Friday, March 29, 2024

Specialists Trading In Antonyms

When I was 11 years old, I inherited two things from a 14-year-old neighbor kid named Bill:

  1. A parakeet named Clancy
  2. A newspaper route

Bill asked me to take over his bird and his route because he and his family were moving away. I never cared much for Bill. My friends and I called him “Pigeon-toed Monkey Vomit.” He was a scholarly type, wore glasses, and was an only child. (I regret not being more kind to him.)

Clancy seemed lonely and led to the acquisition of a second parakeet. They pretty much hated each other. Neither of them lived more than a few years under my care.

The paper route, on the other hand, set me up pretty well financially. I had 80 customers spread across two sprawling neighborhoods divided from one another by a highway named Winola Road.

The Scranton Tribune was the morning newspaper I delivered to these houses. It cost $1.10 per week back then. When it came time to collect the payments, I walked the same route, but instead of it being 5:00 AM when I started out each morning delivering papers, I showed up at dinner time when I knew most people would be home.

Many, if not all, customers tipped me. That was how I earned money. Rather than give me a dollar and look around for a dime, many customers just gave me two one-dollar bills.

At the end of my second year, at age 12, I had $2,500 in my personal account at First Federal Savings. Being twelve, I walked into their building one afternoon and demanded to see all my money, in cash (specifically in $20 bills, stacked five to a pile, and in 25 piles) on the counter. The first teller balked. And a second. Then finally someone with some clout stepped up and met my demands.

All of this seems other worldly, like part of a story that only exists in history books or fiction. Consider these anomalies from life as we know it today:

  • Daily print newspaper, delivered by a young person walking alone in the predawn hours
  • Six editions of a daily newspaper delivered to the door for only $1.10 per week
  • Cash only transactions
  • People exchanging dimes
  • Commonplace savings and loan institutions
  • Face-to-face banking

Point: Like all things, financial behaviors, commerce, and money matters inevitably, and unpredictably, change over time.

Uprooted
A colleague of mine is planning to purchase rural space in order to create a study center where individuals can reconnect to nature, the land, and to the significance of farming in human life. He describes people as being “deracinated.” This adjective is defined as “uprooted” from one’s natural world, home, culture, or similar environment. “Uprooted” means to be ripped out of place.

In a certain sense, if we live long enough, we are all deracinated from the way things used to be. (Think of my paper route example.)

I am acquainted with many people serving Ukrainian refugees who are dispersed throughout Eastern and Western Europe.

One such person, Donna, is caring for these dear souls currently living in Croatia. I enjoy receiving her newsletters. She empathizes with the refugees, saying of herself (and all of us) “We are all living in exile, trying to find meaning in a place other than home yet longing to return.”

Donna writes: “Exile is when you live in one land, and dream of another. It gives a discomforting disconnect between our memories and our fundamental sense of who we are and the reality of a new identity we have to construct.”

Independent Financial Professionals (IFPs) Serve the Uprooted
Anna Helhoski wrote an article for the web site Nerdwallet, published Mar 7, 2023, and entitled Pandemic at 3 Years: How Our Financial Lives Have Changed.1 Consider her observations:

  • By August 2021, an estimated 2.4 million workers had retired early or unexpectedly since the pandemic began, according to research from the Federal Reserve Bank of St. Louis.
  • Retirement didn’t last long for some. Among those who retired during the pandemic, 27 percent of people returned to work because they simply needed a bigger nest egg to get them through their golden years, according to a report from Joblist, an employment listings and research site; 21 percent said they specifically returned to the workforce in response to inflation and the rising cost of goods.
  • Inflation peaked at 9.1 percent in June 2022—the highest rate in 40 years, according to Bureau of Labor Statistics data.
  • The car market turned upside down. Supply chain problems caused new car production to plummet, pushing more car shoppers to buy used vehicles.
  • The Fed raised the funds rate a whopping seven times in 2022.
  • We changed the way we bought homes. As quarantines lifted and interest rates fell, investors and new buyers made big moves, even snapping up properties sight unseen. Many homeowners opted to refinance to historically low rates instead of putting their homes on the market. Competition for limited inventory heated up, and bidding wars, waived contingencies and cash offers became commonplace.
  • While stuck at home, consumers weren’t spending the way they used to, and those who qualified received an infusion of cash via government stimulus checks. Those factors, combined with higher wage growth, led to historic levels of personal savings. Households accumulated $2.3 trillion in savings from 2020 through summer 2021, Federal Reserve data show.
  • Rates on savings accounts and CDs skyrocketed. The inflation partly caused by pandemic-related supply chain disruptions led the Federal Reserve to increase its federal funds rate multiple times. Banks and credit unions took their cue to raise rates.
  • Small businesses got a hand. From April 2020 to May 2021, over 11 million Paycheck Protection Program loans were issued to provide small businesses with emergency financial assistance, according to an October 2022 analysis of Small Business Administration data by NPR.

The financial lives of our clients no longer look like they did just a few years ago. Compared to when an independent financial professional (IFP) and a client historically met for the first time, almost nothing is what it was back then. Clients have literally been ripped out of place, uprooted, in terms of the physical location where they once worked, lived, traveled to, invested, bought cars, dined, or shopped.

In addition, if in a subtle way, people are even uprooted in how they view money. Today’s digital world influences how clients make financial decisions.

The increased use of electronic payments is changing how clients value money. The more removed they become from their money, the less they may think about how much they’re spending and saving.

Point: The IFP serves a clientele that, to a remarkable extent, works, spends, saves, and invests very differently than just a few years ago. They are financially deracinated.

Welcome the Antonym
For every word there are useful synonyms, other words that have the same, or similar meanings. Example: “Extirpated” is very similar to uprooted and deracinated.

On the other hand, for every word there are multiple words carrying the opposite meaning. These antonyms are the essence of how best to combat the impact of the word they oppose.

Here are some antonyms that are shared between “uproot” and “deracinate:”

  • Build, create, establish
  • Put in, help
  • Ratify, remain, leave alone
  • Welcome, plant, sow

IFPs Help Clients to Build, Create, Establish
Change is often unnoticeable. We roll into disruptions slowly, and pay little attention to what is different.

Post Pandemic there are many things that IFPs can help their clients to build or rebuild, including:

  • Build a realistic post-pandemic, forward-looking budget. Cost of goods and services has changed. Incomes and interest rates have changed.
  • Rebuild emergency savings. During the Pandemic many clients spent their emergency funds when their employment changed, they bought new houses because they were suddenly working from home, or they needed to find things to do outside (RVs, boats, ATVs, etc.).
  • Re-start any savings goals that were paused, such as retirement or college savings.
  • The old trends, frameworks, and financial objectives may no longer be applicable. An IFP can help clients create a renewed financial plan.

