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Micah Hesting

Micah Hesting joined The Leaders Group in July, 2015, as an advisor liaison and currently serves as relationships and business development strategist. Previous to his employment at The Leaders Group, Hesting spent more than seven years at Jackson National as an internal wholesaler for their variable annuity product line with just under $1 billion in sales. Hesting holds his series 6, 63, CFS, as well as Colorado Resident Producer License for Life and Variable Products. Hesting can be reached by phone at 303-797-9080 x113. Email:

Play In The Same Sandbox As Investment Advisors, Even If You Don’t Have Your Series 65/66


Originally, IOVAs, or Investment Only Variable Annuities, were developed to help financial professionals play in the same sandbox as advisors with a Series 65/66, or a designation that allows them to conduct investment advisory business. The insurance companies wanted a platform that looked, walked, talked, and acted like an investment advisory platform without having the need for an investment advisory license to sell it. This is when the Investment Only Variable Annuity was born and, due to the nature of the product, not only did it compete with the investment advisory platforms that money managers out there had to offer but it also had the added advantage of tax deferred growth when conducting non-qualified business. The reason there is this advantage with the IOVA is because it is an insurance product and, although we are playing in the same sandbox as advisors, our sand is different.

When looking at the IOVA and Managed Money options in terms of total cost to the client, the cost is similar but who the client pays it to is different. For example, on average the IOVAs cost (ME&A) can range from .95 percent to 1.30 percent (plus investments) depending on the carrier you use, and if you use a five-year surrender or completely liquid contract. This total cost is paid to the insurance company and the insurance company pays the financial professional. With a managed account, I would say on average the client is paying a third-party money manager around .4 percent to .5 percent for their platform (plus investments), and then the advisor is charging a fee to manage the accounts. Typically, I see around a one percent charge on fee-based accounts, so that would take the total cost to the client to 1.4 to 1.5 percent (plus investments) depending on the size of the account. At first glance this is more expensive than the IOVA account, but the advisor can lower the fee he/she charges the client on the fee-based account, and they may be able to get investments at a lower cost than the investment options available within the IOVA account. So, the IOVA could be a little less expensive or a little more expensive than the managed account depending on the moving parts listed previously. It all depends on how each is designed.

Although the costs have stayed pretty similar for IOVAs and managed accounts, over recent years the IOVA contracts have added additional features that give them more advantages over managed-money accounts depending on the particular circumstances of the client. One example could be if death benefit protection was a concern at all and the client would like more of a guarantee than just an account value death benefit. Many of these IOVAs have the feature of a standard death benefit (the greater of premiums less distributions or contract value) included in their product, and many others allow you to add it on as an additional feature.

Although there are many IOVA products on the market, there are two that I think are worth mentioning here: Jackson’s Elite Access and Equitable’s Investment Edge contracts.

Jackson pioneered the IOVA in the broker-dealer channel launching Elite Access in 2012 and has led the way in terms of production in this space for most of its life. This is due to a very robust investment platform consisting of 130 investment options that provide the opportunity to grow your client’s money in any market cycle or economic condition. What do I mean by that statement? There are generally four phases of the economic cycle to consider when investing and building portfolios. They are a rising market, falling interest rates, falling or choppy market, and inclining interest rates. Under the Elite Access investment platform, you not only have your traditional way of investing client assets (stocks, bonds, cash) available, you also have access to alternative strategies and alternative asset classes that can help you create better risk-adjusted returns as well as the ability to grow your client’s money in any market cycle or economic condition. Elite Access accomplishes this by incorporating alternative assets such as absolute return strategies, infrastructure, global real estate, and hard assets in declining or choppy markets as well as alternative strategy investments such as long/short strategies, floating rate, arbitrage, and managed futures that are designed to work well in a rising interest rate environment. The biggest issue we have when doing this is that it is hard to predict when the economy is going to slow down or speed up. That is why it is important to have access to an investment platform that is equipped to navigate through each of these economic cycles. With Elite Access, we can build portfolios that address each of the market conditions, thus creating better risk-adjusted returns, or we could build portfolios that address the current market conditions and pivot at any time if those conditions change.

