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David J. Murphy

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CLU, ChFC, FLMI, is a director, vice president, team leader, speaker and mentor for Global Leadership Partners. For nearly four decades Murphy worked in the financial services industry, and has held positions in sales, marketing, product development, training and development, distribution, agency management, and recruiting. In his latest role he was responsible for managing National Account relationships. In this role he shared business leadership and practice management concepts with business owners, marketing organizations and independent financial professionals. He is a frequent contributor to industry trade journals and a keynote speaker at industry events. After 37 wonderful years in financial services, it was time for Murphy to give back, to share with others the training, development and experiences he enjoyed by God’s grace, and encourage others who are just starting out or seeking to grow. Global Leadership Partners identifies, equips and sends business leaders to speak at leadership seminars in partnership with organizations primarily in Eastern Europe, but eventually, around the world. The intent is to foster development of foreign leaders who will courageously stand for strong values and a high ethical standard. This work is based on the belief that the world will be a better place when filled with leaders who lead according to proven values and bedrock principles. Murphy is a frequent contributor to industry trade journals and is available as a keynote speaker for life insurance industry meetings and training events. He can be reached by telephone at: 312-859-3064. Email: murpd191@gmail.com. Twitter: https://twitter.com/InLifeOnPurpose.

The Last Mile

CaringBridge,© a nonprofit organization, exists to help families keep their social networks informed when a family member is battling serious, life-threatening illness like cancer.

As I write this, a dear friend is battling metastatic brain cancer. His wife created a CaringBridge© Journal to share their journey with others.

The day of the surgery to remove a large tumor on his cerebellum, my friend’s wife posted her first entry:

“As a woman, I will not question my man’s statement:

‘I didn’t lose strength; I was just weak.’

It was just so macho, in a meek way.”

The day after his surgery, she posted this:

“He said quite quietly this morning, ‘I’ve been thinking about what the doctor said—It’s going to be a long marathon. A marathon is a very long run…in a very short time. Climb each hill, some easy, some hard. That creates a whole picture. You’ve just got to pace yourself.’”

Point: A marathon is a very long run…in a very short time.

The Life Insurance Industry Is in a Marathon
Like nearly every industry, the life insurance industry is in the throes of the digital revolution. Consumer expectations require that carriers invest in end-to-end IT solutions and comprehensive systems in order to keep pace with the consumers’ ever-changing requirements and demands.

A supply chain involves a series of steps involved to get a product or service to the customer. First Mile, Middle Mile, and Last Mile delivery phases are terms used within supply chain distribution specialties.

First Mile logistics: Simply put, once a good or service is manufactured, wherever it goes next is known as the First Mile.

Middle Mile logistics: Is when products or services are moved from a facility that holds the services or products briefly, and packages them into orders and gets them out to consumers. Fulfillment centers are significant players within the Middle Mile process.

Last Mile logistics: Is the transfer of goods or services to the final delivery destination. It is known alternatively as same-day delivery, next-day delivery, express delivery, or just standard delivery. Simply put, it’s the last step in the delivery process.

Within the life insurance industry, the digital revolution is changing everything, and impacting every supply chain phase, with great rapidity. Examples include automated underwriting, the use of Big Data in risk assessment, e-applications, e-policy delivery, and paperless processing.

Because life insurance consumers are not isolated buyers, but omni purchasers of products and services, everything that the life insurance industry does is instantly compared with every other purchasing experience.

Example: Amazon

What is Amazon’s First Mile? “The First Mile is the flow of materials within the supply chain to create a product before it’s delivered to the customer.”1

What is Amazon’s Last mile? “The Last Mile team helps get customer packages from delivery stations to a customer’s doorstep.”2

If the Last Mile is delivering one thing to one person by this time tomorrow, the First Mile represents the delivery of one component to one worker on an assembly line.

Point: The life insurance industry is in a marathon (along with every other industry) and needs to go a great distance in a short period of time.

The Last Mile
The Last Mile phase of supply chain management describes the short, final delivery and communications segment of distributing the services or products to customers. Last Mile logistics tend to be complex and costly to providers of goods and services who deliver to these customers.

“Some of the problems of Last Mile delivery include minimizing cost, ensuring transparency, increasing efficiency, and improving infrastructure.”3

Ecommerce sales are expected to reach $6.5 trillion by 2023. This will be accomplished “thanks largely to new fulfillment concepts including Dark Stores (shuttered stores opportunistically converted into fulfillment centers), warerooms and automated order facilities.”4

Dark Stores and Ghost Kitchens
(Is it just me or are those evil-sounding names?)

As online shopping booms (reaching nearly $100 billion in 2021), many retailers are struggling to meet the demand of customers for same-day delivery. To accomplish this Herculean task many retailers are turning to Dark Stores.

“A Dark Store is a micro-fulfillment center dedicated to rapid online order fulfillment. It is a kind of small, local store but without the customers. It has aisles with shelves and racks for groceries.”5

The name “Dark Stores” is derived from being dark—that is, closed to the public—since they are only used to fulfill online orders. Dark Stores are being utilized increasingly in the grocery and whole food sectors, fashion, big box retail, homewares, and furniture industries.

Many retailers are searching to find delivery-focused alternatives to traditional stores. Among these are Kroger, Wendy’s, and Chick-fil-A. They are among major U.S. chains that took over nearly 100 million square feet of industrial and warehouse space in 2021 (with an additional 376 million square feet of space under construction).

Dark Stores, through delivery, are enabling retailers to enter markets where they do not operate physical locations via ghosting. “Wendy’s, Chick-fil-A and other fast-food chains, for example, have introduced ‘ghost’ kitchens that operate expressly to serve delivery orders—no dining room or carryout.”6 Chick-fil-A, and other fast-food retailers, partner with a leading ghost-kitchen brand, Kitchen United, to offer delivery out of a shared commercial kitchen.

“The ghost kitchen craze is being driven by the explosion of delivery options in fast food.”7 Think UberEats, GrubHub and DoorDash.

From their website: “Kitchen United MIX’s mission is two-fold: Delivering delicious food options to hungry communities who crave variety; while also providing local restaurant businesses with streamlined operations support within clean, safe, state-of-the-art kitchen facilities.”8

Consider their value proposition:

  • “Want American, Asian, and Italian takeout from three different local restaurants all in the same order? Create your MIX!
  • Need to place a single order catering to all different dietary preferences from high-protein, to plant-based and health-conscious, to comfort food? MIX it up!”9

Another firm is competing in this same space. Ocado makes their mission clear on their website:

  • “Whatever your schedule, there’s a delivery slot just for you.
  • Our mission is to wow customers through an incredible combination of unbeatable range, effortless convenience, and fair value.”10

Next for Life Insurance Distribution and the Last Mile
As recorded above, Last Mile decisions are based on these objectives:

  • Minimizing Cost
  • Ensuring Transparency
  • Increasing Efficiency, and,
  • Improving Infrastructure

Minimizing Cost
For as long as I have been in financial services, life insurance carrier distribution systems have included these parties:

  • Retail Agents/Brokers
  • Brokerage General Agents
  • Aggregation Groups

Over the years I have witnessed carriers reducing their own costs by relegating more and more responsibility to the distribution system. The carriers quit doing things that are necessary and simply cast them off on their distributor partners. Examples:

  • Printed Marketing Materials, Forms Inventories
  • Agent Training and Contracting
  • Live Customer Service Representatives
  • Orphan Policy Service
  • In Force Policy Illustrations
  • Paramed Scheduling

Savings to the carrier only resulted in increased cost to the distributors.

Point: Digital solutions should reduce costs for carriers and their distribution partners.

Ensuring Transparency
The philosophy of business transparency requires the sharing of information freely in an effort to benefit the organization and its people, suppliers, distributors, customers, and the public. Transparency happens by implementing good processes and formalizing feedback.

Point: All parties need to understand and agree that the outcomes are worth the effort.

Increasing Efficiency
Efficiency is defined as “the ability to achieve an end goal with little to no waste, effort, or energy. Being efficient means you can achieve your results by using the resources you have in the best way possible.”

Efficiency is not achieved by simply eliminating steps in the process that yield unrecognized or undercelebrated benefits. Distribution partners know the activities they do that enhance relationships with customers, increase the likelihood of future sales, and lead to referrals and good will.

Point: Carriers would do well to listen and seek to understand these benefits.

Improving Infrastructure
One of the tension points between carriers and distribution partners is marketing, lead-generation, and prospecting. In the P&C world, carriers opted to go direct to consumers with national ad campaigns. Sure, the name recognition helped some distributors make additional sales, but they ended up in competition with their own carriers.

Point: Economies of scale can and should benefit all parties.

Last Mile Pivot Point
Underlying the entire debate about costs, speed to market, customer satisfaction, paths to increased sales, and product positioning is a simple question that is endlessly debated: “Is life insurance bought or sold?”

This debate points like a laser to the question of whether or not people want to buy life insurance from a person or if they are self-motivated enough to drive their own purchase decisions through web sites and digital or robot advisors.

My Personal Experience with The Last Mile
From the beginning of my career in life insurance, I have counted it the highest privilege to present life insurance solutions to families and businesses, to assist them in applying for coverage, and to deliver the actual policies they acquired. There is something magical about our products. They are the means by which love extends beyond the grave. I had the joy of seeing families cared for when the unexpected happens. It was inspiring to see business owners and families adopt the disciplines of saving and preparing for illness, disability, long term care, retirement, and death. It was in all these interactions, these Last Mile activities, that I found my greatest fulfillment.

Summary
The life insurance industry is in a marathon in adapting to the digital realities and has far to go in a short period of time.

I do not pretend to have the answers. I no longer have the responsibility to work actively on alternative means of delivering our products more effectively and satisfactorily to our end users.

In the life insurance industry, everything is headed in the direction of greater consolidation. Mergers are sensible when the objective is lower costs through scale and achieving greater efficiency by eliminating redundancy. Consolidation generally does little to improve end-user value, or to enhance the general public’s embrace of the industry.

At one time our industry was entirely built on relationships.

Final Point: In our efforts to gain efficiencies and cost-savings in the Last Mile, perhaps we can remember the importance of relationships.

Maybe we can create “Light Stores” and “Angel Centers.” As we “climb each hill, some easy, some hard,” maybe we can create an incredible combination of variety, safety, value, and effortless convenience for people needing our products.

Here is what I do know. I agree with Solomon Huebner: “There is nothing more uncertain than life, and nothing more certain than life insurance.”

Footnotes:

  1. https://www.zdnet.com/article/its-not-delivery-why-the-first-mile-can-kill-you-and-what-to-do-about-it/.
  2. Ibid.
  3. https://www.investopedia.com/terms/l/lastmile.asp.
  4. “The ‘Dark’ Stores In Retail’s Future: Prepare To Be Ghosted,” by Bryan Pearson, https://www.forbes.com/sites/bryanpearson/2022/02/03/the-dark-stores-in-retails-future-prepare-to-be-ghosted/?sh=74c4fac13c4a.
  5. https://www.shiprocket.in/blog/guide-to-dark-stores/.
  6. https://www.businessinsider.com/chick-fil-a-wendys-ghost-kitchens-growth-2019-10.
  7. Ibid.
  8. https://www.kitchenunited.com/.
  9. Ibid.
  10. https://www.ocado.com/webshop/startWebshop.do?clkInTab=Home.
  11. https://www.investopedia.com/terms/e/efficiency.asp.

C’est Moi

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“When the legends die, the dreams end; there is no more greatness.”—Tecumseh

The Paths We Follow
Recently I have been reading about the history of Indiana and Ohio. In particular, I am studying the process by which the land was surveyed, divided into land parcels for purchase, and how the Native American traces, trails, and pathways became our modern-day roads and highways.

For thousands of years, herds of bison passed through the forests of Ohio and Indiana during their seasonal migrations. Thousands of buffalo, each weighing 1,000 pounds or more, made innumerable passes through the forest and created thoroughfares that were wide, pounded hard, and without question the easiest way to get through the dense forest. The indigenous peoples used these trails as conduits of trade, communication, hunting, war, diplomacy, and cultural interaction.

When surveyors and map makers were defining the Indiana and Ohio geography in the early 1800s in advance of the settlers, every Indian trail they drew was originally a bison trail.

In Southern Indiana the most prominent early line of travel was called the “Buffalo Trace.” It entered Indiana at the Falls of the Ohio River (modern day Louisville, KY) and progressed Northwesterly to Vincennes, IN.

“The buffalo was a large, heavy animal with a comparatively small foot. He could not cross low, swampy, marshy land, and being gregarious, he could not remain long in one place, for hundreds and sometimes thousands of them ranged together. Their pastures vanished rapidly, and they had to move frequently. Their small feet and heavy bodies necessitated their roads followed the highlands–indeed the ridges, or watersheds…. He was a good civil engineer and pathfinder. In fact, he found the road and man followed in his footsteps.”1

As time marched on, the bison disappeared. The death of the last documented bison in Ohio took place in 1802. Meanwhile, many Native American routes evolved to became bridle paths, wagon roads, paved roads, and even highways, some of which survive today, at least in part, along their original courses.

