot for my primitive whiteboard presentations, but there is science to why I do what I do!

Once upon a time the problem with “chalk and talk” was large audiences. If you were 100 feet back in the back of the room you could not read the whiteboard. Thankfully, this was addressed in the 1960s with the invention of the overhead projector. The overhead projector was great because it prolonged the life of “chalk and talk!”

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 projector screens that we use today. Overhead projectors used light bulbs and shadows, like how I play finger shadow games with my kids on the wall. Back in the 60s and 70s this technology was great because it would allow professors or any other professional who was presenting to large audiences to draw pictorial items that were visually much larger than what that presenter could do with a chalkboard. 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.

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 pre-printed 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. Or the audience would experience sensory overload and just check out. Nap time!

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! And that is when the pandemic of PPT spread like wildfire to where it is today. To be clear, I use PowerPoint a lot, just in the right way—to demonstrate points, not sentences!

As a result of the wonderful technological tools that we now have available, when used incorrectly you have the pandemic of PPT. That is, presenters relying on technology to make their jobs easier instead of going through the work of giving the audiences what they want. Afterall, isn’t it just “easier” and less stressful to just put together a beautiful PowerPoint presentation in your own time and have the presentation do the work of communicating the message for you? You would save time by not preparing your words, not learning the flow of your presentation, and not practicing your “chalk and talk” diagrams, right? Well, although easier, the PPT method is wrong. This tendency of presenters choosing his/her own comfort over the audience’s is what has made powerful communicators a rare commodity nowadays.

A Few Tips
To end this column I have some very quick tips, which at this point are likely obvious after reading the last 1,200 words. These tips you might find useful whether you are applying them to your newfound Zoom presentations or your “in person” presentations that you will someday be back to conducting.

1. If it is what the audience wants, you must choose their needs over yours! Audiences do not want a gazillion PowerPoint slides, although having the PowerPoint deck do one’s job is “easier” for presenters. In a people business, people desire to connect with people, not a slideshow. Because of this desire, there is no way that even the most powerful PowerPoint deck could ever offset shortcomings in the presenter’s word and concept delivery. Going to the gym is painful for me, but I do it anyway! Think of this the same way.
2. Get good with “Chalk and Talk.” As I tell the financial professionals that I have coached over the years, if you can speak to an audience for a couple of hours and keep them engaged while explaining complicated concepts (which our industry is full of) with just a whiteboard, you have hit the major leagues. I am not suggesting that you not use PowerPoint slides, I am just suggesting that I believe for many presentation settings (like Zoom Meetings), a whiteboard is more powerful if done correctly!
3. If using PowerPoints, less is better! Although I love my whiteboard, I do use PowerPoints often. 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 am going to speak for an hour, you will rarely see me have more than 30 slides. I will likely have no more than 10 slides. And, those slides have very few words and are more “pictorial” in nature to add to my presentation versus competing with my presentation.
4. Unshackle yourself from technology! A side effect of the PPT Pandemic is that you are dependent on technology because that has always made your job “easier.” What would happen if you were at a major conference with 1,000 prospects 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? Do you have the stories, explanations, etc. to accept the offer or have you been a victim of the pandemic for too long?
5. Half Caff and Voice Inflection. In one of my prior companies I went through PR training where they trained me on navigating interviews with the media. One great thing I learned was the notion of “half caff.” That is, our body language and voice inflection get “dulled” by the camera as well as being in the limelight. So, it is suggested that you offset that by slightly “caffeinating” or exaggerating your voice inflection and body language. Clearly, if you look “dull” because of the camera’s impact, you will be tuned out by the audience.

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

This is a repeat of a column I wrote for the December 2018 issue. In today’s environment, where financial professionals are having to adopt new methods, I feel this is a timely repeat. One constant in our business should always be to tell your story!

I was never going to write on this topic until today when I had a conversation with Joe Jordan. Some of you may know Joe, who has written the bestselling book “Living a Life of Significance.” Joe is also a globally sought after speaker on the value of what we do in the insurance business. Joe is a good friend of mine. In his speeches, and his book, he speaks of a personal experience reminiscent of the one that I had been hesitant to write about.

