Gabriel Lindemann

Six years ago, when one of my clients sent me a video of Suze Orman’s opinions on using whole life insurance for college planning, I realized Suze was quite passionate and made several fervent claims and accusations. The two that struck me the hardest were:

“That person is not an advisor, he is a salesperson, never talk to him again!”

“Did you ask him about all the fees and historical returns in that life insurance policy?”

She concluded with her regular coined statement in which she vehemently states to never, ever buy life insurance for investment planning and especially not for college planning purposes. To be honest, that was not the first time nor the last time I have had a client send me a video or an article questioning my recommendation on using life insurance for college planning.

Truth be told, I don’t blame clients for questioning my advice or recommendations. In many situations my strategies are a new concept for them, and if I were in their shoes I would be doing my own research as well.

Dave Ramsey is another popular financial planner I have often received articles and opinion pieces on. He is often quoted regarding why owning a 529 while buying term and investing the difference is better for college planning.

At first I felt personally attacked and offended by Suze’s opinions. My initial strategy was to explain to my clients how Suze and Dave are trying to appeal to the general masses so they can sell more of their books, be hired for future speaking appearances, and have an increase in TV ratings so more advertisements will be hosted on their shows. While all of this is true, the more I thought about Suze’s statements on fees and returns in regard to whole life insurance, I began second-guessing myself and considering the fact that Suze could be right. Then, out of the blue one day, my wife looked me in the eye and asked me what the fees and returns on a whole life policy over the past 20 years would actually have been. I froze—she had asked me the dreaded question. I remember mumbling “I think around 2 percent in fees and 6 percent returns?” She said, “Okay, can you show me?” When I told her I couldn’t, she asked, “Why?” Without thinking I muttered something resembling “guarantees good, market bad.” She walked out of the room unimpressed. It was then that I started actually believing that Suze and Dave could be right.

It finally dawned on me that after all this time I have been asking my clients to trust both the insurance carrier and me based on a handshake, without any proof of how returns are calculated or fees assessed to the policyholder. I have to be honest. I love investing in the market, all my clients, my friends, my family and colleagues all invest part of their portfolios in the market; but I can’t imagine investing in a fund or portfolio that did not disclose all the fees or past historical returns. Even though the information can be difficult to find, it is still obtainable by law. Unfortunately, that’s not the case for many types of permanent life insurance. For example, I’ve tried asking several of the whole life insurance carriers that I work with for their policy fee schedule, how dividends are actually calculated, and most importantly, how the dividend returns are assessed to the policyholder. I have spent close to eight years trying to get such a report without any success.

After attending numerous conferences I am able to recite various catchy mantras like “Guarantees good, market bad,” “Suze and Dave are owned by the banks, banks are bad,” “Dividends have paid for the past 100 years.” I would often come home after such conventions and find myself repeating the same mantras out loud and around my home. My wife would often question if I had really attended a financial planning workshop or a brainwashing.

The irony is that during those conferences, nobody ever talked about the actual rates of return or how dividends are calculated or assessed to the policyholder. If during the training any audience member ever asked such a question about the fees or how dividends are calculated, the presenter would simply repeat one of his many mantras. Fortunately, I learned early in my career about the benefits of full disclosure regarding permanent life insurance, and thus when an educated client is in a position to relegate a large sum of money to a college funding plan and asks, “How are the rates of return calculated into this plan?” answering that “guarantees good, market bad” often does not hold much water and ultimately will not lead to the sale.

One of the major advantages of using a permanent life policy over a 529 is the expected family contribution (EFC) implications. I truly believe that Suze nor Dave have never helped a client fill out a free application for federal student aid (FAFSA) form or helped select colleges for their clients. If they had, they would have realized that all colleges will require 529s to be used first before any financial aid will be awarded. Also, what happens if the college-bound student changes his mind and decides to take a different path rather than attending college? Liquidating the gains in the 529 becomes a fully taxable and penalized event.