In 1914, an archaeologist named William C. Mills, published a work entitled Archeological Atlas of Ohio. In this book he wrote, “The importance of the aboriginal trails of Ohio to the settlement and development of the state, can hardly be overestimated.”2

Many American Indian trails and traces crisscrossed the landscape prior to the arrival of European settlers. One such North-South path passed directly through the heart of what is now the city of Columbus, Ohio. What is now known as U.S. Route 23 was once the Scioto Trail, the great pathway of the Shawnee tribe. Tecumseh himself frequently traveled it. This trail connected the fishing waters of Sandusky Bay and Lake Erie, to the hunting grounds of Kentucky. Much of the Southern portion of the Scioto Trail paralleled the Scioto River.

“In the 1820s, Colonel James Kilborne, the founder of Worthington and a representative in the Ohio General Assembly, lobbied heavily for a proper road to connect Columbus to Lake Erie. The legislature approved the creation of the Columbus & Sandusky Turnpike Company to build a highway in 1826.”3

The 106-mile-long turnpike was open for business in 1834. In the early 1900s Ohio was forced to invest in paving the well-used gravel road due to the emergence of the automobile. In 1926, the road was incorporated into the United States Numbered Highway System and became U.S. Highway 23.

“US-23 is nearly identical to the trail American Indians blazed centuries ago.”4

Following the Path of Legends
In many respects, the processes, products, procedures, and methods used today in the financial services industry have their roots in history. The steps of the industry’s legendary progenitors proved successful, attracted followers, and created norms, which led to training, and resulted in how thousands of independent financial professionals conduct business today.

I have been blessed in my career to have met some of the true legends in financial services. Some of these men and women have since passed on. I began this article with a quote from Tecumseh: “When the legends die, the dreams end; there is no more greatness.” With all due respect to this great Shawnee chief and warrior, I disagree.

Point: The greatness of legends is what they do and say which other successful people emulate, and so the greatness continues.

Example:

Lester Albert Rosen was born on November 19, 1912, in Brooklyn, New York.

“He graduated high school from Adelphi Academy in 1929. He immediately entered Wharton School of Finance and Commerce of the University of Pennsylvania, where he earned a Bachelor of Science degree in Economics in 1933. Mr. Rosen entered the life insurance business in 1933 with Union Central Life Insurance Company and remained an active agent for this company until his death.”5

Lester served the country he loved for five years in the Armed Forces during World War II and attained the rank of Major. At Kennedy General Hospital he met Patricia Jefferson, a dietician, who he always described as the “most beautiful woman in the world.” They began a marriage in 1945 that lasted all the rest of his life–61 years.

I first met Lester in 1985, my initial year working for Union Central as an Advanced Sales Specialist in the home office. He was 73 years old and going strong. I assisted him on a few business and estate planning cases with product selection and case design. This was similar to providing Bill Gates with computer advice.

Question: What made Lester, the man, a legend?

  • As a leader in the civil rights movement, Lester Rosen was president of the Memphis Human Relations Council.
  • He served on the Urban League Board and received the J. E. McDaniel Community Service award in 1985.
  • He served on the board of the National Conference for Community and Justice.
  • He was a past vice-chairman of the Memphis and Shelby County Human Relations Commission.
  • He was a member of the President’s Council of Christian Brothers University.
  • He served the B’nai B’rith Home and Hospital for the Aged.
  • His service to humanity was recognized by a life membership on the Advisory Board of the Salvation Army.

Question: What made Lester a legend in financial services?

  • Rosen served as past president of the Memphis Association of Insurance and Financial Advisors.
  • Rosen served as past president of Tennessee Association of Insurance and Financial Advisors;
  • Rosen served as past president of the Memphis Chapter Society of Financial Service Professionals;
  • Rosen served as past president of the Memphis Estate Planning Council;
  • He was past president of the prestigious Million Dollar Round Table;
  • Rosen served as past president of the National Association of Life Underwriters; and,
  • Rosen served as Past President of the Life Underwriter Training Council.

The American College of Financial Services was founded in 1927 by Solomon S. Huebner. “The College’s Chartered Life Underwriter® (CLU®) program graduated its first 21 designees in 1928.”6 Lester earned his CLU designation shortly thereafter.

The first meeting of the Million Dollar Round Table took place during the 1927 National Associate of Life Underwriters meeting at the Peabody Hotel in Memphis, Tennessee. Lester Rosen was an early recipient of the MDRT® distinction. He served as president of the Million Dollar Round Table in 1962.7

The Legend Lives
One way for a legendary person’s influence to continue is by creating an award in that person’s name. The Lester A. Rosen Humanitarian and Achievement Award was created in 1996 to honor Rosen’s lifetime of service to the insurance industry, to Ameritas (Union Central Life, at the time) and to his community of Memphis, Tennessee. Recipients of the award must exemplify great professional success while maintaining a high level of commitment to community service.
In my career I have personally known these Lester A. Rosen Humanitarian and Achievement Award recipients:

  • C. Robert “Bobby” Brown, Sr. CLU LUTCF
  • Juan Elias Calles
  • John B. Tickle
  • Mitchell Wm. Ostrove, CLU, ChFC, AEP, LACP

Each of these professionals exemplifies the commitment and others-mindedness of Lester Rosen. For instance, Mitch Ostrove once invited me into his home, blessed me with a round of golf at his club, and has always treated me with kindness and respect even though he is truly a man of accomplishments and singular success! He is dignified, gracious and humble, just like Lester.

I also count it a singular blessing to call Jack Dewald my friend. Jack is a living legend. Jack has received numerous awards and achieved many remarkable achievements, including:

  • Member, MDRT, Top of the Table;
  • Past Chairman of The LIFE Foundation;
  • Board Chairman of The Marketing Alliance;
  • Past Chairman of NAILBA;
  • 2013 Recipient of NAILBA’s Douglas H Mooers Award for Excellence; and,
  • Member, Walton College of Business Alumni Advisory Board.

Jack also lives in Memphis, Tennessee, and was mentored by Lester Rosen over the course of many years. “Mr. Rosen,” as Jack always refers to him.

Jack kindly gave me a copy of Mr. Rosen’s book that he wrote for LIMRA in 1991, entitled Talk Life Before You Talk Life Insurance.

From the Forward:

“The year was 1929. In September I matriculated at the Wharton School of Finance and Commerce of the University of Pennsylvania. In October the stock market crashed. In November my roommate had to quit school to go to work in order to help his father support the family. Men were committing suicide by jumping off bridges and turning on the gas. Bank after bank closed, bankrupting depositors. Insurance companies invoked the contractual right to delay six months in processing cash-value loans. Story has it that a man walked into the home office of one of the giant New York companies and said, ‘Gentlemen, it is now ten o’clock. I need a $50,000 cash loan by two o’clock. If I don’t receive it, you will have a death claim for $250,000 by four o’clock.’ He got the loan.”8

In 2012 Jack Dewald, following Mr. Rosen’s example, wrote his own book entitled Ten Sales Concepts to Relish, Remember, Repeat. In the Introduction Jack quotes a story that Mr. Rosen once shared with him.

“Seems a grandfather was speaking with his young grandson and asked, ‘I’ll give you $10. Would you rather have a ten-dollar bill or ten one-dollar bills?’

After thinking about the generous offer for a few minutes, the grandson replied, ‘I’ll take ten one-dollar bills.’

Granddad then asked the young lad why he wanted ten one-dollar bills instead of one crisp ten-dollar bill.

The young man wisely responded, ‘In case I lose one, I’ll have nine left.’”9

Point: Another way for people to become legendary is to so infect others with their model of behavior that other people cannot help but catch the imprint of that character, live it, and spread it to others.

It Starts with c’est moi
Most everyone is familiar with a very old, very common French idiomatic saying, C’est la vie, which means “That’s life” or “Such is life.” In short, it expresses a sort of restrained, slightly fatalistic lamentation that this is how life is and there’s not much you can do about it. There is nothing especially heroic about this.

On the other hand, the French expression c’est moi is an extremely important interpersonal phrase. French people use it when responding to expressions of gratitude. C’est moi literally means “It’s me” but this translation doesn’t really get to the heart of why people use it to respond to an expression of gratitude.

In fact, it is actually short for c’est moi qui vous remercie, literally “it’s me who thanks you.” In English, when responding to another person thanking us, we might say “No, thank you!” (stressing the “you”) or “You’re very welcome.”

Point: At the root of a legendary personality is gratitude. It is an extreme gratitude that deflects gratitude. It is a gratitude that looks for ways to give rather than receive, to serve rather than be served, and to give all one has in total commitment just because of the privilege of having and enjoying hard work.

The power of gratitude begins where our sense of entitlement ends. This is the stuff of legends.

Summary
When I met Lester Rosen, he humbly accepted the assistance of someone who knew next to nothing and had minimal experience. He was gracious towards me, and he expressed sincere gratitude for any little thing I did.

The same thing can be said of Bobby Brown, Juan Calles, John Tickle, Mitch Ostrove, and Jack Dewald. These men are legends because of their accomplishments in our industry, but they are also legends because they bear the imprint of greatness as exemplified by their gratitude. They always have the c’est moi attitude and response to people and circumstances.

Next Steps
If you aspire to become legendary, hope to achieve greatness, and want to accomplish your dreams, consider these various ways of expressing c’est moi:

  • Keep a gratitude journal, and daily record three things you are grateful for.
  • Practice the art of seeking reasons to be thankful for other people.
  • Make gratitude a priority in your interactions.
  • Thank your clients for every conversation, referral, or new product they purchase.
  • Each day, respond with “No, seriously, thank you” to the gratitude expressed by at least one person.
  • Appreciate where you are now, and remember how far you have come.
  • Focus on the people in your life, rather than the tasks or material blessings.

Gratitude requires action, and a conscious effort to be grateful is a skill you must acquire. Legends make gratitude seem effortless because they formed the habit in their daily routines.

There is a positive relationship between gratitude and a sense of social or community responsibility. When you see your gratitude extend beyond your life so that you want good things to pour over into other people’s lives, you are on your way to greatness!

In a letter written to the early church in Thessalonica, the Apostle Paul wrote, “Give thanks in everything.”10

British neurologist, naturalist, historian of science, and writer, Oliver Sacks, achieved legendary status. As he approached his death in 2015, he published his last book entitled Gratitude.11 Here is the secret to his greatness:

“I cannot pretend I am without fear. But my predominant feeling is one of gratitude. I have loved and been loved; I have been given much and I have given something in return; I have read and traveled and thought and written. I have had an intercourse with the world, the special intercourse of writers and readers.

Above all, I have been a sentient being, a thinking animal, on this beautiful planet, and that in itself has been an enormous privilege and adventure.”

To you, Lester, and to all the legends in our industry who received the Humanitarian and Achievement award in your honor, and to all the legendary people in the life insurance industry who refused to let the dream of greatness die, I say, c’est moi!

Footnotes:

  1. Early Indiana Trails and Surveys (Indiana Historical Society Publications, V. 6, No. 3.) Paperback – December 2, 2015, by George R. Wilson.
  2. https://news.wosu.org/news/2019-11-28/curious-cbus-are-ohios-highways-based-on-american-indian-trails.
  3. Ibid.
  4. Ibid.
  5. https://www.legacy.com/us/obituaries/commercialappeal/name/lester-rosen-obituary?id=9655236.
  6. https://www.theamericancollege.edu/about-the-college/history.
  7. https://www.mdrt.org/about-MDRT/leadership/.
  8. “You Have To Talk Life Before You Can Talk Life Insurance,” by Lester A. Rosen, CLU, Life Insurance Marketing and Research Association, Hartford, CT, 1991.
  9. “Ten Sales Concepts to Relish, Remember, and Repeat,” Jack Dewald, CLU, RHU, 2012, ISBN: 1466412208.
  10. https://www.kingjamesbibleonline.org/1-Thessalonians-5-18/.
  11. https://www.oliversacks.com/oliver-sacks-books/gratitude/.

Money Like Water

Question: Where do fish keep their money?

Answer: In riverbanks.

Question: Why are some fish at the bottom of the ocean?

Answer: Because they dropped out of school.

Question: What keeps a dock floating above water?

Answer: Pier pressure.

(See Footnotes for more jokes about Water1)

Jokes stem from the art of slightly bending familiar and simple things. Stories, like jokes, help us see something with fresh eyes.

I am an avid fan of Jesus. For one thing, I admire his use of stories in communicating truths. His stories drew from examples that his audience knew with great familiarity. Sowing seeds. Vineyards. Bushel baskets. Lamps. Rocks, thorns, good soil. Two brothers. Mustard seeds.

“Then Jesus asked, ‘What is the Kingdom of God like? What shall I compare it to? It is like a mustard seed, which a man took and planted in his garden. It grew and became a tree and the birds of the air perched on its branches.’” (Luke 13:18-21)2

As an independent financial professional you can significantly improve your powers of persuasion by tapping into this same principle. This article takes something everyone is familiar with—water—and presents possible parables using water that might help independent financial professionals communicate important financial principles.

