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Serving Financial Advisors Worldwide
the
Business SuccessProfile ... 4
Systemizing theClient Experience ... 19
Annual AnnuityReview ... 22
Vol. 8 No. 2 • February 2007 Official IARFC Publication www.IARFC.org
Join theseoutstanding
professionals at the
FinancialAdvisors Forum
May 15-17 at Bally’s Las Vegas
Wilma AndersonWilma Anderson Norman BooneNorman Boone Linda LubitzLinda Lubitz Alphonso FrancoAlphonso Franco
Ben BaldwinBen Baldwin John GrableJohn Grable Rodney JohnsonRodney Johnson David LawrenceDavid Lawrence
Bill KellerBill Keller Ted HarrisTed Harris Derek KlockDerek Klock
Case Studies in Ethics David Lawrence CFP® Approved Ethic Course
7:30 a.m. - 8:30 p.m.
10:20 a.m. - 11:00 a.m.
9:00 a.m. - 9:5O a.m.
10:00 a.m. - 11:30 a.m.
11:30 a.m. - 1:00 p.m.
1:00 p.m. - 1:30 p.m.
1:30 p.m. - 2:20 p.m.
2:30 p.m. - 3:20 p.m.
3:20 p.m. - 4:40 p.m.
4:40 p.m. - 5:30 p.m.
5:30 p.m. - 7:00 p.m.
Prospect or Perish or Succeed I. David Cohen
Turn Worst Business to Best Business Roey Diefendorf
*Living Benefits of Variable Annuities Rosilyn Overton
*Reducing Financial Planning Liabilities - Jerry Reiter
Building the Plan for High Net Worth Clients - David Stitt
*Creating Hispanic Millionaire Clients Ruben Ruiz
8:30 a.m. - 9:20 a.m.
9:30 a.m. - 10:20 a.m.
11:00 a.m. - 12:00 p.m.
3:20 p.m. - 4:00 p.m.
1:30 p.m. - 2:2O p.m.
2:30 p.m. - 3:20 p.m.
*Closing the Fee-Based Engagement Ed Morrow, II
*Professional Education and Designa-tion Preparation - Henrietta Nye
More Effective Uses of Real Estate Randy Luebke
*The New Uniform Trust Code Ed Morrow, III
*Education Planning Analysis Richard Norton and Ken Mattern
*Financial Physics 101—Converting Solids into Liquidity - Burnett Marus
12:00 p.m. - 1:30 p.m.
4:00 p.m. - 5:00 p.m.
5:00 p.m. - 6:00 p.m.
6:00 p.m. - 8:00 p.m.
9:50 a.m. - 10:10 a.m.
8:00 a.m. - 8:5O a.m.
9:00 a.m. - 9:50 a.m.
Nurturing Clients Will Lead to Great Success - Frances Scott
Secrets to Successful Internet Marketing - Steve Anderson
*Technology and Your Practice, Mark Terrett
You Need a Virtual Advisor in Your Practice -- Bill O’Quin
7:00 a.m. - 8:30 a.m.
10:10 a.m. - 11:00 a.m.
11:10 a.m. - 12:00 p.m.
12:10 p.m. - 1:00 p.m.
8:00 a.m. - 5:00 p.m.
Dates, times and session topics are subject to change
Tues
day,
May
15
Wed
nesd
ay, M
ay 1
6Th
ursd
ay, M
ay 1
7
Attendee Registration Desk Open Daily
Opening Ceremony
Exhibition & Refreshment Break
Reception in Exhibition Area
Exhibition & Continental Breakfast
Exhibition & Refreshment Break
Exhibition & Buffet Luncheon
Exhibition & Refreshment Break
Reception in Exhibition Area
Loren Dunton Award Dinner
Exhibition & Continental Breakfast
Refreshment Break
*Stock Market Risks and Opportunities - Ted E. Harris
*The Tidal Wave of Boomers Driving Our Economy - Rodney Johnson
*Hedge Funds—If Everyone’s in… Is it Time to Get Out? - Bill Keller
*Life Insurance in the Financial Plan - Ben Baldwin
*Investment Policy Statements - Norman M. Boone and Linda Lubitz
*Integrating Fiduciary Standards of Care - David Lawrence
*Learn How to Sell and Market the Fastest—Selling Insurance Product in the World - Alphonso Franco
*Matching LTC Options for the More-Savvy Prospects and Clients - Wilma Anderson
*Survey of Client Risk Tolerance - John Grable
Financial Plan Competition Case Presentations -- Derek D. Klock
Exhibition & Buffet Luncheon
Educational and Sessions Planner
RFC® all session are qualified for IARFC CE credit *CFP® and Insurance CE credit is pending
The Register • February 2007 Page 1
The Register is published monthly by the International Association of Registered Financial Consultants ©2007, 2507 North Verity Parkway, Middletown, Ohio 45042-0506.It includes articles and advice on technical subjects, economic events, regulatory actions and practice management. The IARFC makes no claim as to accuracy and does not guarantee or endorse any product or service that is advertised or featured. Articles, comments and letters are welcomed by e-mail to: Wendy M. Kennedy, Editorial Coordinator, [email protected] ISSN 1556-4045 Application to mail at periodical postage rates has been approved at Middletown, OH andadditional mailing offices.POSTMASTER: Send address changes to, P.O. Box 42506, Middletown, Ohio 45042-0506
Financial Planning Building2507 North Verity Parkway
P.O. Box 42506Middletown, OH 45042-0506
800 532 9060 • Fax 513 424 5752www.IARFC.org
BOARD OF DIRECTORS
Edwin P. Morrow, Chairman & CEOCLU, ChFC, CFP®, CEP, RFC®
Judith Fisette-Losz, Executive [email protected]
Lester W. AndersonMBA, RFC®
H. Stephen Bailey, PresidentLUTCF, CEBA, CEP, CSA, RFC®