In my conversation with Joe I told him what I was thinking of writing about and my hesitation because of its personal nature. Here was Joe’s response:

“Charlie, this is the problem with our industry! Our industry relishes the analytics, product specs, mortality tables, tax law data and all of that other technical BS. We need to change. I know you are probably thinking you shouldn’t write about it because of a couple different reasons: First, that it’s not professional to write about one’s personal life; and second, that you fear people may think you are looking for sympathy. Well it is these personal stories that we need to tell more of in this business. This is where we are missing the boat!”

So, here we go…
I was born in Atlantic, Iowa (Southwest Iowa), a town of about 7,000 people. I grew up in a blue collar family and have a brother that is two years younger than me.

Growing up we had two opposing forces in our household, my mom and my dad. My mom was the one that made sure we got decent grades in school, had nice clothes, brushed our teeth in the morning and night, and stayed out of trouble. My dad, on the other hand, didn’t care about our grades or what clothes we wore, didn’t care if we brushed our teeth, and rarely disciplined us. My mom and dad were a good mixture for us kids because my mom kept us in line and my dad was my brother’s and my best friend growing up. My dad took us hunting and fishing since we were toddlers, taught us to ride motorcycles, bought us video games, and all of the other things that boys like to do. My mom made us take care of ourselves and our dad taught us how to have fun. My mom jokes to this day that we always thought she was the “mean one,” which is true. This dynamic made for a great childhood for us kids but not a great marriage between those two. Hence their eventual divorce.

My mom and dad parted ways when I was 12 and my brother was 10. Even though my mom won the custody battle, and rightfully so, my dad would religiously take us every other weekend. He looked forward to it as much as we did.

The fact that my dad loved us kids so much and doted on us was surprising to those who knew my dad. The reason being, my dad was an intimidating personality and an intimidating figure. For those on the outside they may have viewed my dad as not caring about anybody.

My dad was a high school dropout who founded his own underground plumbing and concrete company. He smoked three packs a day, cursed like crazy, and he loved his alcoholic beverages. If you know anybody who has been digging ditches and pouring concrete all of their lives, you have an idea of my dad. In his younger years he was 6’4” with giant shoulders and forearms. His hands were like concrete. Yes, we got spanked by those hands when we were young! And we deserved it. He was a tough, tough guy who worked every day of his life, 12 hours a day. He earned hundreds of thousands of dollars per year, which was a massive amount of money in Southwest Iowa. However, he spent his money just as fast as he earned it, which did not sit well with my mom who was a stay at home mom trying to raise a family. His friends called him “Crazy Charlie.” My brother and I loved “Crazy Charlie” and he loved us.

I worked for my dad through high school and college. I am thankful for this as it gave me my work ethic and made me pretty handy around the house if I do say so myself. One day on a jobsite when I was 17 I was using a concrete saw to cut excess concrete off the end of the parking lot we had just poured. Of course because I was 17 and needed a nice tan, I was wearing shorts. Not wise when you are doing this type of work! Well the saw slipped and in an instant sliced my shin wide open to the bone. My dad was not on the jobsite so I drove myself to the hospital. Once at the hospital emergency room I called my dad to ask him for our insurance information. He said, “I will pay cash.” The triage lady seemed skeptical of this until I told her that my dad, Charlie Gipple, was coming to pay. In Atlantic, Iowa, everybody knew my dad and his unique ways.

My dad went to the hospital and paid cash that day after they stitched me up. This was probably the first time in forty years he set foot in a doctor’s office or hospital outside of the birth of his sons.

Obviously, that day I learned that my dad did not even carry insurance for him, for my brother and I, or for his business’s liability! I thought to myself that day that, even though my mom currently had my brother and I covered under the plan that she bought when they divorced, what about when we were younger and my mom wasn’t working? Were we not covered? Did we pay cash when I would crash my dirt bike on at least a semi-annual basis? What if something really bad happened?

Needless to say, insurance and investments were never concepts my dad concerned himself with, even though working with heavy machinery was extremely risky.

My dad ensured that I and my brother went to college so we did not “turn out like him” as he would say. Between a basketball scholarship, loans, and him paying cash, I did exactly what he didn’t do—I went to college and got a Finance degree.

Within a relatively short period of time after I graduated I was a regional vice president for an annuity company. My career was starting to look good and I was working very hard and spending a lot of time travelling the country. Although I talked to both of my parents on the phone frequently, I never got to see them much outside of holidays.