We will consider these examples:

  • The Water Cycle
  • Water Will Always Find an Outlet
  • Water’s Own Level
  • Flowing Like Water
  • Dripping Like a Faucet
  • Standing Water

First Parable: The Water Cycle
The water cycle begins when water evaporates from the surface of oceans and lakes, rises into the atmosphere, cools, and condenses into rain or snow in clouds, and falls again to the surface as precipitation. “The water falling on land collects in rivers and lakes, soil, and porous layers of rock, and much of it flows back into the oceans, where it will once more evaporate. The cycling of water in and out of the atmosphere is a significant aspect of the weather patterns on Earth.”3

Scientists take frequent and detailed measurements and make models to predict changes in Earth’s water cycle.

Application: Money Cycle
As paper currency is deposited with a Federal Reserve Bank, the quality of each note is evaluated by sophisticated processing equipment. Notes that are still in good condition continue to circulate. Bills that are worn, torn, or marked in any way are taken out of circulation and destroyed. This process determines the lifespan of a Federal Reserve note.

Money Cycle varies by denomination and depends on a number of factors, including:

  • How the denomination is used by the public.
  • How often the denominations are used as a store of value.
  • What bills pass most frequently between users.
  • The notes that are most often used for transactions.

Lifespan of Federal Reserve Notes4
The Federal Reserve Board is the issuing authority of U.S. currency (see table 1) and is therefore responsible for ensuring that there is enough cash in circulation to meet the public’s demand.

“Table 2 shows the value and volume of U.S. currency in circulation calculated in billions. As of December 31, 2020, there was $2,040.7 billion in circulation, totaling 50.3 billion notes in volume.”5


(How can there possibly be $2.7 billion in circulation in two-dollar bills? Who is hoarding them?)

Point: Like scientists monitoring the water cycle, so the Federal Reserve Board monitors money in circulation.

Second Parable: Water Will Always Find an Outlet
Water always finds a way to move from wherever it is toward sea level. Water continuously changes from one form to another as it moves toward its true purpose. It follows the path of least resistance. For example, water always flows downhill. It is usually easier for water to move around a rock unless the water has enough energy. In certain instances water will move the rock rather than go around it—because it is easier.

Application: Money Follows the Path of Least Resistance
In financial matters, friction is a major influencer. People will repeat what worked previously even if the results were less than optimal. Change requires an investment of time and energy in order to gain better understanding of alternatives. Change of any kind is only so much friction.

People are generally passive decision makers rather than active decision makers. Most people choose the simplest means of saving, investing, planning, and giving when activating their own (perceived) best interest.

Example: Roth Conversions

Most people do not have enough tax diversification. Tax diversification means having investment assets in each of the three types of accounts that have different tax consequences: 1) taxable accounts; 2) non-qualified annuities, traditional IRAs, and other tax-deferred accounts; and, 3) income from permanent life insurance, Roth IRAs and other tax-free accounts.

Also, wise retirees utilize bracket management. Using this strategy, they can control their tax rate in retirement. Tax rates can fluctuate during retirement years. In a year when retirees are in a low tax bracket, they can take more money from their qualified plans or traditional IRA. When they find themselves in a high bracket or want to avoid jumping into the next tax bracket, retirees can take tax-free distributions from a permanent life insurance product or Roth IRA.

For reasons of tax diversification and bracket management, a Roth conversion may make great sense for your clients, but they will stay in traditional IRAs unless you can guide them from passivity to activity.

Point: Without wise planning, proper allocations, and wise distributions of money, money will seek the path of least resistance—resulting in retirees paying higher taxes unnecessarily.

Third Parable: Water’s Own Level
Everybody knows that “water seeks its own level” but very few people know why water seeks its own level. Three factors:

  • Atmospheric pressure.
  • Water pressure depending on depth.
  • Water’s density.

Water pressure is primarily a function of its depth. If two bodies of water have equal depths their pressure will be equal. Consider a tube shaped like a U. Fill both sides with water. Because the water in both tubes is at rest at the bottom, the pressures in both tubes will be equal. Pouring water into one tube raises the water in the other until the pressures equalize. This is true whatever the density of water or whether or not there is atmospheric pressure.

This principle is best seen using something called “Pascal’s Vases.” You can use four glass tubes of varying shapes, all having the same height, that are all connected at the base. You pour water into any tube and regardless of the shape or volume, the water level is the same in each tube, proving that water’s pressure is dependent upon vertical height only.

Application: Money Seeks Its Own Level
The old saying, “money begets money,” is true in some regards. “Beget” (verb) means “to give birth to; to bring about.” If someone has money, it can be used to get more money through investment. This explains why the “rich get richer.”

As an independent financial professional (IFP) you can help your clients to think in terms of vertical height. Vertical height of money comes from pouring more money in and keeping money from leaking out. Clients build wealth over time. This column of money gains greater pressure, and when the money fills one need, it flows over to the next need, and eventually, into dreams.

Using a Pascal Vase analogy, one tube could symbolize paying off the mortgage, a second could be college savings, another retirement, a fourth could be a summer home, and additionally, a legacy plan could help the client give significant money away.

Point: The IFP helps clients build the vertical height of wealth in four ways:

  • Keep more income through wise tax planning.
  • Save more money.
  • Invest more money.
  • Give more money away.

Fourth Parable: Flowing Like Water
“Water is the driving force of all nature.”—Leonardo da Vinci

Water is a flow resource. It is best when moving. It is always behind life in all its forms. It is also an easy resource to waste.

Consider how many of us have formed water-wasting habits.

  • Taking baths and long showers. Think of it this way: The average American shower uses 17.2 gallons of water and lasts up to eight minutes—that’s a lot of water.
  • Laundry loads that are only half full.
  • Washing dishes with running water.
  • Running the water while brushing teeth.
  • Overwatering the lawn.

Application: Stop Spending Money Like Water
We often use the phrase, “spending money like water.” We use this to describe someone who spends too much money in a careless way, who spends freely, or spends lavishly.

There is a Japanese proverb: “Getting money is like digging with a needle; spending it is like water soaking into sand.”

Let’s face it. We all waste money. We could all use a little accountability.

Debra Pangestu wrote an excellent article entitled, “How to Stop Spending Money: 7 Tips and Tricks to Curb Your Overspending.”6 In the article she used this list as her outline:

  • Understand Your Spending Triggers.
  • Track Your Spending.
  • Stick to Cash and Stop Relying on Credit Cards.
  • Forget Your Credit Cards—Literally and Figuratively.
  • Set Short-Term Financial Goals.
  • Learn How to Budget Money.
  • Give Every Dollar a Job.

She wrote, “In many cases, knowing how to stop spending money has to do with identifying the emotional and psychological triggers that cause us to spend. If you remove those triggers, you’ll remove the temptation and opportunity to overspend.”7

Point: Every IFP is inclined to show respect to each client and is hesitant, therefore, to criticize spending behavior. But the best tool an IFP yields is accountability. Perhaps the most important step the client needs to take in order to achieve financial success is to get a better hold on spending.

Fifth Parable: Dripping Like a Faucet
According to the U.S. Geological Survey’s (USGS) Water Science School, “There is no scientific definition of the volume of a faucet drip.”8 The scientists at USGS concluded, after conducting several experiments, that the volume of a faucet drip, one drip of water, equals 1/4 milliliter (ml). Using that estimate, they calculated the extent of wasted water from a single dripping faucet as follows:

One gallon = 15,140 drips

One faucet, ten drips a minute = 14,400 drips per day = 347.2 gallons per year!

The rate of loss is too small to cause alarm. The annoyance of the drip is worse than the cost. Or so it seems.

Application: Letting Money Slip through the Fingers
CNBC Select spoke with debt-relief attorney Leslie Tayne about the common ways people waste money.9 Ms. Tayne founded Tayne Law Group, a New York-based debt relief firm. Her mission is to help people to analyze their spending habits and recognize when they spend when they do not need to. Unnecessary spending drags our budgets down. It often takes the help of an independent financial professional for people to break the habit of spending on things they can easily live without.

Examples:

  • Paying for Identity theft insurance if their credit cards come with built-in protections from fraud.
  • Making minimum credit card payments when they can afford more.
  • Paying for unused memberships and subscriptions.
  • Paying for convenience.

According to USA Today, the average adult in the USA spends $1,497 per month on nonessential items. That’s roughly $18,000 per year on things we can all do without.

“The tendency to splurge consistently on nonessentials is causing Americans to skimp on other important items. Case in point: A good 38 percent of Americans claim they can’t afford to fund a retirement plan because they don’t have enough money. Meanwhile, 35 percent say they can’t afford a life insurance policy, 28 percent can’t afford to pay off credit card debt, and 26 percent can’t afford car repairs.”10

Point: Nobody purposes to waste their money. Successful people are busy people. They are wary of accountability in their personal lives because they experience oversight daily in their working lives. Facts reveal that help is needed. It takes effort to finally call the plumber to fix the leaking faucet. It takes an IFP to help people assess their spending habits, seriously consider what they actually need, and make hard choices to stop the spending drags on their budgets!

Sixth Parable: Standing Water
The Centers for Disease Control and Prevention (CDC) publishes warnings about the disease threat and other dangers associated with standing waters.11

  • Standing water can be a dangerous drowning risk for small children.
  • Standing water often contains contaminants that can lead to illness.
  • Exposure to standing water can cause wound infections, skin rash, gastrointestinal illness, and tetanus.

Healthy water is flowing water.

Application: Idle Money
According to Investopedia: “Idle funds refer to money that has not been invested and is, therefore, not earning interest or investment income. Idle funds are simply funds that are not deposited in an interest-bearing or investment tracking vehicle, that is, are not participating in the economic markets. These funds are often thought of as “wasted” funds since they do not appreciate in any manner.”12

How does idle money cause damage to one’s financial strength? When inflation is rising, the idle funds are in effect losing value as they are not even growing at the pace of rising costs. In addition, people everywhere are struggling financially. Charities regularly run short on funds. Underutilized funds (idle money) anywhere could be the difference in another person’s very existence.

Lynne Twist wrote a book entitled, “The Soul of Money: Transforming Your Relationship with Money and Life.” Here is a quote germane to this issue:

“Money carries our intention. If we use it with integrity, then it carries integrity forward. Let your soul inform your money and your money express your soul. Money flows through all our lives, sometimes like a rushing river, and sometimes like a trickle. When it is flowing, it can purify, cleanse, create growth, and nourish. But when it is blocked or held too long, it can grow stagnant and toxic to those withholding or hoarding it.”13

Point: Every IFP has the opportunity to make the world a better place by addressing the presence of idle money sitting in each client’s portfolio. The possibilities are endless for such funds to move from stagnation to unimagined prosperousness and productiveness.

Summary
Water is an amazing substance.

  • The heat capacity of water is more than twice the heat capacity of natural mineral and rock material. Oceans tend to even out temperature differences on Earth.
  • Water is the best all-around solvent. More solid substances dissolve in water than in any other liquid. Because of this, living things are made mostly of water.
  • Water is never used up: It gets recycled over and over again, constantly moving between the plants, animals, rivers, and seas on earth’s surface and atmosphere.

Money is a remarkable aspect of human society.

  • Human beings need money to pay for such things as shelter, food, healthcare bills, and a good education.
  • Money is a universally recognized medium of exchange.
  • Money provides freedom.
  • Money empowers dreams.
  • Money enhances the feeling of security.
  • People need to save enough for the future to ensure they will have enough available when they no longer trade their labor for money.

For the independent financial planner, there is no better way to help people understand financial ideas than through the use of stories. Stories require something familiar. It is hard to find anything more universally familiar and appreciated than water.

Footnotes:

  1. https://kidadl.com/funnies/puns/water-puns-and-jokes-that-will-have-you-crying-with-laughter.
  2. Holy Bible, New International Version®, NIV® Copyright ©1973, 1978, 1984, 2011 by Biblica, Inc.®
  3. https://gpm.nasa.gov/education/water-cycle#:~:text=The%20water%20cycle%20describes%20how,to%20the%20surface%20as%20precipitation.
  4. https://www.uscurrency.gov/life-cycle/data/life-span.
  5. https://www.uscurrency.gov/life-cycle/data/circulation.
  6. https://www.mymoneycoach.ca/blog/how-to-stop-spending-money-7-tips.html.
  7. Ibid.
  8. https://water.usgs.gov/edu/activity-drip.html.
  9. https://www.cnbc.com/select/ways-people-waste-money/.
  10. https://www.usatoday.com/story/money/2019/05/07/americans-spend-thousands-on-nonessentials/39450207/.
  11. https://www.cdc.gov/healthywater/emergency/extreme-weather/floods-standingwater.html.
  12. https://www.investopedia.com/terms/i/idlefunds.asp#:~:text=Idle%20funds%20refer%20to%20money,participating%20in%20the%20economic%20markets.
  13. “The Soul of Money: Transforming Your Relationship with Money and Life” by Lynne Twist, W. W. Norton & Company; Reprint edition (March 14, 2017).

Insured: Addie Joss (A Fictional Account)

“I wondered why the baseball was getting bigger. Then it hit me.” —Anonymous

On Tuesday, July 19, 2022, Major League Baseball’s All-Star Game will be played at Dodger Stadium.

Question: When did this revered institution originate?

Once upon a time there was a professional baseball team from Cleveland, OH, named the Cleveland Naps. The team existed for twelve seasons (1903 to 1914).