Although the life insurance funding strategy can be applied to most families that can qualify for EFC aid, what about high income families with high assets that can pay for college with cash flow and do not qualify for any financial aid? Unfortunately, many insurance agents marketing college planning services only focus on sheltering assets for the EFC instead of looking beyond and becoming a true planner. In many cases the agents are not truly college planners and are only designing the policies for the benefit of their own checkbooks, not for what is in the best interest of their clients. Again, this is why Suze and Dave are not entirely wrong. Buying term and investing the difference is better. About six years ago I made the switch in my college planning practice to using full disclosure index universal life insurance products. I learned that if I designed the IUL based on the seven pay guidelines and up to the modified endowment contract (MEC) limitations as defined in section 7702 and 72e of the Internal Revenue Code, the overall cost was nearly insignificant over a 15-20 year period, particularly when compared to other, more popular investment vehicles. I then started making a big change and decided to start all my initial college planning funding appointments by addressing the fees first.

I compared my college funding plan to a traditional asset portfolio charging a 2 percent annual management fee. When I show the numbers I explain how the expenses for my funding plan are front loaded and, to be frank, my funding plan fees are going to be higher for the first 10 years. Then I show the client the break-even point. This is where my funding plan and the traditional asset portfolio cost have leveled out, typically around the 12th to 15th year, depending on the client’s age and health. Around the 20th year, on average, my college funding plan is about half the cost of the traditional asset portfolio, and by the 30th year my college funding plan is about 40 percent of the average cost of a traditional asset portfolio approach at a 2 percent annual fee. I then show the clients a report that compares other popular financial vehicles to my college funding plan. I show the same money coming out to pay for college and then I show money coming out during their retirement years. All of the financial products and options will be able to pay for college. The big difference is that during the retirement years the other financial products and options run out of income, while my college funding plan sustains well past life expectancy and even past age 100. I always give a full disclosure that my college funding plan is truly only beneficial if the client is planning to keep it for the long haul. If for any reason the clients think they might want to surrender the college funding plan after 8-10 years, mine is not a good option because of the front loaded fees, and maybe one of the other financial products would be a better fit for them. Clients are always amazed when they see this report. They often ask how this can be possible. I educate them on how the variable/participating loan feature works and how when they are taking a loan from the policy the accumulation value is still earning a full rate of return based on the selected index crediting option. I further expand on how the annual reset works, as well as option pricing and how that affects caps and spreads. Most important, I explain why I chose that specific carrier. Another typical question I hear is, “Why don’t more advisors sell this product?” I’ll be honest, I believe it’s because of the misperception of the fees. When an advisor designs these funding plans correctly, the fees are a fraction of what a typical fee-based advisor will make over a 10-, 20- or 30-year period. That’s why it’s so rare for any financial planner, when selling a security product, to select an A share option. They know they will be paid a lot more over 10 years if they pick a C share option.

For the most part, Suze and Dave are correct when it comes to most permanent life insurance policies. But there are a few select companies out there that provide full disclosure fee reports, historical returns over the past 20 to 30 years, and how those returns are calculated and assessed to the policyholder. When designed correctly, an IUL is a perfect and cost-effective college funding vehicle and should be included in a client’s balanced portfolio.

The true test would be finding out what Suze and Dave would do if presented with an actual full disclosure IUL report. Would they then acknowledge the benefits of having an IUL as part of a client’s balanced portfolio? Or would the argument stay true that Suze and Dave are only loyal to their personal investors and do not watch out for what is truly best for the clients? I am looking forward to having that conversation with them someday.

As it stands today, the average salary for nongovernment-employed middle-class Americans is decreasing, while the average tuition for college is increasing. For example, the state of California is planning to double tuition fees for their state colleges. With the rapidly increasing rate of tuition, most middle-class families will not be able to send their children to college without jeopardizing their own personal retirement or leaving their children in debt upon graduation. On top of it all, students need to be able to pay all of their bills including food, clothes, travel, electricity, gas, phone, and wifi bills, and often renters insurance on top of their rent. You can look at the reviews for somewhere like roost renters insurance to find the best deal compared to other insurance companies, but it is often underestimated how much it truly costs for a student to study at college.

One of the major problems facing the U.S. higher education system is that many of the best students are not going to the top-tier universities they should be because they cannot afford the high tuition costs and they do not want to endure mortgage-like debt before they enter the workforce. Many educational analysts believe this to be one of the leading reasons the United States ranks so poorly in higher education among industrialized nations.

With gas prices nearing five dollars a gallon and the unemployment rate still more than 9 percent, the fact that many parents are having a difficult time allocating and saving money for their children’s college fund should come as no surprise. More often than not college planning has taken a sideline to keeping the lights on and food on the table.