The second contract is Equitable’s Investment Edge contract. In my opinion, one of the top things that Equitable has done is provide a way for your clients to take tax advantaged distributions from their non-qualified annuity account. Rather than their distribution being pulled from earnings first, and then from principal, you get a proportionate amount pulled from each, which in turn lowers your client’s tax liability on their distribution and puts more money in the client’s pocket. Another thing that Equitable has done is add “RILA like” investment options. Many of us have recently become familiar with the RILA market and how you can choose a level of protection on your investment that provides a “buffer” against losses. Equitable has brought that world into the Investment Only Variable Annuity space by providing investments within the annuity that allow you to invest in a specific index or indexes with a “buffer/protection” against losses.

I have talked a bit about how the IOVA space gives financial professionals the ability to “play in the same sandbox as investment advisors,” but in closing I would like to also mention why IOVAs could be a great alternative to direct mutual fund business. Many financial professionals utilize a select group of fund families they favor for most of their client portfolios. When looking at mutual fund business versus IOVAs, think of creating an “all-star” investment lineup with the IOVA. What I mean by this is that typically mutual fund families are known for being really good at one thing, so you use them for that one thing and are forced to build the rest of the portfolio around that “star player.” For example, when you think about bonds, you may think about PIMCO or Franklin Templeton. When you think about equities, you may think about American Funds or T-Rowe Price. When you think about tactical strategies, you may think about BlackRock or Ivy. These are your mutual fund family “teams” that excel in a specific area, so you use that specific fund family for that specific need or “star player” and are forced to use their other investment options (equity or tactical) to build the rest of that client’s portfolio. What IOVAs do is put all these teams (fund families) together under one roof so you can pick the best players from each team in order to create your “all-star” investment lineup.

So, whether you are competing against managed money or mutual funds, IOVAs can provide a competitive investment platform especially when dealing with non-qualified money. However, when dealing with non-qualified money, since IOVAs are an insurance product you will want to consider if the client will need this money before 59 ½. Since these contracts are filed as annuity contracts, they would carry the premature distribution penalty of 10 percent for non-qualified distributions prior to 59 ½. This is where our sand is a little different.

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The RILA Market Is Evolving As Fast As It Is Growing


As time goes on, the everchanging RILA market grows stronger and stronger in its offerings. From Athene’s “large bonus” on any earnings in the account to Equitable’s “not only will we credit back your losses, but we will also add them as a gain,” the offerings just keep getting better and better. If you are not familiar with these two offerings, continue reading for a brief explanation of each.

First is the Athene Amplify contract. When thinking about the Athene Amplify contract, I like to think about looking at returns through a magnifying glass, and what does a magnifying glass do? It makes things larger than they would otherwise be if you were not using a magnifying glass. That is exactly what the Athene “Amplify” RILA product does as it pertains to the returns in the account–it makes them larger than they would otherwise be if not using the Athene Amplify “magnifying glass.”

The Athene Amplify product is not your typical RILA product. Like other RILA products, the contract gives you upside potential with downside protection. The difference is that the upside potential in the Amplify contract is where we can bust out the magnifying glass. For example, right now, you can build the contract to participate in the S&P 500 Index with no cap, a 135 percent upside participation rate, and you have a 20 percent buffer built in to protect against losses.

This specific build is a six-year point-to-point term like many other variable index annuities out there, but I want to be clear about one thing that initially slipped by me because I was used to the way just about all other variable index annuities work: The 135 percent is not a cap. The design I mentioned above is an uncapped design. The contract is giving you 135 percent of your index returns and a downside protection of 20 percent. In comparison, where other variable annuities may give you a cap of around 125 percent growth right now on 20 percent downside protection, Athene’s Amplify contract will not cap that growth, and it will add 35 percent to whatever that uncapped growth number is.

Is this too good to be true? No, but it is too good to be free, and that takes us to a second difference between the Athene Amplify contract and most other variable index annuities. The Athene Amplify contract described above does carry a 0.95 percent annual charge. So, I guess you would have to ask yourself one question when considering a variable index annuity: Do you want one with no explicit fees to the client, or is 0.95 percent per year worth an extra 30 percent added to your earnings?

Now let’s look at a design option in Equitable’s Structured Capital Strategies Plus RILA contract and what impact losses have on the account.

Can losses in your client’s account be a good thing for their overall account balance? The answer may surprise you. Equitable’s Structured Capital Strategies Plus contract not only covers losses in your client’s account, it will cover the losses, and then credit the amount of the loss to your client’s account balance.

Sounds good, but what does it cost? Nothing.