The Thanksgiving of 2005 I will never forget. My wife and I met my dad at his favorite restaurant to celebrate Thanksgiving. When I saw him get out of his car in the parking lot my stomach dropped. I barely recognized him. I couldn’t fathom the amount of weight he had lost since I had seen him last—only a few months prior. Believing he was sick, I actually mustered up the courage to ask him what was happening and if I could help. He claimed that the reason for his weight loss was because the doctor told him he was borderline diabetic and the doctor put him on a diet. As you can imagine, I was skeptical of his reasons because I was certain he hadn’t seen a doctor since he was young. Furthermore, the weight loss was simply too significant.

Was he lying because he didn’t want us to worry? Was he lying because he would never, ever, ask for help? Well, the detail he included in his description of his “doctor visit” was very convincing to me and, besides, what could I do? He was not one that would accept any help from anybody. It was a somber dinner for me.

Six months later, late May of 2006, I stepped off an airplane in Salt Lake City, Utah, to visit a couple of marketing organization customers. I looked at my cell phone/flip phone and saw that I had a message from my brother to call him back. When I returned his call, my brother informed me that my uncle had to break into my dad’s house because my dad had not been feeling good and had been behind locked doors for several days. My dad had passed away at the age of 62 in his bed.

After flying back to Iowa I learned more. I learned that the cause of death was colon cancer and that the doctor had not seen him in decades. It was indeed a lie! I also learned that my dad was very sick that week. So sick that he wanted everybody to leave him alone and he locked everybody out of his house that came to visit. He was dying. My dad knew he was dying and he did not call me or my brother.

Why did he not call us? Because I believe he knew we would try to help him, whether physically or financially. And for my dad, asking for help was a “weakness” and a burden to those helping him. He believed he was supposed to be the one helping us! He was a smart person and I know how he thought. I believe he also thought that my brother and I would do whatever it took to help him, but without any insurance whatsoever how could anybody possibly help him with the situation he was in? How could anybody afford that?

I believe that my dad, over that few days, knew exactly the monumental burden that he would be to his “caregivers” if he went to the hospital or called one of us. I believe he had a choice to make between being another “caregiver burden” statistic or to let nature take its course. Unfortunately, he chose the latter. As Joe Jordan speaks about with his mother, I believe my dad willed himself to passing because of the burden, mostly financial burden, which he would have cast upon us.

Would it have ended differently if my dad had his financial house in order and, instead of lying to me, he actually went to the doctor? Why didn’t any financial professional speak with my dad about what we had to offer?

My dad always said “If I knew I was going to live this long then I would have taken better care of myself.” Although he joked about this many times, I think there was a good amount of seriousness in that statement. For being a high school dropout he was actually one of the smartest people I have known. One could reason with him after getting past the rough edges. Why didn’t this happen?

What about if he died, say, 10-years earlier? I likely would have never gone to college and my brother certainly would not have. Did anybody ever propose life insurance to him to ensure that college would happen upon his death? (Granted, he was likely uninsurable!)

What if he died 20-years earlier when I was six, my brother was four, and my mom had no income? What if he got hurt? What if us kids got hurt?

Of course my questions above are rhetorical because I know that my dad had never been approached—not even by me, his son. Why not? Well I am sure you know the type that my dad was. The tough macho type that never considered that someday they will not be 10 feet tall and bulletproof. They believe that thinking about this and certainly discussing this goes against their manly protector instincts. For my dad you would be “questioning his manhood” to suggest that someday he may need help. However, these conversations have to happen! This is the courage part of our business. One conversation with one person like my dad that leads to the family getting protection could literally save lives.

It is not hyperbole to say that the profession we are in effects families in a life or death fashion many times. That is a pretty special impact that we have on lives. As you may know, I love the analytics and the details as much as anybody. However, the most important thing we can do is to develop the courage to have those tough conversations that not only positively impact the “Crazy Charlie” you are speaking to, but also the family for generations. And if you tick off the person for trying to help them and their family then so be it! It has to happen.

Many other families in similar situations will not dodge the destitute bullet that my family did over the years. It all worked out. My dad lived the life he wanted to live, has sons that are healthy and successful, and he ended up never having to ask anybody for help. I just wish my dad could have met his two grandsons, Seth Charles Gipple (11) and Matthew Charles Gipple (8) and spoiled them like he did us.

A little over a year and a half ago I decided to leave corporate America to start a full-service independent marketing organization (IMO), CG Financial Group, LLC. This was a great process for me, not only because it allowed me to create a business that is already successful, but also because it allowed me to go through the process that I am now educating financial professionals on. That process is creating a “21st Century Agency.” I think you would agree that a 21st Century Agency is one that leverages consumer behaviors, social media, video, websites, search engines, etc.