IFPs Can Put in, Help
IFPs are equipped to help clients take recovery one step at a time. The IFP can put the client in the right frame of mind. Oftentimes, the client has simply lost perspective. We know that primary-aged children experienced educational setbacks during the Pandemic. Similarly, small businesses, families, and individuals experienced financial setbacks. Fresh perspectives are required in order to:

  • Reacclimate to higher interest rates.
  • Properly assess the volatile stock market.
  • Grasp the impact of gyrating real estate prices.

IFPs Can Ratify, Remain, Leave Alone
Whenever a person survives an upheaval, a perilous moment, or disruption, they emerge wondering what is the same, what needs to receive attention, and what can be left as is. Consider the clients who are wondering if:

  • They still need the disability policies they own.
  • The life insurance coverage they have still meets the need.
  • The Last Will and Testament is up to date.
  • The named gardians for the children are still the right choice.

By sitting down with a seasoned IFP, they can receive reassurance, ratification, and confidence that the insurance owned is still the right coverage, the beneficiaries are still the correct designation, and that executors and guardians remain the proper selection.

Professional IFPs Welcome, Plant, Sow
Spring follows Winter. Bare fields are again resown with fresh seeds in order to grow another crop. On the other hand, for sustainable farming, crops must be varied and rotated.

Clients often need to have their hands held if they are going to make fresh starts, major changes, or significant goal adjustments. The IFP can welcome the clients to new ways of seeing their lives in the context of their financial circumstances. For instance:

  • After a period of no vacations or travel, and no eating out, many clients overspent in the period since the Pandemic in an attempt to make up for lost time. They need to contain the urge to splurge for that exact reason and get back to living and spending like they were prior to the Pandemic. They need to sow new spending habits. They need to rotate from spending to saving.
  • IFPS can welcome clients back to the financial wisdom of thinking long term, spending less than they earn, and keeping an emergency fund.

Summary
The financial lives of our clients no longer look like they did just a few years ago. As an IFP you serve a clientele that, to a remarkable extent, works, spends, saves, and invests very differently than just a few years ago. These clients are financially deracinated.

The antidote is the antonym.

Thinking back to Donna working with Ukrainian refugees living now in Croatia. To combat the feelings of displacement, and uprootedness, Donna led the children in a new direction: “In Croatia, we have delightful times offering craft projects and playing with outside summer toys. For a group that has known deep trauma, toys such as frisbees, beach balls, bubbles, and water squirt guns brought great joy, and physical exercise.”

In their financial lives many clients have never experienced the rapid changes of the last several years. There is a whole spectrum of actions that the IFP can urge their clients to take, and the IFP can be creative. While some clients may face some very hard choices, the experienced IFP is equipped with the skills to combat the feelings of uprootedness.

“One can remain more sure-footed by taking small steps, but perhaps achieve greater speed by taking bigger steps. Of course, one also runs the risk of setting out in a completely erroneous direction. Surely the important thing isn’t the length of our steps, but that the objective is clear.” —Angela Merkel

The seasoned IFP can help clients regain their footing and reorient themselves to the proper objectives. All it takes is a handful of antonyms.

Footnotes:
1. https://www.nerdwallet.com/article/finance/what-did-the-pandemic-change.

Life: This Is Only My First Time

I recently had a friend that came back from a top agent conference a little depressed because this conference was a few days of recognizing him and his peers for their great success. I thought, “What is wrong with that?” He told me that hearing all of the stories from his peers of money, success, etc., made him feel a little “inadequate” in his own life and personal production. My conversation with him prompted this article.

I’m sure, like many of you, when I was a little kid I would look at grown-ups and think that they all had it all figured out. They had all been there and done that and had everything firmly established and planted into the ground. My parents and grandparents always seemed to have the answers to the questions that I thought were complex at the time. They had so much knowledge. They would talk about “10 years ago this“ and “20 years ago that“ and I could not comprehend thinking back that far. Ten or twenty years ago seemed like a lifetime at the time. It also “seemed” like they had very little stress.

Well, once I got into my early twenties, got married, had bills coming in, and we started building our own lives, I started to realize that there is no roadmap to life, no roadmap to career success, and no roadmap to financial independence. You don’t graduate with a college degree and automatically find yourself in the corner office making $1 million per year and everything is fine at work and fine at home.

For all of us—me, you, our parents—this is our first time at life. Breaking news, I know! And because it is all of our “first times,” nobody has the playbook! My parents didn’t have it all “figured out” and they were probably stressed at times, they just didn’t tell us kids! I am now at the age that my parents were when I thought they had everything on cruise control. I even grunt like my dad did when I get up off the couch!

A very vivid realization of the “randomness” in life came when I was 23. At the time, I worked at one of the big “career” insurance companies and on one beautiful fall day I was going about my morning and carrying my coffee into the office in time to make the 8:30 CST stock market open. As I walked by one of the offices of another agent in that building, he said, “Dude, check this out!” Then he pointed at the TV that showed the world trade center in flames. I remember it like it was yesterday. It was that moment when many of our foundational beliefs changed. For the younger folks reading this article, believe it or not, there was a time when getting attacked on our own soil was so far outside of the realm of possibilities. Not just in my 23-year-old eyes, but in the eyes of those wiser than me. In other words, it was the first time any of us had ever experienced this new post 9/11 world. That is something your parents never prepared you for!

Then came COVID. Who would have ever thought that a global pandemic would completely cannibalize all of our lives in the 21st century? That was a first for all of us, whether you were 20 years of age or 70.

If you fast forward to today, I have been married for 23 years now and raising two smart, happy, and athletic kids. I would like to think that my kids have it a little better than I had it, although I had a good childhood. However, now that I am the age that my parents were when I thought they had it all figured out, I realize that they didn’t have it figured out and they were doing the best that they could!

I recently had a conversation with my 16-year-old kid that was a “first” for me. His girlfriend had just broken up with him, and he was very upset. My wife told me I needed to speak with him and make him feel better. I was scared. It was indeed an awkward conversation, because I am not a real warm and fuzzy person. As I was having that conversation I thought, “I probably sound like an idiot.” It worked though. By the end of the conversation, his ex-girlfriend was a dirtbag who would regret it, I was his hero, and my kid felt better. A little sarcasm there. I’m 45-years-old and that conversation was a first for me. To my son, he probably thought that this is what Dads naturally do without thinking about it.

What on earth does this have to do with business? It has everything to do with business because this is all of our first time at life and business. Yes, some of us may have opened multiple businesses, etc., but when you pan out, it is our first time, period. My main message here is, if you ever feel overwhelmed or feel “inadequate” compared to your competition, just know that they probably feel the same way. As soon as you realize that everybody else is in the same position as you, your confidence will go up.

As I told my friend that I mentioned at the beginning, like with social media, in this business there can be people that make it sound like things are perfect in their world, they make a gazillion dollars, and everything is good. That may be the case sometimes but many times they have similar challenges and insecurities as you might have.

Have you ever heard that motivational speaker talk about their three divorces, their previous bankruptcy, the fact that they are in debt up to their eyeballs, etc.? Of course not! According to that person everything is perfect, they have it figured out, and you should buy their book. Although I’m being facetious here, nobody has it all figured out. This is one of the reasons why I tend to not “idolize” celebrities. This is their first time at life as well and they clearly do not have it figured out.