Here is how it works:
Like many other variable index annuity contracts, there is an investment term, indexes you can invest in, a buffer against losses, and a cap, all for no fees to the client. Where this product is different is not only does this contract provide a buffer, it also credits losses up to 20 percent back into the client’s account. For example, if the client invested $100,000 into the six-year term contract with the 20 percent buffer against losses option, and at the end of the term the account value had dropped by 20 percent, the value of the account would be $120,000. This is because Equitable would be responsible for covering the first 20 percent of losses in the account because of the 20 percent buffer option selected, and then they would credit the amount of the loss back into the client’s account.

Please see the hypothetical illustration below. This hypothetical illustrates four different scenarios of how the six-year 20 percent dual direction segment (they also offer 10 percent and 15 percent dual direction segment options with higher caps) would work assuming a $100,000 investment. These are not the actual cap rates of the 20 percent segment option (current cap is 45 percent), it is just an example to illustrate how this contract will work in different situations.

If this is your first taste of the RILA market, I would encourage you to grab the full menu and take a closer look at why RILAs are one of the fastest growing segments of the market today. Financial professionals are finding that RILAs are a great fit for mutual fund clients that are concerned about the volatility in the market but still like the idea of market participation with the addition of downside protection. RILAs are a good fit for clients in fixed annuities, fixed index annuities, and bond funds that are looking for a little more in returns than they are currently getting while maintaining some downside protection.

Have Your Cake And Eat It Too: An Investor’s Dream


When I was asked to write an article regarding life and/or annuity strategies, I wanted to write an article that had value and was intriguing to both annuity and life producers. So, without further ado, we have the “Annuity Max with a Twist” strategy. For those of you working solely in the annuity space, you may have never heard of the Annuity Max concept as I had not, and I have also come to learn that many, if not all, life insurance producers are very familiar with the Annuity Max strategy. But are you aware of the

Annuity Max with a Twist strategy? My guess is either no or that very few of you are.
Annuity Max with a Twist, or “have your cake and eat it too,” or “use the insurance company’s money to fund your life insurance policy” are all catch phrases that I like to use, and I will explain exactly how you can take advantage of using the insurance company’s money to fund your life insurance.

When purchasing a living benefit on a variable annuity contract, I think we all know that all we are really doing is purchasing a sense of security in the event that we run out of money. We have this sense of security because we now know that we have a steady stream of income guaranteed to last our lifetime, even if our account value falls to zero; that sense of security is the sizzle that attracts people to the living benefit story. But what is really going on here? Until your client runs out of money, all we are really doing is spending our own money and allowing the insurance company to put certain restrictions on how fast we spend our own money—and we are paying them all along the way to do so. So, if you purchase an annuity with a living benefit and use that living benefit to fund a life insurance policy (Annuity Max), you are not maximizing anything in my mind, except that you have a tool that can ensure that you do not default on premium payments into your life insurance policy. The reason I say this is that until the client’s annuity runs out of money, all they are doing is using their own money to pay their life insurance premiums and reducing their death benefit with every distribution. So how do you really use the insurance company’s money to fund your life insurance?

The secret sauce lies within a contract at Jackson. Jackson has a unique living/death benefit combo rider that allows the client to take distributions for life and not lower the death benefit. With just about all, if not all, other living benefits and death benefits out there, when you take distributions out of your annuity the death benefit is reduced dollar-for-dollar or pro-rata. This is not the case with Jackson’s Flex DB living/death benefit combo rider. For instance, right now, if you were to put $500,000 in the account and took your distributions for life, as long as there was a value ($0.01) in the account at death, your beneficiaries would get your original $500,000 back. Do I have your wheels turning yet? I thought so. So, let’s put some real numbers to this.

In this example I am going to use a 65-year-old male that is categorized as “Standard Non-smoker” for life insurance purposes. This individual does not need income and is looking to maximize his death benefit to pass on to his beneficiaries–the perfect scenario for this strategy.

Going back to our $500,000 example from above, if we put $500,000 into the Jackson contract with the Flex DB rider using the parameters above, we would be able to take out 4.75 percent ($23,750) for life. Now, we can take that money and fund a life insurance policy. When funding the life policy, I decided to fund a variable life policy at one of the top carriers in the death benefit space and was solving for maximum death benefit. For illustration purposes, I used a seven percent gross return on both the Jackson and variable life illustrations and funded the variable life policy to age 100. At age 90, I assumed that the client passed away. The results were as follows: The Jackson policy returned our $500,000 investment, and the variable life policy paid out a death benefit of $756,029 for a grand total death benefit of $1,256,029.