Given that there are many parallels between what I have done (and am doing) and what a large chunk of the Broker World readership has done and/or is doing, I thought I would touch on the high-level process that I went through and what I coach insurance agencies on. Whether one is brand new to our industry or a veteran looking to optimize his/her practice, the below may be useful from a practice management and marketing standpoint.
Following is a very high-level version of our “Six-Step Roadmap” that we use to help new agents, as well as seasoned veterans, build out their business in an age where brands matter, expertise matters, and a web presence matters.

1.Create a name for your company. As you create your name, think about what it will be that will attract people to your company. For instance, when I started my company, I surveyed a lot of friends in the industry about what they think would attract people to my company. Many of them said, “You and your expertise and your ability to explain complicated topics in a simple manner.” So, I took their word for it and created the name “CG Financial Group, LLC.” CG of course being my initials. I also included the motto of “Simplifying Financial Security.”

Once you think of a name for your company or a “Doing Business As” (DBA), make sure you check the secretary of state’s website in your state to make sure it is not taken.

Most important of all of this, create a name that speaks to the value you will bring in the eyes of your prospects!

2. LLC and/or EIN. Whether or not to file for an LLC, S-Corp, etc., or get an employer identification number, is beyond the scope of this article, but if you go this route speak with an attorney or look online for companies like “Legal Zoom.” If you go the website route, make sure you are very much on top of all the business rules so you do it correctly!

3. Create a logo. I have studied human behavior, the brain, and behavioral finance a lot and I believe that every business should have a logo. They say that when you communicate with people, that 55 percent is body language, 38 percent is the tone of voice, and only seven percent is the actual words. In other words, the 55 percent that is body language tells me that people are visual! I know, it’s not breaking news that people are visual. A logo appeals to consumers’ visual tendencies and works like a tattoo in the brain. That “tattoo” can be a positive one if their experience with your company was good, or a negative one if the experience was bad.

My tips on the logo are: a) There are great logo apps online, just google “creating a logo” and you will see many; b) Make sure the logo is unique; c) Make sure it speaks to what you do; and, d) I do not believe a logo has to be fully descriptive. A logo can also generate questions like, “What does your logo mean?” That gives you an opportunity to explain what you do!

4. Create a Facebook Business page. This allows folks to “follow” my page and get my business’ content that appears in their feed whenever I post it to my Facebook page. I call it “passive aggressive marketing.”

Example: Let’s say that I just built out my Facebook Business page with a bunch of great articles and visuals. Maybe I included some facts about life insurance, annuity rates, the life insurance need, as well as a life quote engine, etc.

Well, just starting a “page” does not get followers. This is when I go to my “Personal” Facebook page and share with my 1,000 “Friends” that I have a Facebook Business page and that they should “Like” my business page in order to see ongoing updates and subject matter expertise. Once they “Like” my page, again, they will now see my ongoing material in their feeds. That is what I call “Passive Aggressive Marketing” and eventually, if your material is good enough, you will have family and friends inquire about various topics you have posted to your Facebook Business page. This cost you $0!

Furthermore, with Facebook Business I have the ability to target consumers in certain areas that have certain interests as well as certain “life events.” This costs money but can be very cost effective if done correctly.

Note: Instagram and LinkedIn are also great social media outlets one should utilize!

5. Website. I believe that having a website today is equivalent to what having basic prospecting conversations was 20 years ago. Conversations take place online in the 21st Century, whether you are technically “conversing” or not. Your website allows you to have “conversations” with prospects as you sleep. Work with an IMO that will provide you with material for a powerful website. Alternatively, you could also consider hiring a professional website designer such as Hooked Marketing to help you create your website.

Furthermore, now that you have set up your Facebook Business page, you are able to direct those Facebook followers to your website. But again, your website has to have compelling information and subject matter expertise so you are not wasting the prospects’ time. Generating this material is where you can leverage your IMO. In the end, the goal is to have your social media pages feeding your website and vice versa. The goal is to create a never-ending lead producing cycle. Also, if you are looking for service providers in web design melbourne or nearby places, you could consider taking the help of companies like Cultivate Digital.