Jeffrey ChiewDBA, CLU, ChFC, CFP®, RFC®
Vernon D. GwynneCFP®, RFC®
Derek D. KlockMBA, RFC®
Edward J. LedfordCLU, RFC®
Constance O. LuttrellRFC®
Ruth LyttonMS, Ph.D., RFC®
James McCarty, SecretaryCLU, RHU, LUTCF, RFC®
Burnett Marus, TreasurerRFC®
Rosilyn H. OvertonMS, CFP®, RFC®
Ruben RuizChFC, CLU, MSFS, CSA, RFC®
Michael ZmistowskiRFC®
[email protected]_________________________________
Wendy M. Kennedy, Editorial [email protected]
Stephanie Langster, Administrative [email protected]
in this issue
2 Register Letters
3 Jack Kinder, Jr. — a Soaring Eagle
4 Business Success Profile From the Cockpit to Wealth Management
6 From the Chairman’s Desk
6 The IARFC Calendar of Events
7 Thailand Rocks!by Jack Gargan
8 Need New Clients? The best path to qualified new clients is often right in front of usby Maribeth Kuzmeski
9 Your Estate Of Mind Another True Story from Art’s Filesby Arthur W. Rothfuss
10 Cato Comments – About Your ImageBecome A More Effective Speakerby Forrest Wallace Cato
13 Changes in LTCI Products Make Sales Training Imperativeby Wilma Anderson
15 Compliance Friendly MarketingTrouble in the Work Placeby Katherine Vessenes
18 Business Mirrors Life — Don’t Get Too Serious!by Hesh Reinfeld
19 A Lesson in Systemizing the Client Experienceby Kip Gregory
20 Is Your Practice Customer Centric?by Ed Morrow
22 Annual Annuity Review — A Powerful Serviceby Michael Zmistowski
24 The Real Cost of a Variable AnnuitySurprising Statistics for You and Your ClientsReprinted from NAVA Outlook
Page 2 The Register • February 2007
Register Letters We welcome your thoughts and ideas.Please direct correspondence to: [email protected]
Letters may be edited for length and clarity.
After reading Ed Morrow’s article on theAlphabet Soup of designations, I couldn’thelp myself. I had to write in response tothe extremely interesting and somewhatpoignant article.
As an educator with no designation except a post masters in Gerontology, and over 20 years in this business, I justcompleted writing a Financial Gerontologycourse as part of a new Bachelor’sDegree for a major New York University.What qualified me for this was an obviouseducation and vast experience in theareas of aging and the psychologicalissues that go along with it. Most of what I know comes from face-to-facepresentations to older adults who share with me the issues they face asthey age. But, I am asked constantlyabout which designations are ‘the best’ for those agents and advisors I speak to. I recommend very few; and for good reasons.
Although I do not sell financial serviceproducts directly, I am in front ofthousands of advisors each year, many ofwhom possess so many designations, attimes they have to put them on the backof their business cards. Ask a client whatthe vast majority of these designationsmean and they probably wouldn’t know,nor would they care. Except in thosecases where the financial designationsare policed and agents must qualify eitherby number of years in the business or byexperience. Or by standards that are setup by a council of experts.
I used to say, if you are really great at justa few things, it’s better than being justaverage at many... As was stated by Ed,some designations are strictly forinsurance agents, some for financialplanners, estate planners, retirementplanners, etc. If the world in generaldoesn’t know the difference between‘Medicare’ and ‘Medicaid’ ask them toexplain the difference between financialplanners and retirement planners. Hereis drawn a very thin line. Because if, inthe end, the client doesn’t like you, youmight as well walk right out the front doorwith all your designations.
Yes, some designations are recognized bypeers as being an extremely credible,among them CLU, ChFC and RFC. Themost talented and successful individualsin the business of financial services and planning, possess at least two of
these. I know the great majority of thecompanies that have created the 61designations Ed mentioned in his article.I don’t know all, but know many. And, I’ve spoken to many of these individualswho have developed these designationstheir content, especially in the seniormarket areas. They send me the courseto ‘get my opinion.’ Sometimes I amunder-whelmed at their personal motives.And, at times, I am under-whelmed withthe sources of where they get theinformation they use in their materials.And, then, the pricing. Sometimes, that floors me. I have seen severaldesignations double in price over a year because ‘it was so popular, they had to raise the price.’ Sounds like gaspricing to me. While oil is at the lowestper barrel in years, prices increase.Holidays were around the corner. Mightthat be a coincidence?