The Naps played their home games at League Park situated at the northeast corner of E. 66th Street and Lexington Avenue. Babe Ruth hit his 500th career home run playing for the New York Yankees in Cleveland’s League Park on Aug. 11, 1929.1

On October 2, 1908, something magical happened at League Park.

The weather that day was standard fare for October in Cleveland and perfect for baseball. The high temperature that day was 51° and the low was 42°. (The record high temperature for October 2 in Cleveland was 86° set in 1919. The record low temperature for Cleveland on October 2 was 32° set in 1975.)2

A crowd of 10,598 came to watch baseball.

With a week left in the season, three American League teams—The Detroit Tigers, Chicago White Sox, and the Cleveland Naps—were engaged in a race for the postseason. These three teams were separated by just one-and-a-half games. “Three games remained in the regular season and the Naps were a half-game behind the Detroit Tigers as they headed into a match-up against the Chicago White Sox, who trailed the Naps by one game.”3

On that day, the fans were treated to a pitcher’s duel. Addie Joss pitched for the Naps and Ed Walsh pitched for the White Sox. (Both pitchers would end up in the Baseball Hall of Fame.) The Naps recorded four hits and they were struck out by Walsh 15 times. Unfortunately for the Tigers, Joss recorded a perfect game, only the second in American League history. He accomplished the feat with just 74 pitches, the lowest known pitch count ever achieved in a perfect game.

By turning in what was probably the most clutch performance by a pitcher in baseball history, Addie Joss became one of the first “fan-favorites” in baseball’s fan-captivating culture.

Point: Sometimes things happen as idyllically perfect as things typically are in storybooks.

Tragedy Yet to Come
Addie Joss was a fantastic pitcher.

  • His career ERA was an incredible 1.88 and ranks second among all pitchers ever. (Ed Walsh, Joss’ opponent on October 2, 1908, holds the MLB earned run average record with 1.816.)
  • Joss gave up a meager 16 home runs for his entire career.
  • In his abbreviated nine-year career Joss amassed 160 wins, 46 by shutout.
  • Along the way he produced two no-hitters, (one of them the perfect game described above) and seven one-hitters.

On April 3, 1911, while the Cleveland Naps took the field for warm-ups before a scheduled exhibition game against the Chattanooga Lookouts, Addie Joss trotted across the field to catch up with an old friend of his, Chattanooga shortstop Rudy Hulswitt. While they were talking, Joss fainted, and he was later sent to his doctor in Toledo. Eleven days later, professional baseball players and fans awoke to the news that Joss had died from tubercular meningitis. He had turned 31 years old just two days before.

Point: Every real story includes hardship, and its repercussions.

The Start of Something Huge
The first Major League Baseball All-Star Game was held on July 6, 1933, at Comiskey Park in Chicago as part of the 1933 World’s Fair. The All-Star Game was planned to be a one-time event. It turned into an annual milestone.

More than two decades before that first interleague All-Star game, the elite of the American League’s players gathered at Cleveland’s League Park. They played the Cleveland Naps on July 24, 1911, to celebrate the career of Addie Joss and to honor his memory.

The Back Story:
Addie Joss’s funeral took place on April 17 in Toledo. His team, the Naps, were scheduled to play the Detroit Tigers that day. Joss’ teammates declared their intention to strike if the game that day was not postponed. American League President Ban Johnson canceled the game. All twenty-five members of the Naps, as well as a handful of Tiger players, arrived in Toledo for the funeral of Adrian C. Joss.

Hundreds of other people also attended. Addie was loved by one and all. In attendance were Joss’ wife and two small children. Now penniless.

Ballplayer-turned-evangelist, Billy Sunday, preached the funeral sermon. “Joss tried hard to strike out death, and it seemed for a time as though he would win,” Sunday proclaimed. “The bases were full. The score was a tie, with two outs. Thousands, yes, millions in a nation’s grandstands and bleachers sat breathless watching the conflict. The great twirler stood erect in the box. Death walked to the plate.”4

The Naps’ owner, Charles Sommers, imagined his team playing an Addie Joss Benefit Game. The All-Star game was the brainchild of Cleveland management and Vice-President E. S. Barnard. His idea took shape. On July 24, a day off for all teams in the American League, Joss’ teammates faced an all-star team at League Park. Future National Baseball Hall of Fame inductees, Cy Young and Nap Lajoie, played for Cleveland. The all-star team included both Walter Johnson and Ty Cobb, who would also become National Baseball Hall of Fame inductees. The Naps lost by a score of 5-3.

Cy Young once described Addie Joss this way: “He was a great man. I feel sure he never made an enemy.”5

Walter Johnson said, “I’ll do anything they want for Addie Joss’ family.”6

Joss’ widow: “Addie had real friends, even amongst his bitterest rivals on the ball field.”7

Jimmy McAleer, manager of the Washington Senators, gladly volunteered to lead the all-star team on the field as the skipper. He said of Joss, “The memory of Addie Joss is sacred to everyone with whom he ever came in contact. The man never wore a uniform who was a greater credit to the sport than he.”8

A total of 15,272 fans turned out to watch the quick one-hour and thirty-two-minute game. That is almost 50 percent more people than saw Joss pitch the perfect game back on October 2, 1908.

The Addie Joss Benefit Game in 1911 raised $12,914 for the Joss family. (The equivalent of over $380,000 in current dollars.)

This was before GoFundMe, and Crowdsourcing.

Point: It is not unusual for people to come together to do something wonderful for a person in need, especially if that person is well-liked.

Great, But Can You Spot What’s Missing?
The Addie Joss Benefit Game did not take place prior to the invention of life insurance. Perhaps he never met anyone in the business of life insurance. He may not have purchased anything near $12,914 in death benefit, even if an agent had approached him. Who knows? An underwriter may have declined him.

Given what we know about the man, Addie Joss most likely loved his family intensely. He certainly would have agreed to buy life insurance if he understood what it could mean for his family should he die.

It is unlikely that Joss would have expected a game to be played in his honor and the ticket proceeds given to his wife and kids.

Question: Are people in your orbit counting on something like GoFundMe to attract caring people to meet the financial needs of their surviving family members should they die unexpectedly?

Summary:
Baseball fans love to see some of the best players gather for the annual All-Star game. Most people do not know the back story. If you are an independent financial professional, the Addie Joss story may help you illustrate the wonder of life insurance to the people in your life.

GoFundMe and Crowdsourcing are getting bigger and bigger. Hopefully it has hit you that they are poor substitutes for life insurance.

Footnotes:

  1. https://www.sportsengine.com/article/baseball/babe-ruth-becomes-1st-hit-500-mlb-homers#:~:text=August%2011%2C%201929,-Sport%3A%20Baseball&text=Babe%20Ruth%20hit%20his%20500th,11%2C%201929.
  2. https://www.weather.gov/cle/CLERecords
  3. “You Could Look It Up: No Hits for You”. Steven Goldman, September 8, 2006. Baseball Prospectus.
  4. https://ourgame.mlblogs.com/clevelands-first-all-star-game-a1205232151e
  5. https://bleacherreport.com/articles/71012-a-true-fan-favorite-the-story-of-addie-joss
  6. https://sabr.org/journal/article/addie-joss-day-an-all-star-celebration
  7. Ibid.
  8. https://www.baseball-almanac.com/tsn/addie_joss_benefit_game.shtml

Succession Planning Is Sweeter Than Syrup

The Past, the Present, and the Future walked into a bar. It was tense.

If you laughed at that, you might just be a geek. Like me.

Actually, I am a geek on many levels. I study nature. I devour books on theology, the history of inventions, and enjoy learning about scientific discoveries. But it gets worse. I am an enthusiast for life insurance.

I also like learning about things I will likely never do.

It was therefore pure bliss when, recently, while reading about the maple syrup industry, I coincidentally found the obvious need for life insurance, estate planning, and succession planning!

The Story (Abridged) of Maple Syrup Production
In 2014 the author Douglas Whynott published “The Sugar Season: A Year in the Life of Maple Syrup, and One Family’s Quest for the Sweet Harvest.” It is an excellent book!

Whynott explains that the process of making maple syrup is elemental. All it takes are trees and sap, fire and water, wood, steam, and smoke.

Maple trees react to temperature changes in late winter by heaving sap up their trunks. Maple sap is xylem sap, and it contains small quantities of sugar. In late winter, the tree’s root system draws nutrients such as dissolved minerals from the soil. This becomes the xylem sap that carries these nutrients from the soil to the leaves. When it is absorbed by the leaves the water is lost through transpiration.

For sap to flow, temperatures must fall below freezing (usually at night) and rise above freezing (usually during the day). The season typically lasts 4-6 weeks and ends when temperatures remain above freezing and buds begin to break dormancy.

Late winter’s sunny days in New England and Eastern Canada cause the temperature to rise from below freezing to above 40-50 degrees Fahrenheit. This sunlight-induced temperature change causes the trees to be “shocked.” The extent of the shock is directly proportional to the rate of the sap’s flow. The best results usually follow long, cold winters.

The process of making maple syrup begins by tapping the trees. In late January, February, and as late as March, workers drill holes, drive spouts, and then either affix buckets (traditional) or insert tubes (modern). Drill bits used in tapping are quarter inch in diameter. The spouts are tapped into the hole. Three taps are just right. Four is too many. The tubes are eighteen inches long and referred to as a “dropline.”

A single tap hole could ideally yield 40+ gallons of sap in a season; however, a more typical average is between 5-15 gallons. Sugar content of the sap varies widely among individual trees, but generally averages two to three percent. A hydrometer is used to measure sugar content.

It takes approximately 40 gallons of sap to yield one gallon (assuming 2.5 percent sugar) of maple syrup. Sugar maple (Acer saccharum) is the primary species targeted. Maple syrup is sold by the pound on the bulk market, rather than by the gallon. There are eleven pounds in a gallon.

On March 2, 2015, the USDA published the United States Standards for Grades of maple syrup. Section 52.5964 addressed the importance of Color in grading syrup. Maple Syrup can only be one of four grades—Golden, Amber, Dark or Very Dark. The color is defined as “the percent of light transmission through the syrup as measured with a spectrophotometer using matched square optical cells having a 10mm light path at a wavelength of 560 nm. The color value is expressed as percent of light transmission as compared to analytical reagent glycerol fixed at 100 percent. Percent transmission is symbolized by ‘%Tc.’”1

  • Golden—is the lightest color and is usually associated with the first sap flows during the sugaring season and offers a delicate flavor and lightest color. It often has hints of vanilla.
  • Amber—is slightly darker than Golden with a light amber color and a rich, full-bodied maple taste of medium intensity.
  • Dark—has a robust flavor that is more pronounced than Amber syrup and has a dark amber color.
  • Very Dark—is the darkest of all the grades and has a very intense maple flavor. Consumers like the strong flavors of maple associated with this grade.

Syrup Gets in the Blood
Native Americans have a long history of producing maple sugar, a tradition which was adopted by early settlers. Over the last two hundred years maple syrup has become big business. In 2021, the United States produced 3.42 million gallons of maple syrup. In 2020 (excluding Vermont) there were 7,360,000 trees tapped in the United States. Vermont alone had 6,150,000.2

In 2021 these five states led the country in maple syrup production:3

  • Vermont: 5,900,000 taps
  • New York: 2,900,000 taps
  • Maine: 1,890,000 taps
  • Pennsylvania: 715,000 taps
  • New Hampshire: 530,000 taps

In 2017 the United States was home to an estimated 9,492 maple farms.4 Like those in the other leading states, most VT producers are small, independent makers with an average of 3,451 taps that produce 1,221 gallons of syrup.5

Key players in the market as identified by Market Research Future in their Global Maple Syrup Market Research Report include multigenerational family farms working with local sugar makers to procure maple syrup.6

Tip: According to Manta.com (a great prospecting tool) there are “488 results matching ‘Maple Syrup Manufacturers’ near Burlington, Vermont.”

Children on these family farms grow up tapping trees in knee-deep snow, chopping wood for the fires, tending to the tasks of boiling, and bottling the syrup, and greeting customers. They spend their youth in and among the trees and absorb the magic of steam curling over the roof, sparks rising into the night sky, the scent of wood, the sweetness of the sap, and the character of a family farm.

In his book, Douglas Whynot chronicles one particular family with the surname Bascom.

Succession Planning Gets Sticky
The Bascom family has been producing maple syrup since 1853. Over seven generations propelled Bascom Maple Farms to current day. These multiple generations of people all had deep affection for maple syrup. James Bascom was a clever farmer who made a light-colored maple syrup in the 1800s. His son Eric attended theological school in Maine, where he met his wife, Elda Frost. After they married, they gave birth to a son named Ken. Both Eric and Elda were ordained ministers. In the late 1920s Eric bought Stone House Farm on Mount Kingsbury near Acworth, New Hampshire. The purchase price was $2,500, and Eric paid $30 per month to the widow who owned it.

Eric ministered to a church in Canterbury until the Great Depression made it difficult for congregations to afford ministers. That is when he turned to full-time farming. At first, Eric raised chickens, grew potatoes, and started a herd of dairy cattle. In addition, he tapped maple trees. Eric’s son Ken was thirteen when the family moved onto the farm permanently.