I would even argue that the more driven you are, the less you feel that you have it figured out. However, sometimes you just have to sit back and understand that we are all brothers and sisters in this game, and nobody has it figured out. Once you understand that nobody has it figured out, it makes you a heck of a lot less nervous in life. That will also lead to more confidence.

Yes, there are folks that have more experience and “wisdom” than you because they have already blazed the trail that you are attempting. Thus, it is important to mop up as much information from them as possible, as I did with my mentors, parents, etc. over the years. However, don’t assume that they felt confident as they were doing it. This is all of our first time.

Why You Should Make Disability Insurance Your Everyday Product!

Of course we are biased, as we are a disability centric MGA/wholesaler, so we feel everyone should be presenting individual disability insurance every day. But why would we be so emphatic about disability insurance and why should you be too?

We all sell income replacement: Life insurance is an income replacement product. Of course there are many uses for life insurance in business and estate planning, but the majority of applications many of us see are very simply term insurance. Life insurance is a wonderful concept, someone works and provides an income to their family. That person ends up passing on way too early, and the spouse or family that relied on that income can be left in a lurch. When we hear about someone passing on with dependent children, we always say to ourselves, “Boy, I hope they had life insurance.”

When completing an application for life insurance, the company needs to know the person’s income… Why is this? If the insurance is for income replacement, the underwriter will use a multiple of income to determine how much coverage can be issued to replace the income.

Life insurance is different, as it’s easier to sell
We occasionally will hear this from some producers, “Life insurance is easier because everyone knows they are going to die.” In actuality, everyone also gets disabled before passing on. We just don’t know how long that disability will last. It could be a few minutes, could be a few hours, a few days, a few months, a few years or decades. Disability planning and the underlying insurance should be just as easy of a conversation.

Disability is a must conversation
Regardless of your main product, the conversation about a client’s game plan if they can’t work is a must. Many clients will spend more time planning a vacation or wedding than they do planning for a possible personal tragedy. The conversation is essentially, “Tell me what are your plans if you could no longer work due to an accident or chronic illness?” From there, listen and take notes. Regardless of where the conversation leads, every sale starts with a conversation. Everyone actually has a plan, whether they know it or not. If they bought insurance to cover their risk, good for them. If they hadn’t even thought about it or chose to roll the dice and go without insurance, they are essentially self-insuring the risk. Regardless of the outcome, having this conversation is healthy for your clients and even more healthy for you and your practice.

Disability insurance is an everyday product
It’s important for you to make this disability planning an everyday conversation and everyday product you quote. Income planning is the cornerstone of any financial plan, whether formally or informally planned out. You can have some fun with the planning as well. While the conversation is definitely serious in nature and a must to have, it can also be approached in many different ways. One of our favorites goes like this: “If you couldn’t work due to an accident or illness, and had to be at home to recover, you’re going to need a few things: You’ll need a roof over your head, so let’s cover the mortgage or rent. You’ll need your electricity, gas, water, so let’s cover the utilities. You’ll want to watch TV, so let’s cover your cable and/or internet. You’ll want to eat and order in some pizza, so we’ll need some money for food. So, at a minimum, we’ll need to cover “x” amount so that you can at least hang out at home, watch football, order pizza and be able to wash your hands and brush your teeth.” If you do that exercise with most people, you’ll notice that the amount of coverage needed is typically about $3,000 to $6,000 per month at a minimum. Of course, most clients have more fixed expenses, such as the cost of cars, insurance, clothes, and childcare costs are just among the few additional fixed expenses that clients need to cover. In addition, many producers just ask us to run the maximum someone can obtain based on their income.

While producers may have varying opinions regarding how to work with clients to determine the amount of coverage needed, we would probably all agree that having the conversation needs to be a daily occurrence.

How will you make disability insurance a daily conversation in your practice?

The Puzzle Pieces To Efficiency

In the dynamic world of life insurance, staying ahead of the curve is paramount. Life insurance distribution processing has evolved significantly in recent years, thanks to the fusion of agency management systems, human capital, and data. This harmonious blend of technological innovation and human expertise has unlocked new avenues for efficiency and customer-centricity in the insurance industry.

Agency management systems are the linchpin of modern life insurance distribution. They provide BGAs with a centralized hub to manage their operations, streamline processes, and optimize agent interactions. These systems not only reduce administrative overhead but also empower agents with real-time information, enabling them to make informed decisions and offer better service.

The integration of agency management systems into the distribution process has revolutionized policy issuance, underwriting, and claims processing. BGAs can efficiently track policy applications, generate quotes, and manage compliance. This streamlining of operations is a win-win, as it saves time for both agents and clients, ensuring a smoother and faster customer experience.

While technology is essential, the human touch remains irreplaceable in the insurance industry. Human capital, in the form of skilled agents and underwriters, plays a pivotal role in life insurance distribution processing. Agents build trust, guide customers through complex policies, and provide personalized solutions to meet individual needs.

Investing in human capital development, training, and retention is crucial. BGAs need to adapt to the evolving landscape of insurance products and regulations continually. Equipped with agency management systems and data analytics tools, agencies become more efficient and capable of delivering a seamless experience, ultimately enhancing customer satisfaction and loyalty.

Data is the lifeblood of the modern insurance industry. The fusion of data analytics and agency management systems empowers insurers with actionable insights. Advanced analytics can identify trends, assess risk, and tailor policies to meet specific customer needs. It can also predict future market conditions and customer preferences, enabling proactive adjustments to product offerings and distribution strategies.

Moreover, data-driven underwriting allows carriers to assess risk more accurately and make quicker decisions. This not only benefits the insurer by mitigating risks but also benefits the customer by potentially lowering premiums for those who pose lower risks.

The synergy between agency management systems, human capital, and data creates a dynamic ecosystem that is greater than the sum of its parts. When these puzzle pieces come together, BGAs can deliver a seamless, customer-centric experience. Agents armed with cutting-edge technology and data insights can provide tailored solutions, improving client relationships and driving business growth. These tools are provided by the BGAs to their agents through their website agent portals.

Life insurance distribution processing has been transformed through the fusion of agency management systems, human capital, and data. This synergy empowers carriers to enhance efficiency, engage customers on a deeper level, and make informed decisions. As the insurance
landscape continues to evolve, embracing this fusion is not just an option but a necessity for staying competitive and meeting the evolving needs of insurance advisors.