In writing the Financial Gerontology pieceof the Bachelor’s Degree, there weremany levels of approval even BEFORE itwent to New York State for accreditation.My resume had to be totally rewrittenfrom a ‘business climate resume’ into an‘educational resume’ which meant that Ihad to re-research every single article Ieither wrote or was written about me andgive the dates, pages AND columns ofeach article. My resume went from 3 to 8pages. I felt like I was doing abibliography of my life. Once it left myhands, not only did department headsneed to approve it, but the universityPresident and Provost as well. And, then it went for accreditation, which tookover a year.
I believe that Ed had a very valid point instating that there should be an‘educational council’ to oversee thesedesignations. This would accomplish somuch. First, qualification would beselective in the sense that experience,education, years in the business would bethe standard. Deciding just how manyyears, etc., would be up to the expertcouncil chosen to oversee this project.“Stepping up” to the recommendedstandards would be a motivating factor forthose advisors or agents that couldn’tqualify initially. It’s more impressive to‘step up’ than to ‘pay up.’
What are you ‘getting for the money’would be something I would be concernedabout. I am certainly not trying to deprivethose who have designed these
designations the ability to make a goodliving. That’s not my issue. I have noqualms with any reasonable charge forthe course, if the information wasaccurate, on-going, easily referenced and,most importantly, matched up well withthe individuals who were taking thecourse. I have seen too many ‘regularpeople’ out there with certaindesignations they should not havebecause they are really not even in that business. But, they put them on their business card in hopes that theirpotential clients will be impressed. These are usually the people that impressme the least.
The individuals that have impressed methe most over the last 20 years, are veryhumble and confident in their businessand the ethical standards, that I couldalmost guess at which designations they do have without looking at theirbusiness cards.
Yes, the irony is that we are underservedby the very experienced and educatedfinancial planners. We are all gettingolder and we need as much help as wecan get. And, I don’t think I want it fromthe group that made a presentation a fewmonths ago to me that had a sign on theirboard in the front of the room that said,“We specialize in Long Turm Care.’
And, if you had every designationpossible, I could still tell you, in as little as 10 minutes, whether or not the clientwill buy — your recommendations andyour products. I am not saying it isnecessary to go through what I did withthe college course, but somewhere in-between, there has to be rules,regulations and qualifications. By doingthis you not only filter down so many ofthe excess and repetitive courses, but the financial service world will then begin to recognize those designations that have the guidelines as being the best of the rest.
You go for it Ed; if anyone can, you can.
Best wishes to everyone, even if we don’tknow what your designation means.
My very best,
Ellen EichelbaumCorporate GerontologistNorth Port, NY
The Register • February 2007 Page 3
INTERNATIONALIARFC COORDINATORS
Jeffrey Chiew, DBA, CLU, ChFC, CFP®, RFC®
Asia [email protected]
Liang Tien Lung, RFC®
China Development Organization (IMM)(Taiwan, China, Hong Kong & Macao)
Ralph Liew, RFC®
Philippines [email protected]
Tony BalmoriExecutive Assistant
Jerry Tan, LLIF, CIAM, CMFA, RFC®
Singapore [email protected]
Choo Siak Leong, RFC®
China Chair, [email protected]
Samuel W. K. Yung, MHCFP®, MFP, FChFP, CMFA, CIAM, RFC®
Hong Kong and Macao [email protected]
Teresa SoPhD, MFP, FChFP, CMFA, CIAM, RFC®
Advisor, Hong Kong and [email protected]
Allan Wan, RFC®
Ng Jyi Vei, ChFC, CFP®, RFC®
Malaysia [email protected]
Aidil Akbar Madjid, MBA, RFC®
Indonesia [email protected]
Lisa Soemarto, MA, RFC®
Richard Wu, RFC®
Taiwan [email protected]
Preecha Swasdpeera, MPA, MM, RFC®
Thailand [email protected]
Demetre Katsabekis, MBA, PhD, RFC®
Greece [email protected]
Ingram Jeffrey Eshun, PhD, RFC®
Canada [email protected]
You Can Write A Great Articlefor the Register
We are accepting articles of from 500 to 1,500 words on planning and practicemanagement topics. Please submit your copy by e-mail, along with anelectronic photo and short bio statement of less than 100 words to:[email protected]
Your article can be sent to clients, prospects and centers of influence in your Community — either as reproductions, or as complete copies of the entireissue of the publication. This is a powerful and effective from of publicrelations, an is often to attract the attention of your local media.Get Noticed!
Jack Kinder, RFC® received theprestigious Soaring Eagle Award Friday,November 10, 2006 at the 6th AnnualSoaring of the Eagles ManagementConference in Dallas. Each year, 50 ofthe finest field managers in the financialservices industry are invited to participatein this agency-building experience. Ahighlight of the event is the presentationof the Soaring Eagle Award, which honorsa manager’s contribution to the financialservices industry.