A few key components a website should have:

• Messaging about why you are different. Why should they choose you versus your competition?
• Subject Matter Expertise! I believe that because of the internet, today’s consumer is better informed than an agent was in 1990. Therefore, you better be educating them on something they cannot get by researching your competitor’s website. Leverage your IMO for this material.
• Your site should have more of a discussion about the issues and potential solutions versus “products.”
• Your site should have a Blog! Blogs are posts/updates/commentary that are posted to your website and automatically emailed to those that have subscribed. A blog is especially important because it allows you to speak in a more casual tone than the verbiage on the main page of your website. This allows the prospects to better connect with you, the human being behind the business. It also allows you to show them that you know your stuff and are much more than somebody wanting to sell them something. If your material is good enough, the people visiting your site and reading your blog will share with others and you will have many “subscribers” that will now get your blog posts once you hit “publish.”
  
  Most importantly, blogs help with “Search Engine Optimization” that I discuss in a moment. For instance, if you write a blog about long term care solutions and that blog mentions “long term care” six times, that will help your website appear closer to the top when a prospect in your area googles “Long Term Care Insurance.”

6. Search Engine Optimization: When I started CG Financial Group, I followed these six steps. Of course, that means I almost immediately created CGFinancialGroupLLC.com, the website. I also “optimized” it for search engines.

One of the items at the time that I put on my website was a reference to a sales tool that I had that independent agents could utilize as they sold indexed annuities and indexed life insurance. The sales tool was provided by a third party. This third party and I had an agreement that I could market this tool to the CG Financial Group agents.

So, fast-forwarding to about six months, all of a sudden, I started getting phone calls from agents that I had never spoken to in my life. These agents were asking me how to pay for their subscription for the tool, how to make adjustments on the account, some of them how to cancel their accounts, etc. They believed that I was the entity that was actually behind this particular sales tool! I was merely an IMO that distributed their product.

Well, after about the fifth call I started to ask questions about how they got my information and why they believed that I was the same entity. What was their response? They all said that when they “googled” the name of the sales tool, my website was at the very top and therefore they assumed that I was the same company as the sales tool provider. If that is not a testament to the importance of “search engine optimization” or “SEO services” I don’t know what is!

Clearly, there are many more steps to creating an agency for the 21st Century than these, but one needs to walk before he can run and I believe the above are table stakes in order to have a “21st Century Agency.”

This message is prompted by hearing about yet another agent last week (not associated with CG Financial Group) that got herself in trouble by selling cash value life insurance as an “investment” without regard to the actual death benefit need.

As you may or may not know, prior to starting CG Financial Group, I spent 20 years on the carrier side of things where I have been privy to many complaints about this topic. Therefore, I feel that I have a unique perspective which I am obligated to share with you, the financial professional reading this column. Plus, these thoughts are inherently unique because I am not an attorney but am agreeing with the caution that the home office attorneys often express on this topic. Afterall, distribution folks and attorneys do not always agree!

Sales folks often view attorneys as being afraid of their own shadows and attorneys often view sales folks as being motivated to cram a square peg into a round hole to make a commission. Obviously, I am usually one of those “sales folks.” But not with this topic.

Selling life insurance as an “investment” without ever discussing the death benefit need and costs is a great concern that attorneys in carrier home offices have around cash value life insurance sales.

Now, I have spent my career educating financial professionals and consumers on the value of various cash value life insurance policies. I will continue to do this, and CG Financial Group will continue to support agents with our number one product sold—cash value life insurance! Why? Because it’s a great product for the right clients.

However, it is my obligation to make sure the fine financial professionals reading this column can create and/or maintain flourishing and “lawsuit free” businesses. I will always tell the truth, even if the truth leads to fewer sales. Eventually integrity wins the day.

Here are my thoughts:
When selling life insurance, there must be a life insurance need!

I know that when you look at some of the benefits of IUL, whole life, VUL, etc., that one may be able to make a case for why they are “suitable” even without the death benefit. After all, you have tax advantaged growth, great interest rates on loans, tax-free loans, and the “possibility” of decent growth rates. One may think that those traits alone would justify a sale to a client that is merely looking for an “investment.” Not so.

The bottom line is that the client is paying COI charges that are paying for a death benefit. I know that I/you could also make the case that some of those COI expenses are just “the cost of doing business” in a product that has benefits that other “investments” don’t have, but that does not fly in arbitration/lawsuits.