Supporting BGAs with Technology and Outsourcing Staff
We all wondered what the new norm was going to be post pandemic. There are organizations who went back to office, others have taken a hybrid approach, and some have gone completely remote. This newfound freedom of choice has more and more individuals looking for new opportunities in search of the company culture that best matches their needs. Staffing shortages have hit many and attracting new staff or supporting the great people you have has been a challenge. How do you continue to maintain let alone elevate the level of service that attracts new and maintains your current customers? I have been working with eNoah iSolutions for several years. What makes them different is that they are not just a business processing outsourcing service, but infusing technology to automate the distribution process for life insurance. I reached out to Stacey Paulson, director of Insurance Services at eNoah. “At eNoah, we understand the uniqueness from firm to firm and do not take a ‘this is how we do business’ approach, but rather learn what your culture is and how we can best support you. Your dedicated eNoah team member becomes an extension to your team to help support and allow them to spend time on what matters most for your organization. There is no one size fits all. That is the beauty of the brokerage world. Each organization has their own culture they developed to support their customer base.”

They are seeing new firms/agencies rise and as they grow are working on how to create internal efficiencies. Whether you are starting new or have an experienced agency, it’s hard to focus on the change that is needed and still handle the day to day. eNoah helps during these times of growth or restructure. Whether it be simplistic data entry into your AMS system to commission reconciliation on the backend and everything in the middle. They are there to support you as you grow.

IT resources are in short supply, especially those that understand the needs of the insurance industry. If you are fortunate to find a resource, it’s costly. You don’t have to wait to bring your website or tools to the next level. eNoah has over 550 IT engineers who can help with Application Development, Cloud Services, Testing and Database Support. Visit eNoah iSolutions.

Data Drives the Process
Carriers and distributors face many of the same challenges today. How to streamline and simplify the insurance buying process to create a better customer experience. If successful, this will lead to better placement rates, reduced acquisition costs, and more smiles on more faces. How can this be accomplished? To begin, understand that data drives the process. By knowing the prospective customer as early as possible in the process, we can better understand what is the best solution for that individual. It starts with their goals and then it is up to the agents, advisors, and carriers to help determine what is best suited for them. Analyzing that data and moving it forward in a seamless fashion not only helps the process move more efficiently, but ultimately leads to the right product and the right carrier being chosen for the prospective client. It also may lead to a separate conversation about additional products or services that could be of value. At Paperless Solutions Group (PSG), an MIB business, they realize that purchasers of products, those who distribute them, and those that manufacture them all need to work together. That is why PSG looks at the process from a holistic perspective and makes sure that their solutions are customized for each specific situation. If the suit doesn’t fit, you probably should not buy it. While an “out of the box” solution may be an easy decision, is it the right decision for you and your client?

All this being said, obtaining accurate data and moving it along the sales cycle will lead to a more efficient process for all organizations involved in the process. Reduction in cost and greater efficiency is what we all aim for. API’s are a must in order to do this as you may need to “bolt” solutions into an existing architecture if it will allow. To protect more families, we must play nice in the sandbox with each other to meet that ultimate goal. See the end-to-end life insurance process at Paperless Solutions Group.

Talk Is Cheap

One of my father’s favorites was “Talk’s cheap, takes money to ride the train.” Financial priorities must now be drastically changed. Institutional care business as usual must be served a cease and desist order. COVID took no prisoners, over half of all deaths in countries around the world took place in a nursing home. The pandemic vividly exposed the lack of care in institutional settings. COVID has reshaped many social interactions worldwide from a global glut of office space to further exposing the truth about the lack of care in nursing homes in countries all around the world. It has been suggested that very little nursing takes place and frequently it would be hard to describe these facilities as anything resembling a home.

Obviously, for those who have a home or the living family support necessary, to establish universally desirable alternate home care would be the unequivocal truth at the heart of all conversations about assistance with ADLs and IADLs. Nursing homes have unfortunately long held a less than stellar reputation for quality of care. Care quality is policed by the government in the United States, Medicare and Medicaid, hopefully guided by consumer choice with an established ironclad commitment to quality. Home and community based care is already driving the bus. Currently 65 percent of caregivers are a spouse or children. Shortages in the quality of institutional care in America are being exacerbated by increasing mortality, many living into their 90s and children who in the past might have succumbed to premature births or medical complications are increasing the number of those who will need disability care.

Currently Medicaid spends 57 cents of every dollar of HCBC, however only 15 percent of those receiving those dollars are over 80. More importantly, as a percentage of those receiving care at home in relation to overall, health expense is among the lowest in the world with America spending only five percent. The average in the world is three times that amount. We cannot keep throwing discounted dollars, meaning knowingly insufficient funding, at a problem that is about to explode. I am among the oldest Boomer generation. Thank God I am facing that aging certainty with a paid-up comprehensive TQ long term care indemnity policy. I will, of course, struggle with the notion that not all who read this column have already put their own protection plan in place. And I will not over excite my blood pressure by even remotely thinking this conversation is not a sacred component of every agent’s fiduciary responsibilities.

Maybe we could all agree to make just one change. Think small! Even those states beginning to mandate a payroll tax are only creating $50,000 plus of financial support. The truth is $50,000 can provide substantial support, particularly if that support takes place at home. Average claims are between two and three years and 50 dollars per day would certainly strengthen a well-managed HCBC plan. I don’t think the industry could make it any easier to add a rider which only gently affects a life sale pricing, again focusing on a small step but always in the right direction.

Please do not misunderstand. The government must now make this a national priority like a war on drugs or poverty. The private insurance industry can continue to aid and supplement a newly enhanced focus to augment quality care in an HCBC environment. There are those who have always claimed we may have originally bit off more than we could chew. If we can increase sales by thinking small, we reduce underwriting friction, decreasing cost and accelerating access, again by thinking small and accomplishing achievable goals. It has also been strongly suggested that HCBC needs to think small, creating a much smaller setting for care to take place. The “Small House” care experiments are showing great promise.

Thinking small may finally create a basis for sustainable sales success. We may again reclaim the middle class as our own. We may escape some of the restrictions of pre-existing underwriting taboos. We may give carriers the optimism of some reserve restraint, growing policies under management with reduced manageable risk.

I can’t believe I’m saying this but please let us Think Small!

Other than that I have no opinion on the subject.

A Number

Somewhere in the cacophony of political talking heads I keep hearing the proffered wisdom that “age is only a number.” Which is of course perfectly okay as long as it’s not your number that is up… My suspicion however is that this antiquated gem of cultural wisdom is however being offered as a rationalization to maintain the status quo. Clearly there are many voices on both sides of this far too often called upon chronic social euphemism.

The success or failure of directly addressing the needs of the long term care conundrum has always been just a number. Therefore, in no particular order of significance:

  • When is the optimum age to acquire protection? At what young age do I simply just postpone an inevitable conversation? At which age mile marker do I stop asking if my client is ready now? At what age do I simply give up the quest per potential client?
  • What is the age at which age related disability will become your number one financial and emotional consideration ?
  • What is the number of days that I can personally pay for care before I can depend on government dependence? How many days can my savings hold if I need 24 hour care at home?
  • What is the number of discretionary dollars I can commit for long term care premium or savings before my finances implode?
  • What is the number and cost of claims risk that will actually await me in 20 or 30 years of inflation? “Where is your million?”

Yes, these are only numbers and I need to stop here as by now you should have had the thought that this list is infinite and this is a finite column.