This year’s unanimous choice was theco-founder of the sales andmanagement consulting firm KinderBrothers International, Jack Kinder, Jr.His brother and co-founder of KBI, Garry Kinder, RFC® presented the awardat a luncheon during the conference.Jack was joined by former recipientsJohn Ferguson, Strategic FinancialPartners; Lee Harrison, North FloridaFinancial Corporation; and SteveWorthy, The Carolinas Planning Group,LLC. Other past recipients include PhilRichards, Dick Cleary, Gary Simpson,Robert Savage and Paul Blanco.
Jack Kinder, Jr. — a Soaring Eagle
Front Row: Mary Sue Kinder, Jack Kinder, Jr., Janet Kinder, Garry KinderBack Row: John Ferguson, Lee Harrison, Steve Worthy
Jack Kinder has served the financialservices industry as an agent, manager,home office executive and, for the past30 years, as a consultant. He has hada monumental impact on tens ofthousands of agents and managersover the last 50 years. In January2006, Jack suffered a stroke and hasbeen involved in an aggressiverehabilitation program. He is applyingthe principles he’s taught in thisindustry to his recovery. For Jack, thebest is yet to be!
The KBI Group, Kinder BrotherInternational has had the privilege ofteaching tens of thousands of salesand sales management professionalshow to experience lasting success bybuilding confidence throughcompetence.
Contact: www.KBIGroup.com927 380 [email protected]
The profession of financial advice isbeing driven to new heights by highlyqualified persons entering as a secondcareer. An outstanding example of thistrend is Gary Storie, MBA, MS, CFP®,RFC® who started out as a fighter pilot following his education at the U.S Air Force Academy. Gary is stillflying high — but now doing so as aNexTier Wealth Advisor in Wexford, asuburb of Pittsburgh.
Gary’s career path into financialplanning is an excellent indication ofthe high caliber of new entrants intofinancial planning. He was recentlyinterviewed for the for the Register byHesh Reinfeld, a free-lance businesscolumnist based in Pittsburgh.
Gary, many financial advisors begantheir professional lives as accountants,stock brokers, and/or insuranceagents. Your roots are rather unique.You were an Air Force jet pilot fortwenty years. How did you ever getinto the wealth advising profession?
When I was undergoing Pilot Training atColumbus Air Force Base, Mississippi,my wife Cathy received a phone callfrom a financial advisor. This wasalmost thirty years ago and I stillremember his name — Ed Jones. Ed invited us out for a free steak dinner.I was a brand new 2nd Lieutenant whonever turned down a free steak dinner.So Cathy and I attended the dinner andseminar on financial planning. Weliked what he had to say so we starteda monthly investment plan and
Business Success ProfileFrom the Cockpit to Wealth Management
purchased life insurance. It was our firstfinancial plan.
We kept that plan the entire 20 yearswe were in the Air Force, adding to ourinvestments as my salary increased.Those investments helped pay for ourkids’ education as well as provide funds for me to begin my career as afinancial advisor.
Gary, it would seem that being a jetpilot has little in common with being awealth advisor?
On the contrary — there are actuallymany similarities. Every successfulaircraft mission starts with detailed pre-flight planning. Likewise, beforeimplementing a wealth managementplan, the client’s goals and desiresmust be carefully assessed.
Tell us about the similaritiesbetween flying an aircraftand financial advising.
When you fly, you havethree goals. You want totake off and land safely,you want to arrive at theproper destination (in onepiece), and you want to arrive ontime. I’ve known pilots who ended upeither in an undesired destination dueto not properly checking the weatherand/or failing to calculate the correctamount of fuel needed.
Being a wealth advisor is no different.So I tell my clients they need to view meas the co-pilot of their wealthmanagement program. If, along theway, a client should experiencemechanical difficulties, such as aninvestment account temporarilydropping in value, my job is to remindhim or her to stay focused on the finaldestination. I certainly don’trecommend bailing out in mid-flight!
Now that’s funny. Lets continue,staying with your analogy, why did youdecide to wear the wings of a NexTier‘pilot’ (advisor)?
A pilot is only as good as the aircraft heor she is flying. NexTier (a regionalfinancial conglomerate has put years of
experience and expertise into providinga solid reliable craft. The NexTierWealth Management team is comprisedof experts in portfolio management,relationship management, tax andestate planning, and trustadministration. In flying we depend onthe aircraft manufacturers, themechanics, the armorers and guidancepeople. Financial advisors, like pilots,do not operate alone — they depend onother professionals.
Tell us the truth Gary; isn’t being awealth advisor a piece of cakecompared to being a jet pilot?
Being a wealth advisor can be equallyas challenging as flying. Followingretirement from the US Air Force, I took3 months off to study to get all mynecessary licenses to become a
financial advisor. For the following 3 years,
I pursued the rigorous CertifiedFinancial PlanningTM
curriculum, and Ifortunately passedthe 2-day exam the
first time. This wasprobably the most
challenging academicendeavor I’ve ever undertaken.
You seemed to have acquired someimpressive credentials in the financialplanning profession. Does this reallycontribute to your effectiveness?
In the wealth management business,it’s important to gain knowledgethrough degrees and certifications. Idid so with the CFP®, a MBA fromWebster University, a Masters ofScience from the College for FinancialPlanning, and then the RegisteredFinancial Consultant designation.