In comparison, I also ran an illustration with a $500,000 single premium into the same variable life policy with all of the same parameters as above, and the result was a death benefit value of $1,082,126. As you can see, there is a $173,903 difference in “having the insurance company pay your life insurance premiums” compared to paying your own premium directly into your variable life policy. To take this a step further, if we would have just used the Annuity Max approach (funding life insurance with an annuity living benefit and not the non-reducing death benefit), we would have had a total death benefit of $988,711 at age 90. So, the “Twist” gets your client an extra $267,318 in this example when comparing the Annuity Max strategy to the Annuity Max with a Twist strategy.

So, to recap, Annuity Max with a Twist versus going right into the variable life policy, we are in the green to the tune of $173,903, and if we look at Annuity Max with a Twist versus Annuity Max, we are in the green to the tune of $267,318. In either event, what is in the best interest of the client is the Annuity Max with a Twist strategy.

In closing, there is a catch. The catch is that just like any other death benefits out there, if the annuity contract runs out of money before the client passes away, there is no death benefit. However, there are a variety of ways to protect against the account going to zero, but I will save that conversation for you and your Jackson wholesaler.

Strengthening Your Business Through Asset Protection

Financial planners turn to life insurance as an asset protection strategy for a variety of reasons. Some of the more obvious reasons include shielding assets from potential creditors, excluding assets from a client’s estate, liquidity at death, and tax-free wealth transfer as well as providing for tax-free income. There is no question that, when it comes to asset protection, life insurance can play many roles and provide a variety of different benefits to meet your clients’ needs, but have you thought about what it can do for you as an advisor? The answer is that it can help you penetrate the generational layers within your of client list through wealth transfer strategies and vastly improve the often-temporary nature of your book of business.

Just as it is important to protect your clients’ assets, it is important to protect your greatest asset—your business. This can be easily accomplished by focusing on estate protection for your client, as protection of your clients’ assets lends protection to your business. However, this leads to the need to either become an expert in life insurance or accept the fact that you need to partner with one. A BGA point-of-sale person would be a good partner to help you nurture and leverage the services offered through this side of your business. Once you have found a reputable BGA in your area, and have received approval from your broker-dealer to work with them, you can begin to exchange leads and market your services. I suggest you start by promoting your services as well as asking about life insurance needs in all client meetings. If any opportunities are uncovered you can then introduce the insurance arm of your business, your BGA partner.

I experienced this recently with an advisor whose experience with life insurance had long passed, but was approached by a client for advice on what to do with a current life insurance policy. The advisor immediately turned to his BGA partner for assistance. The situation was that the client had purchased a life insurance policy and the carrier had since sold that block of business to another insurance company. When the new company took over the block of business they increased the cost of insurance, which in turn led the account to underperform. The advisor informed the client that, if he conducted a policy review, he could see what else was out there and advise on potential alternatives. He then contacted his BGA partner to proceed with the policy review to determine what could be done to improve the client’s situation. The review resulted in a $221,000 (premium) 1035 exchange into a new life insurance contract which led to another second-to-die life insurance policy for estate planning purposes, scheduled to be funded at $116,000 (premium) per year for the next eight years.

Through this process our advisor realized that not only did partnering with a life insurance expert provide him with an “in” to the estate protection side of his client’s account, it also provided him with the opportunity to strengthen his relationship with his client and create a more “sticky asset” in his book. As a result, he now makes it a practice, when appropriate, to address potential life insurance needs in every investment client appointment he runs. His approach is simple, “When I first got my start in this business I started as an insurance agent. If you have any insurance policies, and want to bring them in for review, I would be happy to take a look and make sure that everything is still working to meet your objectives and that you are still on track to accomplish your goals. If I see an issue, I can give you my advice on how to resolve it.”

Life insurance is the foundation of almost every estate plan. Being involved in this aspect of your client’s total financial picture allows you to not only develop meaningful relationships with your client’s beneficiaries, it also allows you the opportunity to deliver a substantial tax-free check to them at your client’s death and explain how and why you helped their loved one assure a tax-free continuation of their estate. The importance of having this opportunity is illustrated by the fact that over 70 percent of spousal beneficiaries and over 90 percent of non-spousal beneficiaries leave the current advisor once the original account owner passes. Additionally, less than 10 percent of broker-dealer clients buy their life insurance from their financial advisor. If you are not currently a member of the 10 percent club, you have a significant opportunity to build critical and impactful relationships with your clients and other advisors’ clients as well.