In 1942 the Bascoms made 600 gallons of syrup. Ken bought the farm from his dad in 1950 for $25,000. Eric and Elda returned to ministry. Ken and his wife Ruth built a new house on the farm and named it “Happiness Lodge.” He began marketing “Happiness Lodge Maple Products.”

Four children came along: Bruce, Nancy, Brad, and Judy. Bruce, the oldest, had a bad stutter growing up. This defined his childhood and resulted in a lack of confidence. He worked constantly beside his dad. “Ken would stand in front of Bruce waiting for him to get the words out and sometimes walk away before he did.”7 Bruce remembers his childhood as a time when he stood in the shadows trying to get out a complete sentence.

Ken was a man who yelled a lot, fired people often and quickly, was generally a tyrant to work for, and had no patience for managing people. Ken and Bruce fought. And then fought some more.

“In 1979 they drew up a partnership agreement by which Ken would sell the business to Bruce in 1989, under a financing agreement with interest.”8 While Ken focused on production, Bruce paid attention to profit. He developed great business acumen and his confidence grew.
Back in 1954, Ken Bascom hung 3,900 buckets and made 825 gallons of syrup. That grew to 6,900 buckets and 2,090 gallons in 1964. By the year 2000, the Bascoms produced 11,212 gallons of syrup from 35,000 taps.

Morten Bennedsen is professor of family enterprise at INSEAD and the academic director of the Wendel International Centre for Family Enterprise. He wrote, “Too many business successions happen by heart attack. If you don’t plan and if the founder doesn’t want to speak about these things, ultimately nature will make the transition, and in the worst possible way.”9

In 2005 Ken Bascom was diagnosed with stomach cancer. Before he died, his brother Paul asked him what it had been like to work all these years with Bruce. He said, “Have you ever been on a runaway horse?”10 Bascom Maple Farms now had one owner (Bruce), and he had become a force in the Maple Syrup Industry.

Bruce Bascom turned 60 in 2010. That year he expanded his operations by adding a huge new building. The cooler alone (the basement) was 100 feet wide and 210 feet long and contained 294,000-cubic-feet of refrigeration space, enough to hold 8 million pounds of syrup. He said, “My retirement will be spent paying for this new building.” Then he added, “The future is my biggest problem.”11

He did not have offspring coming into the business, had no successor in the business, and had no plan for what would happen to the business if he died.

Bruce admitted that he had grown the business beyond his ability to manage it. He did not believe he could find the necessary tiers of people who would be motivated enough to make everything run smoothly.

“If I die, no telling what will happen. They’ll (his family) have to sell off parts of it.”12

Attention Independent Financial Professionals
Family businesses are hives of underlying, unspoken emotionality. Business decisions are not just business decisions but hopes and dreams of a legacy generation. Difficult things go on in family businesses like coercion, harassment, and manipulation. They are a hot mess filled with both promise and a sense of entitlement.

Every family business’s succession plan reflects the uniqueness of the family dynamics. Not every business owner wants to transition their business in the same way or at the same time. Some owners want to exit completely at a certain date. Others want to stay involved to a lesser degree over time but never exit entirely. These issues, as well as many others, must be considered.

Point: Without your help family businesses may not have a plan or achieve successful transition from one generation to the next.

With your assistance, families can address succession planning with reasonable care. The topics to discuss include:

  • Anticipated timing
  • Successor(s) identification
  • Process for valuing the business
  • Clear steps for implementing the plan
  • Decisions regarding funding
  • A plan for communicating with employees, customers, and other family
  • Tax planning
  • Contingency planning

Succession planning actually has two parts—the legal plan (written by an attorney) and the funding. One popular funding source is to use a life insurance policy to fund the transfer.

Tip: Here are some important questions to ask when meeting with the owners of a family business:

  • Do you have a written succession plan in place?
  • If yes: How is it funded? If no: Are you content knowing that your family will feud and fight?
  • Wouldn’t you like to know today what will happen to the business if something happens to one of the owners?
  • Are all the children going to be involved with the operation of the business if something happens to you?
  • Does it make sense to transfer business ownership to children with no interest in the business?
  • Do you want to treat your children equally or equitably?

Summary
The primary purpose of succession planning is to maintain ownership and operations within the family and the management/ownership team. Without a proper plan there is no way to prevent interference from the exiting owner’s other family members. Planning, preparation, and funding are needed in order to provide liquidity to pay estate taxes/retirement and avoid disputes with the exiting owner’s family regarding succession and value.

With your help, family businesses can achieve a smooth transition to the next generation.

The past, the present, and the future walk into your office. They represent three generations of a family business. Are you prepared to help them?

Footnotes:

  1. https://www.ams.usda.gov/sites/default/files/media/MapleSyrupStandards. pdf.
  2. https://www.uvm.edu/extension/agriculture/maple-statistics.
  3. https://www.nass.usda.gov/Statistics_by_State/New_England_includes/Publications/Current_News_Release/2021/Northeastern%20Region%202021%20Maple%20Syrup%20Report.pdf.
  4. “2017 Census of Agriculture,” Volume 1, Geographic Area Series, Part 51 (United States Department of Agriculture, National Agricultural Statistics Service, April 2019), https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Volume_1,_Chapter_1_US/usv1.pdf.
  5. Ibid.
  6. “Maple Syrup Market Research Report- Forecast to 2023 | MRFR,” accessed August 23, 2019, https://www.marketresearchfuture.com/reports/maple-syrup-market-4944.
  7. “The Sugar Season: A Year in the Life of Maple Syrup, and One Family’s Quest for the Sweetest Harvest,” by Douglas Whynot, Da Capo Press; Illustrated edition (March 4, 2014), Boston, Massachusetts.
  8. Ibid.
  9. https://www.cnbc.com/2021/11/14/the-real-life-family-business-drama-not-on-hbos-succession.html.
  10. “The Sugar Season,” by Douglas Whynot, page 80.
  11. Ibid. Page 35.
  12. Ibid. Page 120.

Four Wise Words

“Begin where you are and such as you are, without aiming mainly to become of more worth, and with kindness aforethought, go about doing good.” —Henry David Thoreau

“You can’t go back and change the beginning, but you can start where you are and change the ending.”—C.S. Lewis

On a dark and rainy morning in Cincinnati I found myself in heavy traffic heading downtown for an appointment with the owner of an investment company headquartered in my city. I secured an appointment with him on a thinly stretched referral. Everything rode on the back of the first few seconds when we shook hands. I had rehearsed what I was going to say and how I was going to say it.

Suddenly, on the right berm, there appeared a woman who stood beside her car looking at a flat rear driver’s side tire. She held an umbrella over her head, but to no avail since the sweep of passing cars caused moisture to swirl around her.

Looking at the time, and knowing the importance of my imminent appointment, I easily rationalized not stopping to help. On the other hand, “Look at her,” I thought, “She is in trouble.” I pulled over, urged her back into the car, removed the spare tire from the trunk, jacked up the car, replaced the flat, and had her going in less than 20 minutes.

My white shirt wasn’t. My tie looked like a washrag. I was now going to be late for the appointment.

The woman expressed sincere appreciation and we parted. I drove into town, parked the car, stopped into the bathroom off the lobby of a proximate hotel, cleaned the charcoal-colored grease from my hands as much as possible, and headed up the elevator to the prestigious offices of the investment company.

There, at the receptionist desk, sat a woman with a familiar face. It was the very woman whose tire I had changed!

Needless to say, upon hearing about the encounter she and I had that morning, this successful man in the corner office cleared his calendar so we could meet right then and there.

Then and There
“Here and now.” We throw these words about like toast crumbs we whisk from the breakfast table. But should we?

Look again at the two quotes above. “Begin where you are.” “Start where you are.” These are formidable words! All independent financial professionals will do well to carefully consider these four words, and then incorporate them into the advice that their clients need.

Let’s review these four words, Begin Where You Are, one at a time.

Begin:
The Cambridge Dictionary1 defines begin this way:

  • “To start to happen or exist.”
  • “To start to do something.”
  • “To do or be the first part of something that continues; start.”

When we are pressed into writing something—an essay, a letter, a note—the blank page before us is intimidating.

When we are working with people who have experienced bankruptcy, mounds of debt, disastrous investment results, reduction in income, or other financial woes and obstacles, we are likely to hear them say, “I don’t know where to begin.” At that moment all of their financial future rises up like so much looming blank paper.

Application(s):

  • College Funding:
    • Question: “My children are now ages ten, eight, and six. How will I ever afford to send them to college?”
    • Answer: “The best advice I can give you is to begin now, to start a college savings fund, to make regular deposits, perhaps even by payroll deduction.”
  • Retirement Planning:
    • Question: “My wife and I are ages 54 and 53. We have exactly $49,000 saved for retirement.”
    • Answer: “The best advice I can give you is to begin saving more now, to make sacrificial investments each month, and to consider accepting more risk now because time is limited.”
  • Business Continuation Planning:
    • Question: “We have a Buy-Sell Agreement that states that when one of us dies or retires, that the Buy-Sell is triggered. The problem is my business partner is now 59 and looking to retire in five to six years. I have nothing set aside for the buy-out!”
    • Answer: “The best advice I can give you is to begin now, to start funding a permanent life insurance policy to accomplish both the living buy-out, and to prepare for the event that a buy-out becomes necessary due to death.”

Where:
Every person we meet is somewhere in their life “between the forceps and the stone.”2 They are at a place in their life that they reached through either effort, or neglect, alone or with assistance, on purpose or accidentally.

The word “where” denotes location. All clients should be asked to consider the “where” of their lives. These are helpful questions:

  1. You are somewhere right now. Can you describe it for me?
  2. Notice the reality of the space around you. What is happening?
  3. How did you get here?
  4. Is there a purpose for you being right here?

When we encounter people for the first time, we see only the snapshot of their lives. Their habits and routines, beliefs, principles, preferences, prejudices, and practicalities must be properly assessed if we are to help them succeed financially. We discover what we need to know by asking questions.

Application(s):

  • Estate Planning:
    • Question: “We bought our lake home for vacations and as a family retreat, but what will happen to it when we die?”
    • Answer: “Well, our planning must begin with questions:
      • Who actually wants it?
      • Who’ll pay for upkeep?
      • What’s the best form of ownership?
      • What’s the end game?”
  • Longevity Planning:
    • Question: “If people are living longer, what does that mean for our retirement income needs?
    • Answer: “Well, our planning must begin with questions:
      • What does financial stability in retirement look like to you?
      • What do you wish you could afford to do in retirement? Do you have a plan to meet that goal?
      • How many months or years’ worth of your income have you saved?
      • How many years beyond retirement age should you plan for?”

You:
The common denominator for nearly all human beings is trying hard all our lives to be other people when in fact we were designed to be ourselves. This is particularly impactful in financial planning.

Founded by Bola Sokunbi, Clever Girl Finance® is one of the largest personal finance media/education platforms for women in the U.S. and enjoys the reputation of being one of the best finance websites for women. I discovered a helpful article there regarding the dangers of comparing ourselves with others.

“Knowing how well we are doing compared to other people isn’t helpful at all.”3

Why?

  1. Enough is never enough. “If we see someone who has something better, suddenly the things we have just don’t seem good enough. The problem with this cycle is that it doesn’t end. When we compare, we are forever searching for more.”4 What each of us needs and wants is peculiar to us and we need to block the temptation to compare.
  2. Comparing our financial wellbeing with others will only make us proud or unhappy. “Comparison is a liar. It tells you that you will be happy if you compare and then get what others have. But often, it’s the opposite. The higher we climb on the comparison ladder, the unhappier we may feel.”5
  3. No one anywhere, at any time, is exactly like you. “The idea of wanting everything that others have, or more than they have, is actually pretty silly. Why? Because everyone is different! You can’t compare what isn’t the same.”6

Application(s):

  • Legacy Planning:
    • Question: “We know people who are leaving their children and grandchildren significant wealth. How can we do that?”
    • Answer: “Are your children expecting something you cannot provide?” A better legacy than leaving loads of money is passing on the attitude of gratitude. Teach your children to be grateful for what they have. Then, anything you bequeath to them will be a surprise.
  • Real Estate Investments:
    • Question: “How much home can we afford?”
    • Answer: “Whose needs are you trying to satisfy? Be excited about your own life. It’s difficult to purchase the right real estate for your own life when you are looking at someone else’s life and lifestyle.”

Are:
The word “are” places us in time.

  • We were not always in existence.
  • We have a past. We will have a future. We are here now.
  • We are right here where time touches our lives.
  • All our living takes place in the present.
  • What will we do with the now?

Every person’s financial present has echoes of a financial past and will prove a precursor to a financial future. Past decisions led to indebtedness, and prior lack of self-discipline led to the shortage of current liquid funds, savings, and/or investments. Failure to apply sound financial principles in the present will cause a similar ripple effect in the future.

Application(s):

  • A full financial review requires asking the right questions,7 like these:
    • What are some of your proudest financial accomplishments so far?
    • How did you get where you are today?
    • What plans do you have for your money?
    • What would you like to accomplish?
    • Do you feel like you are on track for where you want to be financially?
    • How do you feel about your spending habits? Do you maintain a budget?
    • Why are you here? Why is that important to you?
    • Who are you financially responsible for?
    • What is really important to you that we didn’t discuss today?