When a pilot gets his wings followingpilot training, it still requires another500-700 hours of flight training tobecome a highly effective pilot in aparticular airplane.
This certainly holds true also with beinga wealth advisor. For example, you can
Page 4 The Register • February 2007
continued on page 5
Gary A. Storie, MBA, MS, CFP®, RFC®
“Every successful aircraft mission starts with detailed pre-flight planning. Likewise,
before implementing a wealthmanagement plan, the client’s
goals and desires must becarefully assessed.”
read and study about CharitableRemainder Trusts all you want, but it’snot until you actually implement one witha client that you fully understand all theissues involved. I’ve been fortunate thatI’ve had the experience in the planningand implementation of numerous wealthmanagement plans, which has made mecredible in this business.
Gary, I understand you’ve studied hardto be a competent financial advisor,but please be honest with us, whatcould compare with the thrill of flyingat the speed of sound?
The part I enjoy the mostabout financial planning isbeing able to help people withtheir financial issues, whetherit be saving for college,retirement planning, businessand tax planning, or estateplanning. I get a lot ofsatisfaction out of helpingpeople make key decisionsthat will affect them for therest of their lives.
And there is so much to knowabout the various aspects offinancial planning — I see myrole as staying on top of all theinformation and changes, andeducating clients, bringingclarity, confidence, and resultsto their financial lives.
For example, estate planning isparticularly complex. I comparemy job to being similar to that of BillGates and Microsoft. Do you rememberwhen personal computers first cameout, how difficult it was to program eventhe most basic commands? That initself scared the majority away fromusing personal computers. Then cameWindows© — just point and click andeven the novice could utilize thebenefits of computers. Estate planning— implementing multiple planningstrategies — takes on greatcomplexities. Like computerprogramming, there are many movingparts involved, and one can getoverwhelmed quite easily. Therefore, Ilook at myself as the “Windows ofEstate Planning” and I do my best tosimplify the process.
Being a pilot is inherently dangerous,fraught with many risks. Whatexperiences can you take from
flying and apply to advising clientsabout risk?
As a pilot, it is important to minimizethe risks of flying while maximizing theaircraft’s performance. This holds truewith investment management too.NexTier, (my flight crew) carefullyscreens investment managers andmutual funds to get the best risk-adjusted returns for our clients. NexTieralso screens for the lowest expenseratios possible, just as a pilot tries toconserve on fuel during flight.
And what ifyou hit someturbulence?
I’ve encountered unexpected poorweather during numerous flyingmissions, so I had to learn how to react to it the best I could. Financialmarkets are very similar in that they aremany times unpredictable. If weencounter choppy market conditions, Iwill tell my clients to fasten yourseatbelts because there may be roughweather ahead.
Whatever the conditions, my NexTier team is at the controls, working to carry clients to their chosen destination, safely and on time. This may involve a temporarychange in course, which NexTier willhelp with effective guidance.
On a personal level, how did your 20years in the Air Force prepare you tobe a wealth advisor?
I was trained in the Air Force, starting atthe US Air Force Academy, to maintaincertain values above all else.
First, is integrity, it’s the willingness todo what is right even when no one islooking. It’s the “moral compass,” thatinner voice; the voice of self-control.Flying a multi-million dollar airplanewhen you’re only 22 requires a great
deal of discipline and integrityto not succumb to temptationsand perform some illegalmaneuvers you may regretlater on.
The second value is servicebefore self. It constantlyreminds me that professionalduties take precedence overpersonal desires. I learned toalways put the team andmission first. As a wealthadvisor, it means doing what isbest for the client.
Gary, any final thoughts?
Working with clients who have wealthmanagement issuesrequires a great deal of trust on their part. A trusted wealth advisor designs thepersonal game plan and sees that it isproperly executed, oftenwith the help ofspecialists such asattorneys, investment
managers, insurance agents, and CPAs.
An experienced wealth advisor is alsoable to make necessary adjustmentsduring changing times in the lifetime ofhis or her clients.
Selecting a trusted advisor in thiscapacity may be one of the mostimportant decisions our clients can makefor themselves and their loved ones.
You can contact Gary Storie at NexTierWealth Management, 11361 PerryHighway, Wexford, PA 15090724 935-3461 or e-mail:[email protected].
continued from page 4 Business Success Profile
The Register • February 2007 Page 5
Indonesia. The IARFC is very alive and flourishing here in the nation with the world’slargest Muslim population. Indonesia’s approximately 240 million need financialplanning, just as do citizens of other countries in Asia and the rest of the world. Weare working with both the University of Indonesia in Jakarta and Petra KristenUniversity in Surabaya. The IARFC is well staffed by Aidil Akbar Madjid and LisaSoemarto and a very supportive Board of Directors. There are plans for morecourses and the expansion to other major cities within this nation that consists of13,000 islands.
You have probably heard of unrest in Indonesia, especially the two terrorist explosionsin Bali that had major tourist fatalities. However, I would like to state that I felt nosense of insecurity while in Indonesia last month — either in the capital city of Jakarta,or in Surabaya or on the island of Bali, where I did a brief bit of tourist exploration andscuba diving. We all actually had dinner on the beach at Jimburan in Bali, where theprior explosions took place, and while it was a bit smoky from the barbecue, the foodwas delightful and the view of the sweeping bay quite astonishing.