I have never been a fan of simply hurling statistics at our wall of denial. It is after all the composite generational numbers of the age of birth that may best define statistical predispositions. For almost 30 years I have walked to the front of the room to tell our story. I inevitably began with some version of Paul Revere’s ride: “The Boomers are coming! The Boomers are coming!” This frequent observation now reminds me of the Stephen Sondheim ending of the song Send In The Clowns:

Don’t you love farce?
My fault, I fear
I thought that you’d want what I want
Sorry, my dear
But where are the clowns?
Quick send in the clowns
Don’t bother they’re here

Those born in the mid-20th century between 1946 and 1964 have, during the length of tax qualified LTCI, been our primary target market.

Boomer numbers peaked in 1999 and remained the largest adult population until 2019. Most notably for retirement planners who include long term care risk in their practice, the number turning 65 has grown to 12,000 per day and those hitting 65 peaks next year. There is not enough room in this column to adequately document the retirement shortfalls of all Americans. And I don’t think anyone knows the status of the problem better than those long term care insurance promotion veterans who fought and continue to struggle to do all they can to blunt and hopefully soften the blow of potentially catastrophic risk.

If age is just a number, perhaps we simply need to move on to a different set of numbers. Boomers are now on the precipice of those needing care. They and we may have crossed a line in the insurance sand where assets and income are frozen and progressive aging disabilities severely restrict insurance planning options. Simply meaning that, for us, underwriting resistance is now dug in like Russian trenches in eastern Ukraine. I will not admit defeat nor certainly stunning success. We have placed billions of insurance dollars ahead of the claims that will certainly push through our collective defenses.

Perhaps it is time to fall back and regroup our attack on a different statistical cohort. Millennials born between 1982 and 2000 are, as of July 1, 2019, the biggest age group in American history. They are primarily the children of Boomers currently wading into the necessity of additional care. As of July 1, 2019, they are the largest generation in our “currently at work” force, just beginning to turn 40.

As you might expect, much has been researched about their buying predispositions. They still believe in a bright future. Technology is their friend, not a daily adversary. The recession in 2008 left indelible marks on their psyche. Their fear of a financial catastrophe is more than of the Great Depression. They are known as the “Me” generation although they live more with parents than roommates. They have a more communal nature than their parents and thrive in a network of social media platforms. They currently command a trillion dollars of buying power and four out of 10 are willing to buy a product that supports a cause.

Based on our LTCI marketing limitations of the last 25 years, how could we not recognize a fantastic potential sales opportunity? If you carefully reread the last paragraph, how could we even imagine a more fertile ground for future sales success?
Other than that, I have no opinion on the subject.

Advanced Markets Life Sales: Harnessing The Power Of Technology Tools

When we utilize life insurance in more advanced market scenarios, we find that the financial planning capabilities provided by brokerage general agencies (BGAs) are somewhat limited. Software solutions commonly used by financial planners, such as MoneyGuide Pro, EasyMoney, and NaviPlan, for instance, offer only minimal support for integrating life insurance into their planning processes. This highlights a significant disparity in the tools available to life insurance agents compared to those provided by BGAs. Below are two examples of closing the gap.

Market Technology
I reached out to Ian Ryan, brokerage director at BackNine Insurance and Financial Services who explained how their digital platform solutions for agents is not just for selling simplified term insurance products. BackNine’s strategic expansion into partnerships with like-minded companies dedicated to automation and technology in the advanced life insurance markets marks a significant milestone in the industry’s evolution. Their Advance Markets department now supports premium-financed life insurance designs on automated quoting and submission platforms while ensuring that these solutions adhere to conservative constraints and meet the due diligence standards upheld by financial services firms nationwide.

In the realm of financial services, the concept of premium financing has long been a cornerstone of strategic planning, primarily adopted by individuals entrenched in the life insurance industry. With a focus on nationwide marketing and life insurance products, these professionals understand the nuances of ensuring a secure financial future. Financed life insurance plans are divided into two sub-categories: Traditional and bank leveraged arrangements, each deserving recognition for their unique attributes. Both options have their merits, catering to diverse preferences and needs, offering policyholders distinct advantages.

Traditional premium-financed plans are renowned for their intricacy, requiring ongoing management and a policy owner with financial sophistication. Therefore, BackNine restricts these services to agents whose clients possess a minimum net worth of $15 million and a suitable profile for long term planning. Beyond suitability screening and case design, they partner their agents with established lending brokers, handling substantial premium loans, to provide clients with a reliable path forward.

The premium lenders they recommend go beyond the conventional role of a bank, by harnessing a rich pool of resources, tapping into multiple capital avenues, and crafting solutions exclusively designed for the life insurance sector. This involves leveraging not just banking resources but also integrating proprietary capital markets to serve the distinctive financial demands of affluent individuals. These institutions work to facilitate financing solutions not just for newly minted life policies but also for existing ones, ensuring a broad spectrum of clients can benefit from their expertise.

In the world of premium financing, bank-leveraged planning stands out for its ability to reduce risk in premium financing arrangements. This reduction encompasses several key elements: No loan underwriting, no financial credit checks, no loan documents, no interest payments, and no personal guarantees.

While traditional premium financing typically caters to the affluent and high-net-worth, Back Nine’s program takes a more inclusive approach. They achieve this by leveraging a streamlined process, powered by the same seamless technology featured in their Quote & Apply™ software, to reach individuals earning annual incomes of $200,000 or more across all 50 U.S. states. This effort underscores BackNine’s commitment to make premium-financed life insurance accessible to a broader audience and empowering more life insurance agents to better serve their clients.

For agents that find themselves with clients in the upper echelons of income earners making $200,000 and up, those clients’ lives might seem more comfortable than for most. However, this higher income often comes with its own set of challenges, particularly when it comes to saving for a secure retirement. Depending on who you ask, 40 to 60 percent of working Americans have not saved enough for their future retirement. Most financial planners are suggesting clients put aside 10 to 20 percent of their pre-tax income to achieve a comfortable retirement. BackNine recognizes these challenges and offers tailored solutions, including leveraged life insurance planning, that have the potential to significantly enhance supplemental retirement planning for licensed life insurance agents.

One often overlooked advantage of premium-financed life insurance is its capacity to empower you as an advisor to educate your clients on using pre-tax dollars (via premium loans) to further enhance their supplemental retirement planning. These plans undergo meticulous design and rigorous stress testing, all with the anticipation that those pre-tax dollar premium loans will be repaid from the policy cash values. As a result, your clients may have the potential to access 60 to 100 times more in living and death benefits. This balanced approach emphasizes both growth and protection, ensuring that clients have a spectrum of options at their disposal. This not only provides financial security but also the flexibility to customize their supplemental retirement plan to align with their unique needs.

For agencies and agents seeking a streamlined and tech-savvy approach to life insurance marketing, BackNine Insurance & Financial Services, Inc., offers a comprehensive suite of tools and services tailored to the modern digital landscape. For more information on these solutions or to learn more about BackNine and how to get started, visit https://www.back9ins.com.