Hypothetical lawsuit:
Let’s say you or I discussed IUL or whole life with a client that did not “need” the death benefit but loved all the other accumulation and income traits previously mentioned. Thus, you/I sold the product as solely an “investment” to this client. You/I sold this life insurance without assessing the client’s need for life insurance and therefore you never really discussed the death benefit.

My vision of how the court process would go:

Opposing Attorney: “Mr. agent, tell me in a yes or no answer. Is it true that there are charges in insurance policies that are solely for the purpose of creating a death benefit for the consumers?”
You/Me: “Yes”

Opposing Attorney: “What are those charges called?”
You/Me: “Cost of Insurance Charges.”

Opposing Attorney: “Now also tell me—yes or no—is it also true that my client paid X thousand dollars in these COI charges over 10 years to have that death benefit?”
You/Me: “I don’t recall the exact amount of COI Charges.”

Opposing Attorney: “Well I have the exact number here and it is X thousand dollars over 10 years. Does that sound about right to you?”
You/Me: “Yes, it does.”

Opposing Attorney: “Is it also true that you and my client never even discussed the death benefit component that cost my client X thousand dollars, and as a matter of fact my client had never even expressed a desire or a need to purchase additional life insurance coverage?”
You/Me: “Correct.”

Opposing Attorney: “So, to summarize, my client has paid X thousand dollars in expenses—that was not disclosed to him—for a benefit that my client did not even need? Does that sound correct?”
You/Me: “umm, uhm…”

Opposing Attorney: “I rest my case.”

In the above scenario, even if you had some fantasy life insurance product that guaranteed the client 50 percent per year tax free, the conversation would go the same way! So the point is, even if you wholeheartedly believe you are doing the right thing, understand the need for the “death benefit.”

Lastly, lawsuits are not the only risks to one’s business that may cause significant loss. Large chargebacks (without the lawsuit) are also a risk. And those chargebacks can happen—even after the chargeback period—if it is deemed by the carrier that you sold an “unsuitable product” based on that client’s needs.

Last Christmas my wife and I agreed to not get each other anything. Well, I found a very nice watch that she wanted at a very good price. I recalled our agreement, but I also knew I was doing the right thing by taking advantage of the sale. There was no way she would get mad at me because I was doing a smart and well-intentioned thing. Plus, I knew it would save her money in the long run. Well, on Christmas day I gave it to her. I got in trouble even though my intentions were pure.

Recap: In last month’s column I discussed the two opposite ends of the spectrum when it comes to funding a life insurance policy, specifically indexed universal life insurance. Those opposite ends are, the death benefit focused side and the cash accumulation side. I also discussed how “overfunding/max funding” works from a mechanical standpoint in reducing COI charges. To summarize in an over simplistic way, we want the cash value and death benefit lines as close to together as possible if we are going for maximum accumulation! If you would like a copy of last month’s column, email me and I will send it to you.

I ended last month’s column with a “teaser” on a question that tripped up my agent in his sales presentation to his client Brian. By the way, I am not picking on this agent in particular because this is a common issue I address with many agents as I help with the more “advanced” case designs. What was the question that the client had that created confusion for my agent? Here is the question from his client that tripped up my agent which seems very basic on the surface: “If I want a higher death benefit than the ‘minimum death benefit’ on this product, can I go with a higher death benefit?”

Of course, the simple answer is, yes! But is that the best answer? Although the “minimum non-MEC death benefit” for our healthy 45-year old is $231,000 when he is funding it at $10,000 annually, the agent can illustrate a higher death benefit than that “minimum”—up to a certain level of course. However, if you really understand the mechanics of cash value life insurance, you know there should be much more analysis involved than just jacking up the death benefit in the IUL illustration and calling it good.

Generalization or Specialization?
The client, Brian, was wondering if he can get an additional $100k of death benefit on top of the $231k within the same product. He wanted to see if he could get this additional coverage for 20 years. Again, the answer is yes, he can do this, but is that the right way to go? Afterall, what started out as a case focused largely on accumulation has now morphed into an accumulation and death benefit focused policy. What is the intent of the product—accumulation or death benefit? Can you buy a golf club that makes a good putter and a driver at the same time? Or, do you need to separate out products? When looking at cash value life insurance, should products satisfy general objectives or are the products more specialized? Let’s discuss my view on this.

Following are two diagrams: The purpose of these simple diagrams is to demonstrate the relationship between the $10k premium going in, the two different death benefits over time and also the “Net Amount at Risk.” Again, in both diagrams we chose the “Increasing Death Benefit” in the early years for reasons I explained in last month’s column.