Forum Registration. If you haven’t made plans yet to attend the Forum in Las Vegasin May — you should rush to do so – especially if you will use frequent flyer mileagefor your transportation. One reason that Las Vegas is so popular as a conventionsite is the large number of flights into the city, many of which are quite inexpensive,since it is serviced by Southwest Airlines.
One of our speakers, Alphonso Franco, RFC® will be presenting on Critical Illnessinsurance — one of the most rapidly expanding forms of coverage. Alphonso (who isthe president of the MDRT Top of the Table) is a world-recognized expert on thisproduct, and he is the organizer of the Critical Insurance Conference that was held inhis City of Victoria, British Columbia in January.
Another outstanding presentation will be delivered by Norm Boone and Linda Lubitz— investment disclosure experts and authors of the IPS Advisor Pro software thatcreates outstanding Investment Policy Statements. Every financial advisor should bepreparing an IPS for his or her investment clients. You really need to be in theaudience for this session, and learn how easy it is to use the IPS to avoidprofessional liability, and to better serve your clients.
Planning to Get Your CE at Sea? We are now getting calls from IARFC members toregister for the Cruise in August. Many are planning to use frequent flyer mileage forthe flight to Vancouver (airport code YVR) and returning from Fairbanks, Alaska(airport code FAI). The Celebrity Summit is one of the highest rated cruise vesselsand Alaska is the most popular destination for Americans. Couple that with taxdeductions and interfacing with leading financial advisors for the entire week, andyou have a great opportunity. Consider registering now, and planning this marvelousget-away business trip.
Is Prospecting a Problem? One of the elements of the new 5-part RFC course willbe a new edition of David Cohen’s acclaimed book and workbook, Prospect orPerish, which we have re-packaged as Client Acquisition. It will be a part of the two-day Part #1 RFC Course we rolled out in January. If it could be of value to you oryour associates, the book is available for $25 and the workbook an extra $15 —which includes shipping. To order, call IARFC at 800 532 9060.
Where is the Register Headed? I was asked this question recently, and I think theanswer will be of interest to all of our readers. As you have noticed, the magazine isgrowing larger with every month. We have gone from a one-color 8-page newsletter,to a longer publication of two-colors, to two colors plus full color on the outside andinside of the cover. Our goal is to continue migration to full color throughout — inorder to attract financial advertising. Now that we have Periodicals Mailing statusapproved by the Post Office, we will benefit from paper changes and can consider“poly-bagging” to insert extra items, such as a brochure or a CD.
From theChairman’s Desk...
Page 6 The Register • February 2007
Calendar of Events
RFC Graduation ClassFebruary 12-15, 2007, Athens, Greece
Organizational Launch MeetingsFebruary 20-23, 2007, AustraliaFebruary 25-28, 2007, New Zealand
MarketShare Leadership ConventionMarch 6-9, 2007, Las Vegas, NV
IARFC Initial CourseMarch 9-14, 2007, Mumbai, India
Financial ExpoFPA, SFSP, NAIFA and IARFCMarch 22, 2007, Tampa, FL
APfinSA ConferenceApril 13-15, 2007, Taipei, Taiwan
Financial Advisors ForumMay 15-17, 2007, Las Vegas, NV
MDRT Annual MeetingJune 10-13, 2007, Denver, CO
International Dragon AwardsAugust 11-13, 2007, Xiamen, China
IARFC Cruise/Conference – AlaskaAugust 17-24, 2007Vancouver, BC to Anchorage, AK
RFC Forum – ChinaSeptember, 2007, Dalian, China
RFC Forum – MalaysiaSeptember, 2007, Kuala Lumpur
MDRT Top of the TableOctober 17-20, 2007, Phoenix, AZ
MDRT Experience 2008April 11-13, 2008, Chiba, Japan
I have just returned from the mostincredible journey of my life! Originallyplanned as part vacation part good willtour to our IARFC friends in Thailand, itturned out to be an activity-filledadventure. It included everything fromvisits to Thailand’s fantastic touristattractions to serious discussions andplanning to increase the IARFC presencein South East Asia.
From the moment of my midnight arrivalat Bangkok’s brand-new SuvarnabhumiAirport (the largest terminal in the world!)I was treated like I was visiting royalty.Preecha Swasdpeera, RFC®, Chair of the Thai IARFC whisked me throughsprawling (10 million population) Bangkokon still busy roadways to my first-classhotel located near the IARFC office inNorthwest Bangkok.
Every day thereafter for the remainder ofmy ten day visit I was greeted eachmorning by a smiling, knowledgeable,English-speaking host or hostess in a newMercedes-Benz or Land Rover or, on oneoccasion, a chauffer-driven BMW limo! Icannot say enough praise and good thingsabout my guides Preecha (who arrangedthe whole thing), Ben, Sam and his lovelywife Kanchali, Pia, Sunida, Kai, Rose, andall the other members who contributed somuch to my enjoyable visit.