Testing IUL and VUL Policy Illustrations
IUL and VUL policy illustrations have a credibility problem—but these illustrations have been the only “tool” available for agents to demonstrate the expected future performance.

IUL policy illustrations are calculated using an AG49B specified maximum crediting rate—and it’s used as a constant for many decades in the future. However, the “market” underlying the Index will fluctuate every year—and in the real world—will produce a range of policy credits subject to the non-guaranteed cap and participation rates and the floor rates!

Similarly, VUL policy illustrations allow a specified (gross) crediting rate as high as 12 percent—and again, use that rate as a constant for the entire duration of the illustration. Here the market isn’t constrained—the S&P500™, for example, has been as high as +34 percent (1995) and as low as -38 percent (2008)!

There hasn’t been a reliable way to test illustrations subject to these kinds of volatility and non-guaranteed elements—until now. Agents and policy owners can gain important insights from a newly introduced service, called Life Insurance Sustainability Analytics (LISA), which provides a more realistic view of the long term life insurance policy’s performance.

The answer for agents: How “sensitive” is the policy performance to premium and living benefit amounts and changes to the non-guaranteed parameters, in the context of underlying volatility, is a question that can now be answered. This is a critical component of the sales process and agents can use these insights to adjust illustration designs, making the sale with more confidence and less risk to the client and to their practice.

The answer for clients: Clients form their expectations around policy illustrations, but the illustrations cannot provide a realistic view of what is likely to happen. That’s true when you calculate a premium based on the assumed crediting rate, as well as for the projected retirement cash flow of an illustration attempting to show, “How much can I take out of the policy for retirement?”

Let’s say you’ve run a death benefit-oriented IUL policy illustration using a calculated premium based on the maximum AG49B crediting rate of the chosen index—is it a problem if the volatility assessment comes up with only a 62 percent likelihood the policy will sustain to at least age 100? If that’s an issue you can use LISA to re-design the premium to meet the client’s probability objective. It is an excellent way to reinforce that you provide solutions in your client’s best interest.

If the sale involves a retirement income oriented IUL policy illustration, using the maximum non-MEC premium, and solved for the largest policy loans (income) based on the maximum AG49B crediting rate of the chosen index—is it a problem if the volatility assessment comes up with only a 55 percent likelihood the policy will sustain to at least age 100? If that’s an issue—you can recalculate the future retirement income to meet the client’s probability objective.
These are simple solutions that demonstrate to your clients that you are dedicated to their long term success. You can uncover and fix these problems and avoid disappointed clients! Test the illustration to find the likelihood of success—while modifying premium amounts and/or policy withdrawal/loans—that fits the client’s risk tolerance.

If you would like to see a demo of Life Insurance Sustainability Analytics (LISA) and also get a free trial then visit https://lifeinsuranceanalytics.com.

Image by Gerd Altmann from Pixabay

KFC Or Kentucky Fried Chicken? “Disability Income Insurance” Or “Income If You Can’t Work Insurance?”

October is here which means World Chicken Day is here on the second Thursday of October, October 12 this year. This reminds us of the KFC or Kentucky Fried Chicken story. You can look it up, but in general, the KFC marketing name evolved out of the Kentucky Fried Chicken marketing department. This leads us to the name that many of us refer to when describing the product of disability insurance.

When you mention the word “disability” what springs into your mind? For many, it’s a wheelchair, as that has become the sign for handicapped or disabled parking. In almost every parking lot in America, there are parking spots reserved for those who are considered disabled. Most likely, you know of or have seen someone who needs to utilize handicapped spaces. In addition, you may have a preconceived notion and visual image of what it means for someone to be disabled enough to have a placard.

To many insurance producers, the name Disability Insurance is a misnomer, as the insurance isn’t designed to be medical insurance but to help replace a portion of someone’s income if they become disabled. This is why it’s important, at the very least, to add the “income” part to Disability Income Insurance. Understanding the psychology of words is essential for people’s interpretation and understanding of the planning concepts and insurance products you are recommending.

Some in our industry recommend describing disability income insurance differently all together, as they feel that name conjures up thoughts of wheelchairs, crutches or individuals who have some type of malady that can be visibly seen or heard. While these images may reflect someone who may perhaps qualify for a disability insurance claim, the insurance is designed to replace a portion of income due to these types of conditions. Income replacement is the focus. Perhaps a name such as “insurance to replace your income if you can’t work due to an accident or extended illness” would be a better description, but that name is obviously too long.

Disability income insurance is the industry product name, so we need to give better descriptors to our clients. Some producers will just use the industry name of the product when describing the insurance, with the assumption that the consumer will understand the concept. Others will ask questions to assist the client’s understanding of the product. For example, “What is the longest vacation you’ve ever taken?” Most people will say about two weeks, with the producer’s next question being, “Why only two weeks?” The typical answer is, “We had to get back to work.” For most people, they need to get back to work in order to make sure an income is still coming into their household.

One of the biggest fears that people have in retirement is outliving their savings and not having enough income available to them in order to maintain their standard of living. These are typically individuals who are on a fixed income.

If someone can’t work due to being injured in an accident or having to try to recover from a sickness, they have suddenly become your fixed income clients in that they need to live off their assets. An insurance policy that pays a monthly income to a client who can’t work allows the client to have outside cashflow and can allow the preservation of capital and other assets.

Remember, there are essentially two different timelines of injuries or sickness that cause a loss of work. There are the sudden injuries or illnesses that cause one not to be able to work, such as a major car accident or severe stroke. Hopefully that person can get better and eventually get back to work in some capacity.

The other timeline usually involves a longer ramp up before someone is unable to work at all due to their illness. A good example of this would be someone who develops MS, ALS, cancer and many other diseases that have deteriorating properties that eventually can prevent one from having the physical and/or mental ability to work. You noticed that in these descriptions, the word “disabled’ was never used. It was actually challenging not to use the word disabled, as it’s become so much part of our insurance lexicon. In actuality, it’s the lack of ability from an injury or sickness that prevents one from being able to work which causes the financial hardship that planners wish to prevent.

So, remember, regardless of what you call October 9, how you describe disability income insurance to your clients is of daily importance.

The #1 Social Security Mistake I See

I think almost every financial professional should be somewhat astute with Social Security. After all, Social Security is one of the very few things that almost all of our prospects and clients will have in common from a financial standpoint. Almost every one of them will be filing for their Social Security benefits eventually, and therefore doesn’t it make sense for all of us to be able to field those questions if they come up?

I know there are some folks that believe that wealthy clients do not care about optimizing and maximizing their Social Security. That may be true for some of them, but I will say, when our agents and I conduct Social Security seminars, if we have 20 consumers in a room a few of them will be millionaires. So, although I do agree that the ultra-wealthy may view Social Security as a rounding error in their overall portfolios, I would adamantly say that there are plenty of affluent consumers that do care about optimizing their Social Security.
With that, I wanted to share with you the number one mistake that many consumers make or intend on making when it comes to filing for Social Security. This mistake is purely because of their misunderstanding of how Social Security works.