Another disappointing situation I often witness is when parents have saved money for their children to go to college and that little bit of extra savings prevents the student from receiving government financial aid or grants. Traditional college savings accounts like 529 plans (or, as I like to call them, 229 plans, because they are lucky to have earned at least 2.29 percent return over the past 10 years) are counted in the student’s expected family contribution (EFC) score.

In most circumstances if the parents have more than $40,000 in non-retirement liquid investment accounts, their EFC score will be too high and disqualify the student from any government assistance. Having previously worked in the community college sector, I have witnessed far too many students unable to attend top-tier universities because they lacked funds and guidance. Many of those students end up taking classes at a community college and quite often they can’t afford to transfer or graduate.

When I take community college students to visit universities, I am always amazed to see the type of students that are currently attending. To be honest, our universities are starting to resemble our Congress: 95 percent are from wealthy, upper-class families and the other 5 percent are from middle or working class backgrounds.

Our universities were originally designed to attract the brightest and hardest-working students and to prepare them to be the leaders of tomorrow. Instead, our universities resemble more of an “old boys club” rather than a place of higher education. That is the reason I have such a great passion for college planning and for helping students get into the schools they never thought they had the ability to attend.

While the theory of college planning is not new, the strategy of using life insurance is an innovative approach.

According to the FAFSA (Free Application for Federal Student Aid), “investments” do not include a primary residence, life insurance, retirement plans, pension funds, annuities and non-education IRA accounts –which means they cannot be counted in the EFC equation. Almost all students under 24 years of age, regardless of their tax-filing status, are required to complete a FAFSA form with their parents’ current financial information in order to determine eligibility for government financial aid or scholarships.

When designing a college plan, the goal is to lower the EFC score so that a student can be eligible for government financial aid. This can be accomplished by using one of the best financial products available-life insurance.

In most circumstances, the parents will have a lump sum of money sitting in a brokerage account that has been allocated for their children’s college fund. What many parents don’t realize (most likely because they simply have never been informed) is that their brokerage account is subject to market loss, disqualifies the student from most financial aid and, at the current tuition increase, is not nearly enough to pay the college attendance fees for eight or more semesters.

Depending on when clients need money for college, a better approach is to use a combination of single premium immediate annuities, indexed universal life insurance and/or indexed annuities. Some college planners prefer to fund a whole life policy as a modified endowment contract (MEC), taking withdrawals to help pay for college. The problem with this approach is that all future gains in MEC policies are taxable and subject to IRS penalties if the clients are under age 591/2, which limits the ability of such plans to provide future tax-favored access to the cash values.

The preferred approach is to design a college plan, (which includes all payments like Bloomsburg student housing bills, food, clothing, travel, and other miscellaneous expenses) so that the parents can continue to fund the life insurance policy in order to build up substantial cash values for the future. When designing a plan for multiple students where there is a need for income in the next semester or sooner, a single premium immediate annuity can be used to help cover the pending college fees as well as fund an indexed universal life policy. By continuing to make contributions to such a policy, funds will grow tax-free and be available for other children to go to college as well as for retirement savings accounts for the parents.

College planners can come up with some amazing results after lowering a student’s EFC score. In most circumstances students are able to get grants and scholarships that would never have been available to them otherwise. At the end of the day, I love knowing that by showing clients a college planning approach, I am changing their lives for the better-and I am proud to say we use life insurance to accomplish such a meaningful goal.

Assisting another person with their future is of immeasurable value, and I feel thankful for the opportunity.

The last couple of years have been tough for financial planners. With the Dow Jones Industrial Average suffering its worst annual decline since 1931 for the 2008 calendar year (according to www.cnnmoney.com) and with unemployment continuing at record highs, clients were not eager to purchase investment vehicles. Who can blame them? If I were laid off and I had a couple of mouths to feed, my only concern would be to keep a roof over my family’s head, warm food in our bellies and clean clothing on our backs.

But as all the great economists have said, Things will eventually get better. We live in a free market system—everything that goes up will come down and everything that goes down will come up again. History will repeat itself.

Besides working as a financial planner, I also teach public speaking at a local college in Southern California. What I have noticed—especially this year—is the increased number of working adults going back to school. More and more people are using this bear market economy as an opportunity to make themselves better and prepare themselves for the future.

What I have also experienced is an increase in conceptual and product training in the financial world. What amazes me the most is that financial planners will spend thousands of dollars on sales training but not a penny on how they deliver their message. Why do sales people naturally believe they can effectively deliver their message to a group of potential clients without even one minute of proper speech training?