By assisting your clients with estate protection you are developing a deeper connection with them as well as producing an enduring relationship with their beneficiaries. The results of these actions will strengthen your own business. Customer continuation is a real issue in our profession—whether you are working with business owners looking to fund buy-sell agreements at death, individuals looking for tax-free wealth transfer or providing a strategy to meet tax-free income objectives—being the trusted advisor for all of your client’s asset protection needs opens the door to new clients and will significantly increase your odds of client continuation and continued success with your business. Remember, if you do not consider yourself an insurance expert or honestly just feel you do not have the time to devote to it, you can partner with a BGA in your area that will help guide you and your clients through the process.

Bridging The Gap


As the leading wholesale broker-dealer for BGA, IMO, and FMO organizations, we are usually quick to hear about new distribution opportunities pertaining to registered products. Historically, that has been variable universal life and the occasional variable annuity available for third-party distribution. Over the past year, we have begun to see various types of registered annuities become available for distribution with select groups and carriers. If successful, we believe this may open up some new distribution opportunities for the third-party marketplace that we haven’t seen in quite a while. 

You may have heard the terms structured annuity, buffer annuity, or hybrid annuity.  When these terms are used I also hear cap rates which lead me down the path of an index annuity, or I hear investment risk which results in the conversation heading towards variable annuities.  

So, what exactly are these products?  Are they index annuities or variable annuities?  

The answer is they can be either, depending solely on the investment design of each carrier’s product.  In addition to the index options available in these contracts, some carriers have also included sub-account options.  With the inclusion of sub-account options, rather than just index options, these contracts are technically considered variable annuities by the SEC even though a client may never use them in that manner.  For the purposes of this article I am going to refer to these contracts as registered index annuities.

Registered index annuities got off to a slow start when they surfaced back in 2010, but grew in popularity over the last few years due to a low interest rate environment.  The low interest rates called for lower caps on the traditional index annuity products and many investors went in search of something that would give them higher upside potential while continuing to protect against the downside. Registered index annuities were the perfect vehicle.  It was an accumulation vehicle with downside protection at low to no cost.  It was also a way of investing that they were already familiar with and there were only a few tweaks to the look of the product that they were comfortable investing in.

Today registered index annuities are the go-between product when a client wants better performance than what they can get with an index annuity, but aren’t ready to jump into full market participation without some downside protection.  As with everything there is a trade-off, but it might not be as big as you would think.  

Index annuities with 100 percent participation in the S&P index are averaging a cap rate of about six percent on an annual point-to-point.  The one-year term rate on Brighthouse’s Shield product is currently at 11 percent.  The Shield product also has a six-year term product available with a cap rate of 95 percent right now if you use the 10 percent downside protection option.  This means you can grow your account by 95 percent over that six year term before the cap kicks in.  Given these numbers and a $100,000 investment, the best case scenario over a six year time frame, the index annuity would reach an account value of $141,851.90.  Using the six-year term Shield product there would be an account value of $195,000.  The tradeoff for this upside potential is that you cannot guarantee that the client will not lose principal.  However, you can illustrate using historical data that the likelihood is very low.  

Using six year rolling periods from 01/02/1957 -12/29/2017 (660 observations) 94.2 percent of the time the S&P experienced losses of less than 10 percent.  That means with the 10 percent buffer option on the Shield product the client would not have lost any principal 94.2 percent of the time.  If you were to use the 15 percent buffer option (80 percent cap rate) that number would go to 97.9 percent and with the 25 percent buffer option (55 percent cap rate) 99.2 percent.  

Historical data demonstrates that the risk associated with registered index annuities is minimal.  Is it possible to lose money in a registered index annuity? Yes, but history tells us that the probability is low.  If you are a financial advisor, talk to your fixed and index annuity clients and find out if they are comfortable with the possibility of loss, in exchange for more upside potential.  If they are, registered index annuities might be the perfect match.  If you are a third party distributor, contact the carriers you are working with to see if there are distribution opportunities that you are currently missing out on. 

Source: Bloomberg, January 2018