First off, let’s step back and talk about “Delayed Retirement Credits.” We all know that when you delay filing for Social Security retirement benefits past full retirement age, you get a .66 percent increase per month that you delay past that point. So, that comes out to be eight percent per year in delayed retirement credits. This means that if my full retirement age is 67, then by delaying until age 70—which is the latest I can delay while getting delayed retirement credits—then I will have a 24 percent increase on my Social Security benefit permanently! In a time where everybody is living longer, if you do the math over your expected lifespan, delaying often makes sense. (Note: Good Social Security software will calculate and compare the total amount of Social Security benefits you would get over various “lifespans” and different filing dates.)

So, where is the mistake that I see many consumers make or intend to make (until they speak with me)? It has to do with spousal benefits. What I just explained regarding delayed retirement credits is if a Social Security recipient is going to be taking Social Security based off of their own earnings record. However, if you are in a situation where you are taking spousal benefits based off of your spouse’s earnings record, delayed retirement credits do not apply.

Let’s take a 63-year-old couple who is trying to decide when they should file for Social Security. Because they were both born in 1960, we know that their “full retirement ages” are age 67 (per the Social Security tables). He has made a ton of money over his lifetime, and she has made very little. This hypothetical is not Charlie being a stereotypical pig but is actually very common in families—like mine. Oftentimes she has stayed at home with the kids and therefore has not earned much while her spouse continued to work to bring home the bacon! By the way, we all know who had the toughest job, and the most important job. Her! Well, the Social Security administration recognizes this dichotomy and therefore says that if 50 percent of one of the spouse’s full Social Security amount (Primary Insurance Amount) is more than her full retirement amount which is based on her own earnings record, then she can take her Social Security benefits based off of 50 percent of his full retirement amount. For instance, if his full retirement benefit is $3,000 per month based on his earnings record and hers is $1,000 per month, then you can bet that she will be looking to leverage the spousal benefit, which would come out to $1,500 per month. To be clear, I am saying “full retirement amount” to simplify the conversation. Technically, it is the “Primary Insurance Amount,” which is defined as the amount of Social Security benefits one would receive based on their earnings record at full retirement age.

So, for our 67-year-old couple it is a common strategy for him to delay filing until age 70 in order to get that 24 percent step up in his benefits. If his “Primary Insurance Amount” was $3,000 (at full retirement age) then by waiting until age 70, he would get $3,720 (not including COLAs) for the rest of his life. It may also be natural for her to also want to delay until age 70 so that she gets those 24 percent step ups on her spousal benefit. She might think that those eight percent delayed retirement credits would be on top of her $1,500 per month benefit. Wrong, Wrong, Wrong.

As I have told several consumers, spousal benefits do not get those delayed retirement credits like they do if it was otherwise based on her own earnings record! Hence, if she delays until age 70, effectively what she has done was left three years of benefits on the table. Again, this is because there is no reward for waiting until age 70 when it comes to spousal benefits. Her spousal benefit at age 70 would still be $1,500 (not including COLAs). Again, she left three years of benefits on the table. Wouldn’t that be a shock to her once she turned age 70 and saw that she only got $1,500?

More than likely, the ideal strategy would be that she files at her full retirement age (67) so that she does not leave those three years (ages 67-70) of Social Security benefits on the table. However, remember that, unless her spouse has filed for his benefits, she does not get the spousal benefit at least until the time comes that her spouse files.

So, because our hypothetical guy won’t file until age 70 in my example, then what benefit will she get between the ages of 67 and 70? The benefit is based on her own earnings record, $1,000 per month (not including COLAs). Then, when he files at age 70, her benefit will bump up at that time to reflect the spousal benefit.

What have you done by alerting this couple that spousal benefits do not get delayed retirement credits? You have allowed her to not leave $36,000 ($1,000/month times 36 months) on the table!

(Note: We will be displaying some great Social Security software that agents can utilize at our Chicago, Des Moines, and Minneapolis Lunch and Learns in November. If this interests you, inquire with us about registering at info@cgfinancialgroupllc.com.)

Time To Realize The Power

Many years ago, when I first started selling life insurance, I often found myself with hours of unassigned time on late weekday afternoons. I frequently spent the time in the public library reading. (I was a little lazy in the beginning of my career.) It did not take long before my new bride, herself a hardworking first grade teacher with as many as 30 kids in her class, began innocently asking, “How was your day?”

Soon, just anticipating her question caused me to step up my game and make better, more productive use of my time. There was power in her ability to influence my behavior. Since those early days, my wife has helped me grow in innumerable ways and is responsible for my maturing in every direction possible. (She’s nowhere near done, however!)

“Anyone who thinks that they are too small to make a difference has never tried to fall asleep with a mosquito in the room.”—Christine Todd Whitman

Point: We can have an effect on other people in ways that exceed our comprehension.

Self Motivation
In his comprehensive overview of moral philosophy, The Theory of Moral Sentiments (1759), Adam Smith introduced the concept of the “impartial spectator”—an imagined third party who allows an individual to objectively judge the ethical status of his or her actions. Smith believed that we judge ourselves only by imagining what an impartial spectator would approve or disapprove of in our conduct. Underlying this idea is the fact that we have a natural desire to be loved and we dread receiving blame.

Whenever I endeavor to examine my own conduct…I divide myself as it were into two persons: and that I, the examiner and judge, represent a different character from that other I, the person whose conduct is examined into and judged of. The first is the spectator…The second is the agent… (TMS III. 1.6)

Once we grasp the idea of an indwelling impartial spectator, believing that we are capable of judging ourselves, we construct a new delineation between being praised and being praiseworthy, being blamed and being blameworthy.

There are many limitations of this notion, but primary among these is the fact that such a system, if it existed, can only be applied retrospectively. It is unwieldy and not useful for making prospective decisions.

Point: As human beings, we have a conscience, we are aware of social mores and norms, and we have a sense of what is best, or just good, as well as what is unconscionable, or just out of bounds. Nevertheless, we need others to keep us accountable.

Time to Realize the Power
An independent financial professional (IFP) has an impact on a person or family or business whether or not he or she writes any insurance, invests any funds, or earns any fees. In fact, an IFP can have incredible impact on client behavior without actually meeting regularly or in person.

According to Investopedia, “Advisors’ real value lies in managing client behavior. Their mission is to keep their clients focused on their goals, even as their short-term objectives may change.”1

On the Web Site for Michael Kitces, guest post writer Derek Tharp wrote the following: “The unique power of the human-to-human connection means clients can achieve better behavior, change outcomes, with a financial advisor than they may be able to achieve by themselves or through the use of technological tools. Because when a human is involved, we often have few options for totally avoiding the unfavorable perceptions we think others may have about us if we don’t follow through on our goals…which can be highly motivating. In the case of technology, while it may provide useful behavior change reminders…we can always just turn off the technology and feel very little guilt. But it’s far harder to just ‘turn off’ an existing relationship with another person.”2

This is noteworthy. The iPhone in the client’s hand is capable of doing innumerable things to help clients to better organize, maximize, multiply, and research nearly everything. Yet, an IFP has even more power!