The sightseeing included trips to the Royal Palace, the Ancient City, Buddhisttemples, riverboat rides, tuk-tuk rides(motorized rickshaws) around town, atrain trip to the bridge over the River Kwai,a spectacular waterfall and park in themountain foothills several hundred milesnorth of the city, a visit to the top of 84-story Baiyoke Tower (the tallest
building in Thailand) followed by aspectacular dinner at a wonderful Chinese restaurant on the 79th floor, the summer palace north of Bangkok and trips to the seashore resortssoutheast of Bangkok.
On the more serious side, I had the opportunity to address a largecontingent of IARFC members at theirregular monthly meeting held at theChaophya Park Hotel, another ofBangkok’s classy, modern hotels. While many in the audience speak and understand English, my presentation was translated into Thai for the benefit of the other members. I was graciously received by a veryattentive audience anxious to learn ways to improve and expand theirfinancial planning practice. The outshoot of the session was to start the process of translating one of my books, MONEY MANAGEMENT FOR NEWLYWEDSAND OTHERBEGINNERS, intoThai and publish itin Bangkok.
Another project(which I have justreceived word hasreceived finalapproval) was tomeet with senioradministrative staffat the AsianInstitute ofTechnology (AIT) a post-graduate-only institution of higher learning, to promulgate a
course of studies leading to an MBA inFinance degree in conjunction with IARFCThailand. Now, that’s exciting!
I have also been invited to participate in a project which hopes to lure American retirees to a life of luxury in an American enclave in Thailand. Aimed at retirees with a net income of$4,000 USD and up, it intends to package a deal which includes a luxury home or condo, car with driver, full-time maid, golfing privileges and alive-like-a-king lifestyle.
What will make it really unique is a three-month “try it before you buy it”sample of Thai retirement living. And the REALLY unique option of a match-making feature which will appeal to single older American men seeking aThai wife. It will carefully screen both the men and the women to assure a“clean” background as well ascompatibility. And, let me tell you, those Thai women are BEAUTIFUL!!!
I was so impressed with the wonderfulThai people and their lifestyle I amplanning a return trip of at least several months around the first of theyear. And, who knows? Maybe retirethere someday.
Jack Gargan, RFC® is the foundingpresident of the IARFC — who was has dedicated many years to servingfinancial advisors. He presents theAnnual Founder’s Award at he Financial Advisors Forum to a significant contributor to the IARFC.Contact: [email protected]
Thailand Rocks by Jack Gargan
Jack Gargan, addressing IARFC Thailand membership.
Jack Gargan, sightseeing , Buddhist temples in Bangkok.The Register • February 2007 Page 7
Do you often feel like you are on a frantic quest for new clients? For manyfinancial services firms, the answer is aresounding, “Yes.” After all, whensomething is in scarce supply our naturalimpulse is to try to get more of it. Butfighting and clawing to gain new businessis the wrong approach. Indeed, it can be counterproductive. What you could be doing is nurturing the clients youalready have.
Most of us know the adage thatbusinesses get 80 percent of theirrevenue from 20 percent of their clients,but we don’t live like we really believe it.If we did, we’d spend 80 percent of ourmarketing dollars giving existing clientsthe red carpet treatment — resulting in astream of referrals, additional businessand long-term client retention. What wewant are delighted clients who becomeour most profitable relationships.
Create Client Delight
Build a systematic KIT program. It’s notenough to call up your best clients once ina blue moon and say, “Hey, I appreciateyour business.” Not that this is a badidea, it isn’t. It is just not enough.
You need a carved-in-stone system forregularly communicating with anddelighting your existing clients. I call it a “Keeping In Touch” (or KIT) Program,and it could include proactive phone calls, in-office reviews, personal notes,educational e-mails, newsletters, marketupdate letter and holiday cards.
You set the times you want tocommunicate with clients through yourKIT program. Make out a calendar, and
follow it. The key is to make it consistent,by making it systematic.
Make clients say WOW! What, exactly,are the elements of a good Client DelightProgram? Well, that depends on you and your business. But one thing is forsure: you’re not going to make much of an impression if you rely on theexpected. Your goal should be to makeclients say WOW.
Just to illustrate, good service is expectedfrom clients, but calling your clients (orwhen your staff calls) between yourregular reviews is not. On another note —December holiday cards are expected, St. Patrick’s Day cards are not.
Want clients to talk about you? Givethem an experience they’re unlikely to getanywhere else. For example, I work with afinancial advisor who has created The LifeEnjoyment Experienceä. The concept isthat he helps his clients “get to the top ofthe mountain”through the offerings heprovides. And, fromthe mountaintop, you can see andexperience the world — so he hasdecorated eachoffice andconference room torepresent a differentpart of the world —and to coincide withhis service theme.For instance, oneroom has a mural ofAthens on the wall;another onerepresents London.
He reports thatpeople bring theirfriends by, who are not yet clients,just to see hisunique facilities!
To create delight youneed to not onlyprovide the expectedin service andcommunication —but the unexpected.
Another financialadvisor takes a
different approach. He is very healthconscious, and he wants to share hisknowledge with his clients. Therefore, heincorporates healthful foods, exercisebooks and videos, and lifestyle seminarsinto his financial services offerings. He’sproviding an experience — and at thesame time, showing his clients that hecares about their total well being.