In Diagram A is a graphic of our first 20 years or so in the policy without the additional $100,000 in death benefit included. Per the illustration, based on $10,000 per year in premiums, the minimum “non-MEC death benefit” is $231,000. As we have already discussed last month, the difference between the two lines is the “Net Amount at Risk” that determines the COI charges.

Now, because IUL is a “flexible premium” product, we can choose to have the face amount at $331k instead of the $221k that was the minimum death benefit. Afterall, our client needs that additional $100,000 of coverage for 20 years. Without digging into the numbers year by year, and instead keeping this conceptual, let’s overlay the “new” scenario of Brian funding at the same $10k per year but now moving this IUL’s death benefit up to $331,000. See Diagram B.

As you can see in Diagram B, the old scenario is represented by the dashed lines. I also included the new $331k face amount (in blue) and also the new projected cash accumulation value (in black). Notice how the cash accumulation is not as steep as the previous dashed accumulation (in red). That is because of the additional expense drag that is incorporated into Diagram B which is composed of:

• Higher cost of insurance charges which is based on the higher “Net Amount at Risk”
• Higher per thousand charges which is based on the higher face amount

If you have read any of my past IUL analysis, you would recognize the two expenses above as being two of “The Big Three” of expenses that I discuss frequently. The third being Premium Loads, which is a function of the premium going into the policy. Note: I have since changed it to “The Big Four” now that many companies have asset-based charges.

In the assumptions in Diagram C I used a very reasonable five percent illustrated rate, instead of the 6.9 percent that I could have used as the max. The only thing that illustrating a higher rate would do is to prove my point even further.

As you can see, by having a death benefit of $100k beyond the “Minimum Non-MEC” that the IRS would allow, you are watering down the cash value performance of the policy because of the higher expenses. By adding the $100k death benefit, one is watering down the Year 20 Cash Value by $10,581 and the annual loans by almost $1,000. Most importantly, how much in additional charges would Brian have in the $331k policy versus the $221k policy? $5,934 over the 20 years–or an average of $297 per year.

So, What Is My Suggestion?
Am I suggesting we leave Brian without the $100,000 additional death benefit? Of course not. To me it is a question of, “What would be the cost of $100,000 of coverage for 20 years from a source outside of this IUL policy?” Then we would compare that cost to the $5,934 that it would cost if we used the IUL for that additional $100k coverage.

Utilizing the same health class as the above IUL, the best 20-year term price for Brian on $100,000 in coverage would only be $175 per year, cheaper than the $297 per year embedded in the IUL pricing. Furthermore, the 20-year term premium/expenses/charges are 100 percent guaranteed whereas the IUL can adjust. Now, needs can change, so I would suggest a term policy with great conversion privileges, as this particular term has.

What I am suggesting is that with cash value policies in general—not just IUL—that many times these policies are “specialists” in either cash accumulation or death benefit. It is rare if not nonexistent where there is a product at the top of the industry for death benefit leverage and also cash value potential.

What I ultimately suggested to my agent was to offer both products—the max funded $231k face IUL and also the term policy. He sold them both!

Note: I also looked at the Term Blending Rider on the IUL which was fairly expensive. Term blending riders are great for when the client wants to fund an IUL but has varying premiums that he/she will put in over time. Term blending is a great “place holder” for death benefit that can be converted to the permanent base coverage later on. Inquire if you are interested in learning more about term blending.

In Summation
Now, by Brian paying the premium of $10,000 per year into the IUL and $175 per year into the term, he is paying $10,175 in total premiums. I could show you the math of including all of that into the IUL, but the end conclusion will not change by adding $175 per year to the premium.

Much of what I wrote here is fairly brief because I wanted to keep this simple, accurate and conceptual. For instance, I could have discussed “term blending riders” that many IULs offer, but that would not have changed the conclusion. Furthermore, I did not incorporate time value of money to discount back the COI charges into today’s dollars, etc. I have done those mental gymnastics outside of this paper and I have always come to the same conclusion–that it is always best to try to “max fund” accumulation IUL whenever you use it, and buy the death benefit leverage from a death benefit focused product separately. In other words, my belief is, specialization is important!

It is best to use a Ferrari for racing and an RV for camping instead of trying to use one of those vehicles for both activities.