Presentations
"Understanding No-Lapse Universal Life," NAPFA/Northern
California Virtual Study Group, October 17, 2007.
"Life Settlements — Selling A Life Insurance Policy:
Advising Your Clients," NAPFA Northeast/Mid-Atlantic Virtual Study Group,
October 10, 2007. Handout
"Selected Topics in Insurance: How Fee-Only Financial Advisors Can
Add Value," NAPFA Boston Virtual Study Group,
September 27, 2007. Handout
"Selected Topics in Insurance: How Financial Advisors Can
Add Value," Alliance of Cambridge Advisors, July 26, 2006.
Handout
"Shortening Your To-Do List With Real Options Analysis,"
NAPFA/New York City Study Group, March 8, 2006.
Handout
"Nontraditional Roles for Actuaries," Society of Actuaries
Annual Meeting, November 14, 2005, New York, New York.
"Understanding No-Lapse Universal Life," NAPFA/New York
City Study Group, October 11, 2005.
Updated handout
"Annuities: Beyond the Sales Pitch," 2005 Eldercare
Conference, Foundation for Accounting Education, August 11, 2005,
New York, New York. Updated handout
"Life Insurance: Selected Topics for Financial Advisors,"
The Alpha Group, March 17, 2005, New York, New York.
Handout
"Insurance Planning," New York Society of Security
Analysts, March 10, 2004, New York, New York.
"Making Good Decisions About Life Insurance," AICPA Personal
Financial Planning Technical Conference, January 6-8, 2003, Phoenix, Arizona.
In the news
William Reichenstein and Larry Swedroe, "If It Has to Be
Sold, Don't Buy It!", AAII Journal, November 2007
Andrew Gluck, "Eight Leading Innovators," Financial
Advisor, November 2007
"When you've done something dumb," Consumer Reports
Money Adviser, November 2007
Matt Brady, "Could expanded policy loans compete with
life settlements?"
Settlement Watch, October 2007
Lynn Brenner, "Questions on a 'life settlement',"
Newsday, 9/16/07
Lynn Brenner, "'Life settlement' is a risky deal,"
Newsday, 9/9/07
Phyllis Furman, "Who's cashing in your chips?", New
York Daily News, 7/30/07
Matt Brady, "Why evaluating a policy is important in the
pre-sale settlement process,"
Settlement Watch, June 2007
Scott Burns, "Sales Commissions versus Reality,"
www.scottburns.com, 6/3/07
Mary Rowland, "What's It Worth?", Financial Advisor,
June 2007
Janet Kidd Stewart, "Annuity improves retirement
portfolio, study finds," Chicago Tribune, 4/22/07
Tom Lauricella, "Putting Your Life Insurance On the
Block,"
Wall Street Journal Sunday, 3/25/07
Gary S. Mogel, "Innovative policy targets wealthy
clients," InvestmentNews, 3/5/07
Nancy Opiela, "Variable Annuities: Emerging from the Dark
Side?", Journal of Financial Planning, March 2007
Karen Damato, "Ever Cheaper: Getting a Deal on Your Term
Life Insurance," Wall Street Journal, 2/21/07
Jeff D. Opdyke, "Smart Retirement Shopping," Wall Street Journal, 1/13/07
Judith Messina, "Independent workers come of age,"
Crain's New York Business, 1/1/07
Nancy Opiela, "Forget the conventional wisdom: Insurance
planning is every advisor's business,"
Wealth Manager, December
2006
Tom Lauricella, "Annuities — Buying a Guaranteed Income,"
Wall Street Journal Sunday, 11/26/06
Lynn O'Shaughnessy, "Selling a cash-value life insurance
policy? Better be extra careful," San Diego Union-Tribune,
11/12/2006
Mary Rowland, "The Future Is Immediate Annuities,"
Financial Advisor, November 2006
Kelly Greene, "Ask Encore," Wall Street Journal, 10/28/06
"Paying too much for life insurance?", Consumer Reports
MoneyAdviser, October 2006
"Don't rush to buy a variable annuity," Bottom Line
Personal, 8/15/06
Mary Rowland, "Unsettled," Financial Advisor,
August 2006
Gary S. Mogel, "Coughing up smoker's rates for children," InvestmentNews,
5/29/06
Jane Bryant Quinn, "A Guarantee? It'll Cost You,"
Newsweek, 5/8/06
Marshall Loeb, "The New Math of Life Insurance,"
MarketWatch.com, 4/14/06
William Baldwin, "Making Life Complicated," Forbes,
April 24, 2006
Lore Croghan, "Insuring child's life has its foes," New
York Daily News, 3/13/06
Lynn O'Shaughnessy, "Funny Business," Wealth Manager,
December 2005/January 2006
Earlier years
Recent assignments
• A fee-only financial planner asked me to review a
variable annuity with living benefits that one of his clients was thinking
of buying.