Summary
For independent financial professionals (IFPs), nothing can be more important than helping clients grasp the context of their lives, clearly ascertain the trajectories of their financial habits, and make present-day adjustments to help them accomplish their dreams or get back on track. Perhaps there is no better tool than these four simple words: “Begin where you are.”

Caution: In order to be effective, the IFP must see the client clearly, individually, and not impose assumptions, apply techniques, or suggest action steps incongruent with who the client truly is.

As C.S. Lewis wrote, “Take care. It is so easy to break eggs without making omelets.”8

Footnotes:

  1. https://dictionary.cambridge.org/us/dictionary/english/begin.
  2. Joni Mitchell, © March 19, 1976; Crazy Crow Music (as “Traveler”), renewed November 5, 1976, with additional lyrics (as “Hejira”).
  3. https://www.clevergirlfinance.com/about/.
  4. https://www.clevergirlfinance.com/blog/never-compare-yourself-to-others/#.
  5. Ibid.
  6. Ibid.
  7. https://emoneyadvisor.com/blog/the-key-to-deeper-relationships-ask-the-right-questions-to-best-leverage-financial-planning-technology/.
  8. Letters to Malcolm: Chiefly on Prayer, C.S. Lewis, Mariner Books; First edition (November 4, 2002).

Taking Flight

“One of the greatest inventions of the 20th century—indeed, one of the landmark inventions in the history of the human race—was the work of a couple of young men who had never gone to college and who were just bicycle mechanics in Dayton, Ohio.” —Thomas Sowell, describing the first successful manned flight.

Beginning in 1899, Wilbur and Orville Wright scientifically experimented with the concepts of flight. Their glider experiments on the Outer Banks of North Carolina led them to discover the means of sustained lift, and more importantly, the techniques required to control an aircraft while in flight.

On December 17, 1903, they signaled the volunteers from the nearby lifesaving station that they were about to try again. Because their cruising speed was only 30-35 mph, the 27-mph headwind slowed their predicted groundspeed to a crawl. They proceeded anyway. Orville positioned himself laterally and tested the controls. To operate the glider, he had a stick that moved the horizontal elevator (which controlled climb and descent), the cradle that he swung with his hips (which warped the wings and swung the vertical tails), and a lever (that controlled the gas flow and airspeed recorder). It took all of Orville’s dexterity and finesse to handle the aircraft.

At 10:35 AM he released the restraining wire causing the counterweight to drop. Propelled into motion the glider moved down the rail as Wilbur, running alongside, steadied the wings. After liftoff, the craft pitched up and down, but Orville kept it aloft until it hit the sand about 120 feet from where it left the ground.

Wilbur and Orville Wright had just become the first true airplane pilots. Their first flight lasted just 12 seconds and traveled only 120 feet, but it proved that human flight was possible. The world had changed.

On 9/11, Again, the World Changed
It is impossible to separate airplanes from the sadness, shock, and horror of the September 11 terrorist attacks. The next day the front pages of major U.S. newspapers bore headlines like “ACT OF WAR” and “AMERICA’S DARKEST DAY,” and featured images of jetliners and their shadows just prior to slamming into the twin towers of the World Trade Center.

Manned flight was never intended for such barbarity.

In the summer of 1948, author E.B. White wrote “Here Is New York.” The longtime essayist for The New Yorker shared a fond glance back at the city of his youth. It is a tribute to the sheer implausibility of the fast-paced city, the tangled infrastructure, the teeming humanity, the latticework of neighborhoods, and the dearth of air and light.

The essay prophetically included this eerie foreboding of the plausibility of 9/11:

“The subtlest change in New York is something people don’t speak much about but that is in everyone’s mind. The city, for the first time in its long history, is destructible. A single flight of planes no bigger than a wedge of geese can quickly end this island fantasy, burn the towers, crumble the bridges, turn the underground passages into lethal chambers, cremate the millions. The intimation of mortality is part of New York now: in the sound of jets overhead, in the black headlines of the latest edition.”1

The sound of jets overhead.

Charles Bukowski once wrote, “I heard an airplane passing overhead. I wished I was on it.”

He would not have said that on 9/11.

On 9/12, Their Stories Moved Us All
My wife and I recently went to the theater to see a remarkable musical.

The venue? The 2,300-seat Mead Theatre in Dayton, Ohio’s beautiful Schuster Center. Architect Cesar Pelli’s design invokes the feeling of an evening under the stars. The cool blues and orange reds of the theatre’s interior reach all the way to the domed ceiling, where concentric circles of fiber optic lights depict the Dayton sky as it appeared on the eve of the Wright Brothers’ first flight, which took place on December 17, 1903. It is 93 feet from the floor to the starfield. Every seat is ideal in the theater’s intimate setting, since even the last row is a mere 120 feet from the stage. Why? Because 120 feet is approximately the distance the Wright Brothers flew that day in Kitty Hawk, N.C.

The musical? Broadway’s Come From Away. This breathtaking musical was written by Tony® nominees Irene Sankoff and David Hein. The musical is based on the true story of when the community of Gander, Newfoundland, played host to the world. What started as an average day in a small town turned into an international sleep-over when 38 planes, carrying more than 6,700 people from across the globe, were diverted to Gander’s air strip on September 11, 2001, when the U.S. closed its airspace.

The production presents the inspiring generosity, kindness, and hospitality of the townspeople of Gander as they sprang to action and prepared to house, feed, clothe, and comfort the nearly 7,000 passengers. Watching the musical one is reminded of the precious capacity for human kindness even in the darkest of times. The musical’s redemptive story reveals again the triumph of love over chaos.

Taking Financial Flight
The International Monetary Fund published an abstract2 in which it defined many different types of financial crisis. Here are the main topics:

  • Currency Crises;
  • Foreign and Domestic Debt Crises;
  • Banking Crises;
  • House Price Busts;
  • Credit Crunches; and,
  • Asset Price Busts.

These macroeconomic disasters hold catastrophic implications for families, individuals, and businesses. These forces create chaos for people trying to provide for their loved ones.
We use the term “stock market crash” to describe “a sudden dramatic decline of stock prices across a major cross-section of a stock market, resulting in a significant loss of paper wealth.”3 We know the impact on individuals and families after such events as the 1929 Great Depression, Black Monday of 1987, the 2001 dotcom bubble burst, the 2008 financial crisis, and the 2020 COVID-19 pandemic market adjustment.

The word “bankrupt” comes from the Italian words banca rotta, meaning “broken bench.” “In Italy, money dealers worked from benches or tables. If a money dealer ran out of money, his bench or table was broken in half, and he was out of business.”4 How many small businesses went bankrupt during the economic shutdowns of recent years? “Annual bankruptcy filings in calendar year 2021 totaled 413,616, compared with 544,463 cases in 2020, according to statistics released by the Administrative Office of the U.S. Courts.”5 Nearly one million small businesses went bankrupt in two years!

Inflation is a beautiful thing when applied to balloons. Not such a good thing when applied to the cost of goods and services. The U.S. Bureau of Labor Statistics publishes the U.S. Consumer Price Index, a survey of a variety of goods, and it gets reported in the news. “The all-items-index continued to accelerate, rising 8.5 percent for the 12 months ending March 2022, the largest 12-month increase since the period ending December 1981.”6 Inflation erodes money’s purchasing power. We all have to spend more to get the same things.

Question: Against these powerful macroeconomic headwinds (stock market volatility, business closures, inflation, etc.) how can an independent financial professional direct and help protect the financial survival of their clients?

The actual Wright Brothers Memorial in Kitty Hawk, North Carolina, sits atop Kill Devil Hill. Dedicated in 1932, the memorial is a triangular pylon 60 feet high made of grey granite. Its sides are ornamented with outspread wings in bas-relief, giving the impression of a gigantic bird about to take flight. A set of stairs leads to the top of the shaft, and an observation platform offers a splendid view of the surrounding area, including dunes and Albemarle Sound. The monument’s inscription reads:

“In commemoration of the conquest of the air by the brothers Wilbur and Orville Wright conceived by Genius, achieved by Dauntless Resolution and Unconquerable Faith.”7

Note the words “conceived” and “achieved.”

Financial flight starts when people rightly conceive (form an idea, plan, and/or imagine). The role of the independent financial professional (IFP) begins by helping their clients grasp ideas like risk, accumulation, tax-deferral, opportunity cost, volatility, and compound interest. Next, the IFP helps clients make plans for saving, investing, insuring, and forming legal pathways for the future. Then the IFP inspires clients to imagine their children securing higher education, themselves enjoying a comfortable retirement, and their families surviving financial disruption pursuant to unexpected death, disability, or job loss.

Financial flight is secured when IFPs help their clients achieve freedom from the gravitational pull of debt, gain the skills of navigating competing demands on their money, and develop the discipline required for accumulating and protecting wealth.

People everywhere are making financial decisions every day. They are attempting to conquer the air. Having the will to succeed financially is not enough to actually achieve success. They need the help of an independent financial professional!

“It is possible to fly without motors, but not without knowledge and skill.”—Wilbur Wright

Bring your knowledge and skill to your clients. With your guidance (genius), they can be inspired to persist with dauntless resolution, and they will be able to weather financial storms with unconquerable faith.

Love can conquer chaos (with your help) and you can send your clients flying.

Footnotes:

  1. “Here Is New York,” E.B. White, NY: Harper & Brothers, 1949.
  2. https://www.imf.org/external/pubs/ft/wp/2013/wp1328.pdf.
  3. https://en.wikipedia.org/wiki/Stock_market_crash.
  4. https://www.lexology.com/library/detail.
  5. https://www.uscourts.gov/news/2022/02/04/bankruptcy-filings-drop-24-percent.
  6. https://www.bls.gov/news.release/cpi.
  7. https://www.ncpedia.org/wright-brothers-national-memorial.

The World Is Watching

On December 14, 2021, a dear man passed away. You would not have heard of him. His obituary says, “He had a long and wonderful life.”1 He was 85 years old when he passed.

I first met Joe (Pete) Eastridge in 2012 at the dump in Union County, Tennessee. That was where, at age 76, he was working. The dump is open Monday, Wednesday, Friday, and Saturday (just in the morning). Residents drive up and unload larger items into huge dumpsters, or regular garbage into the compactor. Pete helped guide people’s decisions and operated the compactor.

“Hi, I am Dave. My wife and I just moved into the area.”

“I’m Joe Eastridge, but friends call me ‘Pete.’”

“Nice to meet you. Can I call you Pete?”

“Reckon so. Just about everybody has since grandpa gave me that name. I have an older brother named Bill. Grandpa took to calling him ‘Trigger Bill.’ When I came along, I was given the name Joe, but he started calling me ‘Pistol Pete’ and so I have been Pete ever since.”

Over the next several years, Pete and I enjoyed numerous delightful conversations. I learned how to tell when his back was bothering him, even if he made every attempt to hide the pain.
The Wednesday after Labor Day weekend, 2014, I had a full load because my wife and I had hosted numerous guests for four days. When I pulled into the lot, Pete was not at all himself. I had to ask.

“What’s going on, my friend?”

“Something terrible happened two days ago, in my yard. A man died.”

“What? Oh no! How? What happened?”

“He was there trimming my trees. I have six that needed branches cut. He was on the last tree and decided not to use his rope to tie in. He fell about 60 feet and landed on his head. I watched him die.”

My mind was racing. A tree trimmer? We had a strong storm that year, back on June 15. A microburst. It took down two large white oaks on our property. Snapped them in half about 15 feet high on their 20” diameter trunks. The man we hired to clean up the fallen trees and knock down the remaining trunks was Jimmy Brantley. Thirty-seven years old, strong as an oak tree himself, Jimmy truly impressed us. He worked hard, was extremely skilled, and exuded kindness.

“Pete, what was the man’s name?”

“Jimmy Brantley.”

Now I was grieving twice over.

Jimmy died on September 2, 2014. His obituary says he “passed away peacefully in the arms of our Lord.”2 Well, maybe so. He certainly died dramatically, but I pray he was caught in the arms of God.

A Guess Ventured
These two men, Pete and Jimmy, were of modest means. They had that in common. They shared something else: They were genuinely decent human beings. They worked hard. They made a difference.

My guess is, neither one of them had ever been given sound financial advice from an independent financial advisor. Did someone help Pete plan for retirement? Doubtful. Why was he still working, back pain and all, at 76? Did Jimmy own life insurance? He was engaged to be married when he died. Did his fiancée, Julie, receive death benefits to help her remember his enduring love for her? No.

Independent financial professionals are busy chasing the affluent market and the large sale and staying focused on managing assets.

Lessons from Ukraine
In 2018 I began traveling regularly to Eastern Europe. This includes four trips to Ukraine so far. I was there most recently in October 2021 for three weeks.

I planned to be in Ukraine this Spring from February 21 to March 11. When things became too dangerous, we switched our in-person seminars to on-line webinars.

On Wednesday, February 23, my team delivered a Webinar on “Emotional Intelligence in Times of Crisis.” There were 114 people, mostly university students, in attendance. The next morning, they all awoke before dawn to air raid sirens and explosions.