Being in sales is tough, and being an independent financial planner is even tougher. There is never a steady income stream coming in, there is seldom a person to pat us on the back or give us words of encouragement when times are tough, and we rarely go on real vacations. To be successful in this industry you have to be a little crazy, stubborn and cocky. That’s probably why I love working in this field so much.

I learned a long time ago that the best thing you can invest in is yourself. Learning all the top products and best conceptual sales ideas is great; however, unless you can effectively deliver your message, you have just wasted your money and, more important, your time.

One of the most disappointing things to witness is wasted opportunity. I can’t explain how many times I have witnessed financial planners spend thousands of dollars on sales training and then spend a few more thousand in giving a public seminar—to end up with  nothing to show for their investment.

Many people will play the blame game, believing there was a mistake in their marketing campaign, a bad economy, bad clients, etc., so they can shift the blame away from themselves.

The truth is that there are many factors which contribute to a failed public seminar, but time and time again the number one reason is poor public speaking skills. I have witnessed speakers with such terrible skills that they actually drove away potential clients. They had no idea how to read an audience; thus they failed to adjust their presentations in order to be more appealing and keep their clients interested.

As I have said many times to my students, knowledge is worthless unless you can explain it and apply it. Who really cares if you are the smartest person in the world if you cannot communicate your thoughts effectively.

Warren Buffet said it best: Invest in yourself.

Most experts agree that the best training for successful sales people is public speaking. You never know where life might take you; you might be currently selling index annuities or mutual funds and someday find yourself selling something completely different in a whole new industry. Being an effective public speaker will help you no matter where your career path may take you.

But be careful in choosing public speaking trainers—they can be very expensive and the common saying, “You get what you pay for” does not necessarily apply. There are many hacks out there who are charging thousands of dollars for their training, and what you get is no more than what you could get for free by joining the local Toast Masters associations.

Here are some quick tips on how to select a public speaking training program.
 1. Find out where the instructor went to school; if he does not have a bachelor’s degree from an accredited university, walk away. This is the first sign of a hack.
 2. Ask about the instructor’s own public speaking training and credentials. It’s amazing what a quick Google search will bring up. Again, walk away if you can’t find proof about the instructor’s references.
 3. Be careful when you see “100 percent satisfaction guarantee or your money back.” This is impossible; public speaking is part of the social sciences field, which is based on cognitive thinking. Results will vary from person to person. Some people will ultimately become great public speakers, while others—no matter how hard they try—will always be less than competent speakers. If the time comes to collect your refund, no one will be there to pay you back.
 4. Ask to preview the instructor’s skills. If he can’t or won’t give you a preview, most likely he is not qualified to educate and you have just exposed him red-handed.
 5. Ask the instructor if he has a background in forensics—the art of public speaking and debate, which is a highly competitive activity practiced in most universities and colleges around the world. It is a well-known fact that the best public speakers all have a background in forensics.

Don’t be afraid to ask these or any other questions. In most cases you are spending good money for the training, and you are 100 percent entitled to know what you are buying.

Here are a couple of free tips for public speaking:
 1. Breathe—calm down and remember that it’s okay to be nervous. Being nervous is a good sign and shows that you are human after all. When you speak, you should sound slow in your head because, in actuality, that is the correct speaking rate for your audience to receive.
 2. Move your hands and your arms—40 percent of your speech is nonverbal communication. Using body language is very appealing to people and keeps their attention more focused on you.
 3. If you forget a line or lose your train of thought, just move on. Nobody except you will know what you were supposed to say next. Find your comfort zone and continue as if everything is perfect and planned.
 4. Speak with confidence—make sure the person in the very back of the room can hear you just as clearly as the person in the front of the room. You never know where your next client might be sitting.
 5. Practice, practice, and then practice some more. Record yourself in front of a mirror and then listen to how you sound. Be sure to walk your room before you present so you can get a feel of how your voice is going to project.

Public speaking is the number one fear for Americans. Many people would rather die than give a speech in front of a crowd. The fact that you are considering giving a public seminar is very commendable.

Just remember, the most successful people in the financial world all give public seminars and they are all nervous before they speak. Tell yourself: “I am prepared, I know my presentation backward and forward, and I am ready to give it my best effort.”

If you can’t say those three things, I better see you in my next class.