• A fee-only financial planner asked me to review
six deferred annuities that one of his clients owned.
• A client's accountant asked me to review a
life settlement offer for an existing variable universal life policy. The
purchase offer was much greater than the cash surrender value, but after
reviewing my analysis, the family decided to keep the policy for at least
another year.
• A client's financial advisers asked me
to review six existing life insurance policies with a total death benefit
of $48 million. I recommended keeping three of the policies unchanged,
reducing the face amount of one policy to make it worth keeping, and
replacing the remaining two policies. The fee was less than 0.1% of the
total cash surrender value.
• An engineer who used to run a nuclear power plant asked me
for a second opinion on whether it would make sense to buy life insurance and choose a
single-life annuity from his pension plan instead of choosing a joint-and-survivor
annuity. (Life insurance salespeople call this "pension maximization.") I
explained the pros and cons of the concept, and I helped him understand the complicated
no-lapse guarantee of the universal life policy that he was thinking of buying.
• A businessowner asked me to review a whole life policy that
he had bought three months earlier from an agent recommended by his accountant. The agent
had sold the version of the policy that paid him the highest commission, and he had not
explained that a smaller amount of high-commission whole life could have been combined
with low-commission term and paid-up additions to produce better values for the buyer with
less risk (see "The Basics of Blending").
After my client, his accountant and I questioned the agent about his conduct, he agreed to
get the policy rescinded.
• A retired couple asked me to review their life insurance
policies. They had a one-year-old second-to-die policy that they didn't want to keep in
force. They had paid a $48,100 premium at issue, but the policy had no cash surrender
value. I suggested that we find a way to do a tax-free exchange to an annuity, so that
they could carry over the $48,100 cost basis and use it to shelter future earnings in the
annuity from income tax. Their agent said that we couldn't do an exchange because the life
insurance policy had no value. So I turned to AnnuityNet.com, and they got the life
insurer to agree to waive the surrender charge and to roll the small account value and the
valuable cost basis into the annuity.
• A single person with no dependents was sold a life insurance
policy as part of a complicated investment scheme, and he asked me to take a look at it. I
concluded that he had essentially been swindled, and I advised him to retain an attorney.
I helped him submit a claim in a class action settlement, and fifteen months later he
obtained a full recovery of his money.
• The grantor of a life insurance trust asked me to review a
trust company's proposal to drop the existing life insurance policies and put the proceeds
in the trust company's managed funds. I found that the trust company's analysis was not a
fair comparison of the alternatives. The trustee decided to keep the policies and possibly
use dividends to buy paid-up additions.
• An attorney asked me to review two second-to-die life
insurance proposals that his client had received. We identified three objectives: (1) pay
no more than $50,000 per year; (2) start with a $2 million death benefit; and (3) set up
the coverage to provide an acceptable rate of return on death in all years. I explained
how to improve one proposal using blending. I also showed that all three objectives could
not be met using reasonable assumptions. After examining the trade-offs, the client
decided to use a combination of two policies.
• A fee-only financial planner asked me to review a proposal
that an insurance agent had given to one of his clients. The agent wanted his client to
put several million dollars of profit-sharing plan money into a policy that was specially
designed to produce low transfer tax costs. The proposal did not contain a serious
financial analysis or product due diligence. After I described the additional information
that a prudent person would want to obtain before investing money in the policy, the
planner's client wisely decided to walk away from the deal.