Since that fateful day I have been keeping in touch with as many of our Ukrainian friends as can be reached.

Not a single one of these people are wealthy or affluent. None of them wields power, enjoys fame, or has broad influence. Yet, while the world is watching, these very same people are proving to be powerfully inspirational and rich with courage, generosity, and tenacity.

Consider these examples:

  • Rather than flee her country, Oksana decided to stay and serve the people of Irpin. She told me that she had saved up food and water and other provisions to last a few weeks. The day the war began she went to her church where members were preparing a hot meal for the hundreds of people fleeing the shelling. She said, “I just help distribute the food, sit and listen to their stories and ask them if I can pray for them.” On March 8, she was finally forced to flee. One headline that day read: “Russian Troops Pounded the Town of Irpin. Now They’re Moving into Ukrainians’ Homes.”3
  • I met Martha in her hometown of L’viv. She refused to leave her country. Instead, two weeks into the war, she was enormously busy. “Our church is helping internally displaced people and refugees—there is a lot of work to be done. I am emotionally exhausted, but I am also able to interpret for TV journalists, and I am very blessed with that since I love to do it. I do not plan to leave Ukraine before our victory. It will surely come. It is my land, and I will defend it with arms if needed.”
  • Artem is mild mannered and a hard worker. “I took my mother to the West border of Ukraine. Hopefully tomorrow she will go to Germany. I am right now in the Ukrainian army. We are having training sessions now.”
  • Polina translated for one of my seminars in Kyiv. She wrote: “Right now I am in Budapest with my mom and my sisters. Our dad couldn’t cross the border because of the laws that require men to remain in our country. He transports material needed by the army and helps people out of dangerous zones. We are quite worried for him.”

These are the acts of service and selfless attitudes of ordinary people.

Where Are the Powerful?
It may be just my jaundiced view but, in general, I have found few inspiring stories of heroic acts performed by the wealthy and the powerful. (In truth, it was one such man who started the war in Ukraine.)

Meanwhile, the stock markets reflect the news. The fluctuations are like an EKG of how the investors are feeling about their world. Fuel prices soar. Inflation rages. Uncertainty abounds. The wealthy experience the most dramatic reversals of recent gains. Investment advisors are scrambling to find better ways of protecting assets.

Important Questions for the Independent Financial Professional
Who do we look to when we are in a crisis? Your water line breaks. Do you call the owner of the plumbing company? A fire breaks out in your attic. Do you call the mayor? Amazon messes up your order. Do you complain to Jeff Bezos?

If we look to the common person when we are in great need, are we there for them in their need?

Everyday people will always prove to be the ones who right the wrongs of the powerful. They are the ones who pick up the pieces. Should we not be willing to offer them our best?

Application:
A friend and very successful financial advisor once told me, “I just cannot afford the time to meet with, and give advice to, people in the middle-income range.”

Really? We brainstormed, and she found out maybe it comes down to how we view the opportunity. She believed that prospecting for middle class clients was not cost-efficient. What if there was no cost to prospecting?

If an independent financial professional truly believes in the products and services our industry represents, and compassionately sees the needs of the vast middle class, time can be allotted, and the expense justified, by simply leveraging everyday encounters with people of modest means.

It starts by asking a few simple questions:

  • Have you planned for, and are you and your family prepared for, the unexpected?
  • Have you put in place the process to send money ahead into your future?

Examples:

  • An insurance agency utilizes DoorDash® or Uber Eats® to have food brought in when clients come to the office for lunch appointments. The person delivering these meals is of modest means. They are already at the office. “Do you know what we do here? We help people achieve their dreams and stave off financial nightmares.”
  • In an asset management firm, the toner cartridges and printer paper arrive by delivery van. The very person dropping off the package likely needs the services of a financial professional. There is only one way to find out. Ask.
  • In a financial planning office, all the ceiling fixtures needed to be retrofitted with LED lights. The person who came to install them was in the office for several hours. A casual conversation could uncover needs that can be met.
  • All the planners in a financial advisory firm go out to eat at a nearby restaurant. The server is someone they all know by name but know nothing about. It only takes one interested person.
  • The internal computer network of an independent financial services office requires an upgrade. Outside expertise is needed. The woman who brings the needed expertise is in the office for a day and a half. The financial expertise she needs is available, and only needs to be offered.
  • When visiting an important client, the financial advisor strikes up a conversation with the office manager. More important than discussing the news, recent sporting events, or the weather is discovering how he can best be served.

Summary
The marketplace is full of people like Pete and Jimmy. The independent financial professional who wants to make the greatest difference in the world can start by paying attention to the people who make the world go around.

Who is going to be the belt or belt loop to hold them up when they need our products, processes, and expertise? Who will be the real hero?

The world is watching.

Footnotes:

  1. https://www.dignitymemorial.com/obituaries/tazewell-tn/joe-eastridge-10488803.
  2. https://www.cooke-campbellmortuary.com/memorials/james-brantley/1940899/obituary.php.
  3. https://www.buzzfeednews.com/article/christopherm51/ukrainians-fleeing-russian-bombing-irpin.

Worth The Paper

“You can make anything by writing.”—C.S. Lewis

When I began my career in life insurance, I represented a “Northeastern Mutual” as such companies were called back then. Initially, I sold life iInsurance primarily to families. A senior agent in my office told me how to make a favorable impression on my clients such that they would remember me fondly. He said, “Throw out the plastic cover in which the Company issues the policies and buy leather pocket folders instead. Place each policy in the leather folder and present it formally when you deliver the policy.”

This turned out to be something the clients liked, but I doubted that it made all that much difference in our client-agent relationship.

Then something happened years later when I was now in the closely held business market. I sold a $5 million 20-year level term policy to a wealthy client. We agreed to meet so I could deliver the policy. I neglected to wait until more leather folders arrived. I went to the man’s office and handed the policy to the client across his desk. It was not even in a plastic cover. The policy consisted of the front and back paper cover that wrapped the policy pages, and all of it stapled together.

When he closed his fingers over the fold, an errantly raised staple punctured the tip of his forefinger. He said, “ouch,” and dropped the policy on his desk. What he said next convicted me and caused me to blush with shame.

“I am paying $9,000 per year for this insurance. How much does someone have to spend before you are willing to invest in a proper policy wrapper?”

Lesson learned.

Paper
“The visionary starts with a clean sheet of paper and re-imagines the world.”—Malcolm Gladwell

We take many things for granted, including paper.

In the Winter of 1777-78, George Washington’s Continental Army famously suffered serious deprivation in the snows and cold of Valley Forge. Throughout the Spring they resupplied and rebuilt their fighting preparedness. As of June 1778, however, they still lacked one key necessity—paper for their muskets. To achieve readiness ahead of the Battle of Monmouth, army commanders sent fighting men out in search of paper. They found a house where Benjamin Franklin once lived and where there was a printing office. There they found 2,500 undistributed copies of a sermon written by the Reverend Gilbert Tenant, entitled, “Defensive War.” They sent all this paper back to Monmouth for use in plugging the muskets. In the end, the ferocious battle with the British ended in a draw. 1

When I attended Miami University in Oxford, OH, in the late 1970s, a popular major was Pulp and Paper Technology. Ohio was home to numerous paper mills, including several for Mead Corporation, which at the time was one of the largest paper producers in the United States. The Mead Paper Mill in nearby Dayton, OH, was established in 1848.

The first U.S. paper mill was built in Pennsylvania in 1690. Until the mid-1860s American paper mills used the Chinese method of shredding old rags and clothes into individual fibers to make paper.

The paper used to print the original Declaration of Independence was Dutch. The first copies of this quintessential American document bore at least three different Dutch manufacturer watermarks. “The Federalist Papers,” a 1788 collection of essays by Alexander Hamilton, James Madison, and John Jay were printed on English paper.2

The first wood-based paper was not made in the United States until 1863.

Before the 1870s, newspapers were printed on rag paper made of cotton and linen fibers, according to Timothy Hughes Rare and Early Newspapers, a dealer in old newspapers. These materials often originated as discarded clothing. Rags. “Because so much paper was consumed in the printing of newspapers, the latter became known as ‘rags.’”3

Rags to be made into paper were in short supply in the United States during the Civil War. After the Battle of Gettysburg in the Summer of 1863, ragmen came to strip off the blood-soaked uniforms from the fallen to sell to papermakers. “Three ragmen loaded their wagons with the clothing they had stolen and sold it to the Jacob Hauer paper mill on nearby Codorus Creek.”4

The mill found supplies of rags difficult due to the disruption of the war on their supply chain of wandering ragmen (men who gathered rags from people looking to dispose of their worn-out garments). The mill welcomed any and all rags up until the uniforms, bandages, and slings arrived from the Gettysburg Battlefield. “The army sent in cavalry and infantry troops to stop the stealing, and the 21st Pennsylvania Cavalry apprehended the three ragmen as they were taking a wagonload back to the paper mill.”5 These three men served their punishment by clearing battlefields of dead horses, the dirtiest and hardest of jobs. The mill went out of business, and subsequently was sold at auction to a man named Philip Henry Glatfelter. The Glatfelter Company still makes paper today at the same location.

As the demand for paper grew, the mills changed to using cellulose fiber from trees because wood was less expensive and more abundant than cloth.

Life Insurance on Paper
In the distant history of life insurance, companies issued certificates to the person who sought financial assistance upon the death of the insured. A sort of gambling became popular in which people bought certificates of life insurance on public figures. In the U.K., the Life Insurance Act of 1774 put an end to gambling in that it stipulated a person had to have an insurable interest if he was to take out a life insurance contract on somebody else.

In America, individual states began crafting regulations designed to protect life insurance consumers and restrict fraud. Not surprisingly, the states with the most active legislatures were also those states in which the most insurance companies were domiciled. (New York, Connecticut, Pennsylvania, New Jersey, Massachusetts.)

Whereas only 43 companies existed in the United States on the eve of the Civil War, the growing popularity of life insurance resulted in the establishment of 107 companies between 1865 and 1870.

Until the late 1860s, all of the life insurance policies issued in the U.S. were printed on rag or linen paper. The majority of these policies consisted of one or two pages. No consistent standards existed in regard to the provisions or stipulations of these policies.

A demand for federal oversight of the life insurance industry grew in the aftermath of the Civil War. Thankfully, the industry and the individual states agreed that the life insurance industry was best governed through state regulation. However, an apparent need arose for a method for coordinating regulations between states.

On May 24, 1871, the very first meeting of The National Convention of Insurance Commissioners convened in New York. Representatives from the various participating states traveled by stagecoach and train to New York City. The organization changed its name officially in June 1936 at the Annual Meeting which took place in St. Paul, MN. The new name: “National Association of Insurance Commissioners.”

In 2021 the NAIC celebrated its sesquicentennial anniversary. This is from the NAIC’s website:

Thinking Nationally, Acting Locally: Our state-based system brings regulators together and empowers them to act in the best interests of the people in their states. At the same time, we also enable commissioners to collaborate and learn from each other, while applying resources to individual states’ needs.6

In 1995 the NAIC adopted the “Life and Health Insurance Policy Language Simplification Act” known as NAIC Model Regulation 575.

This Model Regulation provides guidance to life insurance companies in drafting policy language. “The purpose of this Act is to improve policy language in order to facilitate the insured’s understanding of the coverages provided.”7

Section 5, Minimum Policy Language Simplification Standards, provides this guidance: “No policy forms…shall be delivered or issued for delivery in this state, unless:

(1) The text achieves a minimum score of 40 on the Flesch reading ease test;

(2) It is printed, except for specification pages, schedules, and tables, in not less than ten-point type;

(3) The style, arrangement and overall appearance of the policy give no undue prominence to any portion of the text of the policy or to any endorsements or riders; and,

(4) It contains a table of contents or an index of the principal sections of the policy, if the policy has more than 3,000 words printed on three (3) or fewer pages of text.”
Note the words: “It is printed.”

What’s on the Paper
A typical life insurance policy spells out who the parties to the contract are. The policy defines each of the following: the Insurer, the Insured, the Applicant-Policy Owner, and the Beneficiary. Beyond defining the parties, life insurance policies contain extremely important provisions. These are designed to provide the consumer with understanding, protection, and clarity. Many standard features were introduced singularly by individual companies throughout the industry’s history.

Examples:

  • In 1864, Manhattan Life introduced the Incontestability Clause into their policies in an industry first that became law 40 years later.8
  • In 1860, New York Life was the first insurer to issue life insurance policies containing a Nonforfeiture Clause, entitling the policy owner to a prorated benefit or refund if they missed a payment.9

In addition to these key provisions, life insurance policies include:

  • Free Look Provision. Companies give the policy owner a period of time to return the policy after acceptance and receive all premiums paid.
  • Grace Period. Companies grant the policy owner an additional period of time to pay the premium after it has become due.
  • Suicide Clause. Insurers will not cover a death caused by a suicide that occurs during the first two years of the policy.
  • Reinstatement. Companies allow policy owners to reacquire coverage under a policy that has lapsed due to failure to pay premiums if new proof of insurability and payment of all missed premiums are submitted.
  • Entire contract. Companies will include a provision that the policy, together with the attending application, a copy of which application shall be attached to the policy and made a part thereof, shall constitute the entire contract between the parties.