“How wonderful it is that nobody need wait a single moment before starting to improve the world.”—Anne Frank

At the outset of the COVID-19 Pandemic, Harvard Business Review published an article addressing the changes that remote work would likely have on productivity. The article stressed the importance of human-to-human contact.

“Social psychologists have known for decades that people are motivated to work harder when others are watching. When they are observed, people run faster, are more creative, and think harder about problems. These effects occur for several reasons. For one, people want to impress others through their performance, and thus try harder. Anyone who has ever stayed in the office late when their boss was still around experienced this phenomenon.”3

When a client engages the services of an IFP, it is with the intention of upgrading every aspect of a financial life. Intuitively, clients know that a certain degree of accountability is necessary in order to achieve desired outcomes. They expect this accountability to come from personal interactions.

If the presence of an IFP has a fundamental effect on clients and what they do or how they behave, it also impacts how they think about their actions. Somehow, what a client does or doesn’t do magnifies in importance just because an IFP is liable to ask questions in their next meeting.

“When others are watching, people include others’ perspective into their own perspective. The dual perspective then magnifies their work, because investing time, energy, and effort into something that feels big and meaningful is much more motivating than investing in something that feels small. The magnification of one’s work increases one’s motivation to work more and harder.

People magnify what they do not only when they are observed, but even when they merely feel observed.”4 (Author’s emphasis)

A Brief Physics Lesson
We should not be surprised by any of this because this is how the world works.

In physics, there is something called “The Observer Effect.” A disturbance takes place when someone observes a closed system simply by the act of observation.

“This is often the result of utilizing instruments that, by necessity, alter the state of what they measure in some manner. A common example is checking the pressure in an automobile tire, which causes some of the air to escape, thereby changing the pressure to observe it.”5

“The Observer Effect is the fact that observing a situation or phenomenon necessarily changes it.”6

Point: Scientists make extreme efforts to eliminate the impact of their own presence on whatever they are studying. Human beings give off heat, radiation, air movement, carbon dioxide, bacterial contaminants, oils, moisture, and other factors that impact measured outcomes. Our scientific equipment similarly contaminates the objects under study.

The Hawthorne Effect
One subset of The Observer Effect, related to the study of human behavior, is The Hawthorne Effect. Many decades ago, a study was conducted at a factory named Hawthorne Works. The study analyzed the change in human behavior, especially productivity, by changing the amount of light at the Hawthorne Works and measuring its impact on working practices. Greater lighting led to temporary increases in production. Why? Greater lighting made everything and everyone more visible.

Applications of lessons drawn from The Hawthorne Effect are incorporated into many activities aimed at influencing the behavior of innumerable, randomly selected people whose actions occur simultaneously, or consecutively.

One such application is called the “Red-Light Camera Program.”

“In a Red-Light Camera Program, a camera is installed in a location where it can take photos or video of vehicles as they pass through an intersection. City employees or private contractors then review the photos. If a vehicle is in the intersection when the light is red, then a ticket is sent to the person who registered the vehicle.”7

The idea behind these programs is to reduce cross-street collisions. Theoretically, drivers should fear the possibility that they will be fined and will therefore be more likely to stop at the light, consequently lowering the number of accidents. And in fact, evidence clearly shows that Red-Light Camera Programs are effective at decreasing the number of vehicles running red lights.

Independent Financial Professionals and The Observer Effect
“You may find that making a difference for others makes the biggest difference in you.”
—Brian Williams

IFPs provide human-to-human accountability, a key value-add that will be hard for computers and AI to ever mimic.

“When a human is involved, we often have few options for totally avoiding the unfavorable perceptions we think others may have about us if we don’t follow through on our goals.”8

Application of The Observer Effect for IFPs

  1. When an IFP assigns expectations of a client, ones that are SMART (Specific, Measurable, Attainable, Relevant, and Time-based) the client can expect to later account for the results. This will change the trajectory of the client’s behavior.
  2. An IFP can consistently remind clients that each goal aligns with what the clients want to accomplish. Failure of the clients to follow through on their responsibilities will cause them to not achieve what is important to them.
  3. An IFP can help clients wisely assess their behavioral motivations by evaluating the ways in which the clients’ various social groups that they belong to influence their spending, savings, and investing habits—positively or negatively.

Practical Ideas:

  • Record and send a video of you asking the clients to remember their goals and to inquire as to what the clients have been doing.
  • Set up an online group with multiple clients to exchange their progress on their goals and to keep each other accountable.
  • Take pictures of your client meetings and share the photos with clients from time-to-time, to add the element of human observation.
  • Make a growth chart for clients of their goals that they want to improve on and ask them to share their progress.
  • Send a Post-It note with the word “Done” on it and attach it to a copy of the client’s financial goals or milestones that have been achieved.

Summary
“What you do for yourself dies with you when you leave this world, what you do for others lives on forever.”—Ken Robinson

The role of an IFP provides fantastic opportunities to demonstrate patience, humility, and some humanity. It also is a privileged position with the power to change human behavior.

The power is more potential than kinetic. To be unleashed, the power to modify the behaviors of clients must follow the normal activities of a professional advisor:

  • Preparation: Do the work beforehand. Conduct a thorough client analysis before each meeting, do the research, get a list of questions together before the appointment.
  • Client Meetings: Demonstrate care and respect for people’s time through prepared agendas, keeping the meeting on track, and ensuring action steps with responsible parties.
  • When Real Life Strikes: When a client faces a difficult personal situation (illness, child/elder care), respond quickly, stay appropriately in touch, follow-up with sensitivity.

By acting in this fashion, an IFP can be far greater than Smith’s “impartial spectator.” Indeed, the IFP can exercise astounding power to affect the clients’ behavior. The clients need this. Even if they are patently unaware of their need.

“I’ve learned that you shouldn’t go through life with a catcher’s mitt on both hands. You need to be able to throw something back.”—Maya Angelou

Here’s encouraging you to Pitch with Power!

Footnotes:

  1. Investopedia https://www.investopedia.com › ho…How Understanding Client Behavior Helps Financial Advisors.
  2. https://www.kitces.com/blog/how-financial-advisor-human-connection-positive-behavior-change-accountability-partner/.
  3. https://hbr.org/2020/05/we-work-harder-when-we-know-someones-watching.
  4. Ibid.
  5. The Observer Effect | IEEE Conference Publication – IEEE Xplore.
  6. Hawthorne effect – Catalog of Bias.
  7. Red Light Cameras May Not Make Streets Safer – Scientific American.
  8. https://www.kitces.com/blog/how-financial-advisor-human-connection-positive-behavior-change-accountability-partner/.
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