• An executive at a money management firm wanted to get a $1
million term insurance policy. We spent an hour on the phone sorting through a large
database of available products and discussing the trade-offs.
• A family office with over $60 million of life insurance in
force asked me to review their policies. They kept some policies and replaced others with
a portfolio of one low-load whole life policy, one retail low-load variable universal life
policy, and four low-load variable universal life policies designed for the
corporate/high-net-worth market. The total after-tax fees for an advisory team consisting
of my consulting actuary, the client's agents, and me were less than 1% of the existing
cash values.
Q&A
Why should I pay you a fee when I can get help from an agent for free?
You may decide that you don't want to pay a fee to a consultant, but at
least let's get the facts straight. The agent's services are not free. On average, the
agent's commission, expense allowances, overrides, miscellaneous benefits, and home office
marketing costs consume 15% of 25% of all of your premiums. The insurance company pays
these expenses and then recovers them from the policy.
People usually hire a fee-only insurance adviser because they understand
that commission-based compensation creates an unavoidable conflict of interest. They want
to know that they're getting a complete picture of their options, not a skewed version
presented by someone who has a strong financial incentive to leave out some choices or to
downplay risks. Some people also need help after they buy a policy, because they discover
that things haven't turned out as the agent said they would.
One way of distinguishing between fee-only consultants and insurance
agents is to say that fee-only consultants are advocates for their clients, while
insurance agents are advocates for their products. Naturally, insurance agents claim that
their products meet their clients' needs — as determined by the insurance agents. If
you don't think that insurance agents are focused on their products, take a look at their
industry trade publications, such as Advisor Today and Life Insurance Selling.
As an exercise, count the number of pages devoted to selling products versus the number of
pages devoted to helping people make informed decisions. (Consumer tip: If you have a
choice between getting financial advice from a rabid product-pusher or being bitten by a
raccoon, choose the raccoon.)
Your brochure says that "we will agree on a reasonable fee."
Why are you so vague about your fee schedule?
I'm vague because in my experience there is no simple way of charging fees
that is fair to both the client and to me in all situations. My solution is to look at the
assignment from as many perspectives as possible. How many hours will it take? How much
money is at stake in premiums and cash value? What can I accomplish for the client? Will
it lead to other assignments? What do other professionals offer and how much do they
charge?
Do you do all of the work yourself?
In most cases, yes. For some assignments, I also use a
research assistant, a consulting actuary or a financial economist.
How long have you been doing this?
Since 1985. I got into this line of work as a result of my
own experience shopping for life insurance. I was asking sensible
questions to try to decide between term and whole life, but I wasn't
getting helpful answers. After doing more research, I realized that my
experience was common. So I undertook the task of translating the life
insurance industry's gobbledygook into investment language, and that led
to many articles, a 500-page book, a 40-page pamphlet and a self-created
job.
How do I know that I can trust you?
You don't. But trust is overrated. Numerous studies have shown that most
people are not good at judging who is trustworthy and who isn't. They think they are, but
they're not. How many times have you seen a
story about someone who got duped by a supposedly trustworthy person?
My job is to help you make informed decisions about insurance, and you have every right to
ask me to defend what I say. You can trust me if you want, but it's not necessary and I
don't encourage it.
Will you help me get the best policy at the lowest cost?
If I said yes, would you really believe me? That's the kind of promise
that you might get from a salesperson, but not from a fee-only consultant. The future
hasn't happened yet, so no one knows which policy will be the best.
Fee-only insurance advisers can help you increase the odds that you'll get
good value for your money and that you won't regret what you've done. We leave foolish
promises to salespeople.
Are there other people who do what you do?
Yes, but not many. Here are six:
David Barkhausen (IL) www.lifeinsuranceadvisorsinc.com
Patrick Collins (CA) www.schultzcollins.com
James Hunt (NH) Rate of Return Service
Peter Katt (MI)
www.peterkatt.com
JJ MacNab (MD) www.deathandtaxes.com
Scott J. Witt (WI)
www.wittactuarialservices.com