The hands of a policyowner, who is in receipt of a freshly-delivered life insurance policy, hold—in readable print and on spine-bound paper—the contractual reality of both the dream and the determination to provide for one’s family.

Summary
Life Insurance is a printed contract, governed principally by state law. It is basically a promise that the issuing carrier makes to pay a specified amount of money to a designated beneficiary when the insured person dies. The promise is made in consideration of the application and the payment of premiums.

The policy is a printed document that covers all the benefits, terms, and conditions of the policy. Within the legal world of contracts, life insurance policies are unique because they contain provisions that are aleatory, unilateral, and contracts of adhesion.

“’Aleatory’ means that the insurer’s promise to pay the policy proceeds is conditioned upon an uncertain event (i.e., the insured’s death within the term of the contract).

‘Unilateral’ describes the fact that the insurance company is the only party to the contract which makes a legally enforceable promise.

‘Adhesion’ is a legal recognition that the policyowner was not in a position to negotiate with the insurer on the terms of the contract and the resulting document is not evidence of the normal ‘give and take’ negotiation and bargaining found in a standard contract.”10

All this, and paper too.

While we no longer rely on paper wads to prepare our weapons, paper is an important part of everyday life. “We use wrapping paper, greaseproof paper, sandpaper, paper napkins, paper receipts and paper tickets. We decorate our walls with wallpaper, posters and photographs, we filter tea and coffee through it, package milk and juice in it and as corrugated cardboard, we use it to make boxes.”11

Paper, in the form of a life insurance policy, acts as material proof of our promise to provide for our dependents, ensuring that our planned goal for their economic well-being, even after our death, will actuate in a disciplined manner.

We can make our love posthumous because of two wonders: Life insurance and paper. Even as precious as trees are, it is fair to say that life insurance is worth the paper.

Footnotes:

  1. “Paper—Paging Through History,” by Mark Kurlansky, W. W. Norton & Company; Illustrated edition (May 23, 2017), ISBN-13: 978-0393353709.
  2. Ibid.
  3. https://www.cincinnati.com/videos/news/2016/04/08/82802968/.
  4. “Paper – Paging Through History,” by Mark Kurlansky, W. W. Norton & Company; Illustrated edition (May 23, 2017), ISBN-13: 978-0393353709.
  5. Ibid.
  6. https://content.naic.org/about.
  7. NAIC Model Regulation 575 Life Insurance Policy Language Simplification, April 1995.
  8. https://www.manhattanlife.com/About-Us/History.
  9. https://www.newyorklife.com/newsroom/history-of-innovation.
  10. Article written by Stephan R. Leimberg, Robert J. Doyle, Jr., and Keith A. Buck found here: https://www.thinkadvisor.com/2016/08/10/15-legal-issues-every-life-insurance-policy-should-address/.
  11. “How the invention of paper changed the world,” Tim Harford, BBC World Service, March 2017, https://www.bbc.com/news/the-reporters-38892687.

Guesses, Precision, And Importance

“I’m writing a book. I’ve got the page numbers done.”—Steven Wright

At a few points in my career, I was responsible for product development for the life insurance carriers that I served as either a consultant or an employee.

With each product developed we had one great fear: that we would only sell a handful of policies. These, in turn, would require the companies to maintain them on the administrative systems, adjust the plan description files with each system modification, and require the company to report and track the profitability of even the small number of policies on the books until they lapsed or became claims.

The first thing I did in that role was ask our distributors what they thought was missing in our product portfolio. Then I asked my sales teams what they believed they could enthusiastically get behind in regard to a new product. Lastly, I met with our administrative teams and sought their advice, concerns, and ideas.

Then the fun began. I made an appointment at the State Departments of Insurance in my home state and in the neighboring states. I would show up with a box of donuts for the civil servants and begin reviewing the filed product forms of our leading competitors. The donuts were intended to grease the skids for all the photocopies I needed.

Armed with the suggestions of our home office staff, the dreams of my sales teams, the unrealistic expectations of our distributors, and a decent understanding of the competitive landscape, I produced an Executive Summary of a proposed new product. The next step—approval by senior management.

At that point our actuarial team took over. I provided them with competitors’ rates, product performance comparisons, and product feature summaries.

In a short while, I could hear the numbers crunching.

Life insurance is many things but, at the bottom, it is about numbers. Math.

Guesses
The number of ants alive on the earth right now is estimated at 1016 (ten thousand trillion). This educated guess means that there are roughly one million times more ants than the number of people alive today (approximately 7.5 billion). In a happy coincidence, individual ants vary in weight between one and ten milligrams, which means “the remarkable result of these several guestimates together is that all the living ants weigh about the same as all the living humans.”1

There exists, therefore, a rough biomass equivalence between ants and people.

(Lest we get too impressed, the total mass of either all ants or all people would fit within a cubic mile of space, an area that could nearly be hidden in remote portions of the Grand Canyon.)

Question of Importance: Do educated guesses really matter? (Think COVID-related cases, hospitalizations, and deaths.)

Precision
“Crucial to the making of almost anything is the matter of its measurement. In English, this usually involves the use of the near-invisible adverb how, with its interrogative determination of to what extent and to what degree something might be. How long is it, how massive, how straight an edge, how curved a surface, how hard, how close the fit?”2

Today, most of the world utilizes the International System of Units (SI). This system, adopted by all countries except the United States, Burma, and Liberia, “defines the seven fundamental units of length, mass, time, electric current, temperature, amount of substance, and light intensity—otherwise known as the meter, the kilogram, the second, the ampere, the kelvin, the mole, and the candela.”3

In addition to these physical measurements, manufactured things possess geometrical characteristics, such as straightness, flatness, circularity, cylindricity, perpendicularity, symmetry, and parallelism. In the world of engineering, these physical and geometrical characteristics are measured to the finest tolerance, that is, the least permissible variation in dimensions or geometry.

According to a definition from The American Society of Mechanical Engineers, the industry standard, ASME Y14.5M, tolerance is “the total amount a specific dimension is permitted to vary. The tolerance is the difference between the maximum and the minimum limits.”4

Example: If an ideal part is to be 0.5 mm +/- 0.1mm, any resulting product between the range of 0.4 to 0.6 mm will be acceptable; the rest will be rejected.

Tolerances may also be expressed with any number of decimal places. The more decimal places are included, the stricter the tolerance is.

Example: Four decimal places, expressed as (.000x), (e.g., ±0.0005″).

Question of Importance: Aren’t you glad that there are rigorous requirements for precision manufacturing, especially for something as important as aerospace parts (think, jet engines) where a variation of just a few thousandths of an inch can lead to equipment failure or worse?

Guesses, Precision, and Importance in Financial Services
Products in financial services require adequate pricing in order to be both marketable and sustainable. In the life insurance industry, the elements of product pricing include mortality, interest rates, expenses, sales compensation, and lapse assumptions. Annuities, disability income and long term care products require similar pricing assumptions with the addition of morbidity.

Getting these assumptions (guesses) wrong can have devastating results.

Example: Long term care.

Paying for long term care is one of the greatest financial risks Americans face in retirement. Studies show that one-in-five individuals can expect to spend more than two years in need of long term care. This exposure represents a significant financial risk.

Back in the 1980s and 1990s an increasing number of insurance carriers began offering LTCI to fund out-of-pocket payments by the elderly and their families. By the mid-to-late 1990s more than 100 companies were selling policies to individuals and employer groups. “In 1990, 380,000 individual policies were sold; by 2002, 755,000 policies were sold in that year.”5

“In 2003, the pattern of annual increases in sales came to an abrupt end. In fact, LTCI policy sales began to decline rapidly. Between 2003 and 2009 individual policy sales declined by nine percent per year. Thus, in 2009, fewer policies were sold than had been sold in 1990. Moreover, while in 2002 there were 102 companies selling policies, by 2009 most of these companies had exited the market; that is, they had stopped selling new policies.”6

Question: It is worth asking, if the need is important, and the marketplace is growing, why would sales plummet and companies exit the product space?

Certainly, the companies entered the market because they believed it represented a profitable opportunity. “Many companies entered this market to take advantage of an opportunity that they knew existed, even if they were not completely certain about how to exploit it profitably. For 40 percent of the companies that left the market, their initial business strategy was to grow modestly in order to learn the business and improve their management of the product over time. Only 16 percent had aspirations of becoming market leaders.”7

It all comes down to math. (And wrong guesses.)

“Regarding the pricing of early policies, there was little basis on which to develop an estimate for future morbidity (i.e., the chance that someone would develop a condition that required use of long term care services) in the context of private insurance. In order to price these early policies actuaries relied on national data sources like the 1977 and 1985 National Nursing Home Surveys.

For other pricing parameters, like voluntary lapse rates and mortality, there was a reliance on the experience of Medicare Supplement policies and standard mortality tables. For this reason, voluntary lapse rates priced into initial policies were much higher than what they ultimately turned out to be. (In fact, there is no other voluntary insurance product in the market that has experienced lower voluntary lapse rates than what is found in LTCI policies.)”8

The math is important: “Even small errors on multiple assumptions can lead to major changes in the product’s underlying profitability. All of the major determinants of premium and product profitability have been going in the wrong direction: Interest rates are significantly lower than what was priced for, voluntary lapse rates are lower than for any other insurance product, morbidity is somewhat worse than expected and mortality is actually improving.”9

Distribution Influences Math
I had a hand in developing many different types of life insurance products, including whole life, current assumption whole life, universal life, level term, and indexed universal life. We made many educated guesses and relied on less-than-precise models. We did, however, focus on the important. Here are what we deemed important:

  • The product would be sustainable. It could remain on the shelf indefinitely and not impact the bottom line negatively.
  • The product met a definable need in the market. There was a real person with a real need that the product was designed to meet.
  • The company had the administrative systems to service the policyholders who bought the products. The policyholder could expect, and receive, satisfactory service in terms of time standards, accuracy, and dependability.

Over the last several decades, insurance carriers, brokerage general agencies, and independent financial professionals have all alike pushed the knife edge of competitive advantages deep into the heart of long-term profitability for life insurance, annuities, disability income, and long term care products.

LIMRA and NAILBA collaborated on a tremendous survey published early in 2022 entitled, Inside the Intermediary: BGA and IMO Survey Results. They surveyed 60 BGAs and IMOs, over 400 independent life insurance and health producers, and eight senior executives from BGAs and IMOs. I was interested in what the independent producers said was their number one reason for placing business with top carriers: Product pricing.10

Insurance carriers know that every product they introduce is ubiquitously quotable in comparison with all other like products. The competitive pressure requires actuarial precision.

Question: Does the distribution system’s expectation of ever-improving product performance, lower rates, and new features obscure the importance of reaching more people with the necessary coverage and protection? In other words, rather than always seeking the so-called best product, do distributors lose sight of the pressing need to find new unprotected customers?

Underwriting Influences Math
In February 2021, Deloitte published an article entitled, The Rise of the Exponential Underwriter. Underwriting is partially about guesses, but mostly about math. Underwriting manuals have always been compendiums of experience-driven classifications. “Traditionally, underwriters have utilized decades of static, historical information to develop rules and guidelines to assess risks.”11

There has never been the opportunity like now for underwriting to apply an innovative application of technology, AI, and data analytics. The article defines “exponential underwriters” as those utilizing “new data sources and advanced technologies to augment human underwriters to a degree never seen before.”12

“In life insurance, while historical health records would continue to be essential, insurers may get a more comprehensive and current assessment by tracking predictive data variables via fitness wearables and social media.”13 This, in turn, will create pricing relief through greater efficiencies.

All the guessing is getting more sophisticated!

Summary
In the insurance business, and particularly in independent distribution, success is a function of right guesses, precision when needed, and focus on the important. These responsibilities are shared between the home offices and the distribution partners.

We can overemphasize precision—the numbers—to the exclusion of the important—the people. Steven Wright’s quip implies that what goes on the page is far more important than the page numbers.

Similarly, the number of people owning our industry’s products far exceeds the value of making sure only a small number of people have the very best rate.

Faces, not facts, are what we need to always keep in focus! 

Footnotes:

  1. “Tales from the Ant World,” Edward O. Wilson, Liveright Publishing Corporation, 10/05/2021, ISBN-13: 9781324091097.
  2. “The Perfectionists: How Precision Engineers Created the Modern World,” Simon Winchester, Harper; 1st edition (May 8, 2018), New York, NY, ISBN-13: 978-0062652553.
  3. Ibid.
  4. https://www.asme.org/codes-standards/find-codes-standards/y14-5-dimensioning-tolerancing.
  5. LifePlans, Inc. (2012). 2011 Long-Term Care Top Writers Survey Individual and Group Association Final Report, Waltham, MA. March.
  6. https://aspe.hhs.gov/reports/exiting-market-understanding-factors-behind-carriers-decision-leave-long-term-care-insurance-market-1.
  7. Ibid.
  8. Ibid.
  9. Ibid.
  10. https://www.nailba.org/assets/LIMRA%20NAILBA%20Inside%20Intermediary%20Final.pdf.
  11. https://www2.deloitte.com/us/en/insights/industry/financial-services/future-of-insurance-underwriting.html.
  12. Ibid.
  13. Ibid.