Yes, it’s about the investments, productsand services we provide our clients. Butwhen topping that off with an unexpectedexperience the results are a true win-winfor you and your clients. What can you doto WOW your clients?
Ask your clients what they want. A novelconcept, huh? Too many businessessimply assume they know what the client wants. They tell the client “This is what you want and need, and I have it.” What you could do is ask, “What do you want and need?” Ask your clients
Need New Clients?The best path to qualified new clients is often right in front of us
Maribeth Kuzmeski, MBA, RFC®
Page 8 The Register • February 2007
continued on page 9
continued from page 8 Need New Clients?
(at the very least your top clients) thefollowing questions:
• How would you like us to communicatewith you? How often?
• How often do you want to hear from me?
• Are we meeting your objectives?• What would make working with us
truly unique? • What could we do to create delight
through the services we provide?
Now, really listen to their answers.You may be surprised by what you hear.And you can be sure of one thing: if you give clients what they REALLY want —as opposed to what you think they should want — they will talk about you to their friends and colleagues.
Tell clients what you do. Do you assume that your clients already know all the hoops you jump through for them? You may be surprised to learn thatoften they don’t have a clue. Consider
sharing with them why you have staff, how long it takes to prepare a review,portfolio allocation and investmentsummary, and how many hours you spend each year in continuing educationcourses — ultimately for them.
When they know how much time youspend on their behalf and the time youspend to become an even better financialadvisor — they may have a clearer pictureof what you do. Telling your clients evenjust some of what you do on their behalfis a small and very inexpensive way tobuild client goodwill.
Be a Financial Care-Giver. Besides theobvious benefits of giving clients the redcarpet treatment — more client loyalty,increased “share of client,” and greatreferrals — there is also a psychologicalone. It gives you something to do rightnow, which means a lot to firms who feelthey need to be doing something tocommunicate with clients and prospects.And, it works!
Maribeth Kuzmeski, MBA, RFC® is anational keynote speaker, marketingconsultant, author and personal coach,who has been working with and studying highly successful financialadvisors for 12 years. She consults with some of the top financial advisors in the United States. Maribeth hasspoken at the Million Dollar Round Table, has been featured in hundreds of publications.
Maribeth is the author of 3 books,including 85 Million Dollar Tips forFinancial Advisors, and is the creator ofClient Delight® communicationtechniques. Her passion, at Red ZoneMarketing is to help increase theeffectiveness of marketing for financialadvisors so they can use their brilliance tosee and serve more clients.
Contact: www.redzonemarketing.com847 367 [email protected]
The Register • February 2007 Page 9
Your Estate of Mind By Arthur W. Rothfuss, CEP, CSA, RFC®
Another True Story from Art’s Files
Mrs. BB is a client living in Virginia.When we met, her husband had beenin the nursing home with Alzheimer’sfor 40 months. During that time, shehad been receiving only $400 permonth from her husband’s SocialSecurity (all she was allowed to draw).
Unfortunately, Mr. BB needed a guardianbecause he was incompetent to handlehis affairs. As his wife, a competent,capable woman, Mrs. BB should havebeen appointed. However, a welfareworker told the probate judge that she
should not be made the guardian for herhusband’s affairs. In addition incomelimits had been misapplied, and $1,000per month of Mr. BB’s Social Securityhad been directed to the nursing homewhere he was confined while Mrs. BBwas forced to exist well-below thecurrent poverty income level.
Mrs. BB’s daughter-in-law became aclient of our firm, Genesis Projects.She told us of her mother’s dire plightand, at her request, our specialistswent to work.
The good news is: no longer does Mrs. BB have to live on a meager $400 each month. She is now,resulting from our specialist’sinvestigation and intervention, receiving the full benefit of herhusband’s Social Security. Thishorrible misdeed is at last corrected —unfortunately $40,000 later!
Please urge all you clients to have a valid Durable Power of Attorney and appropriate Health Care Directives.A will is not enough!
The National Institute of Certified EstatePlanners (NICEP) provides education andsupport to attorneys and financial consultants.NICEP has both self-study and classroomestate planning curriculums, granting the CEPdesignation. For programs and courseinformation: www.NICEP.org 765 453 4300or e-mail: [email protected]
Arthur W. Rothfuss, CEP, CSA, RFC® Art is anexperienced estate planner, educator financialadvisor, and CEP “Planner of the Year” 2003.His firm, Genesis Projects located inIndianapolis, serves clients in twenty-ninestates. Art is one of the five national directorsof NICEP and may be contacted at: 317 872 9574 or [email protected]
Recently I was greatly honored when amajor book publisher (Executive Books)asked me (from among hundreds of otherfamous and more qualified people) towrite the Introduction to the new edition ofthe classic book Self-ImprovementThrough Public Speaking, by medicaldoctor and attorney Orison Swett Marden(1850-1924). This book has sold overseventeen million copies world wide, andhas remained in print for over a hundredyears. The work became known as “… themagic book about public speaking!”
I suppose I was chosen because I amEditor-In-Chief of The InspiratorInternational, the largest circulationEnglish language magazine the Pacific-Rim countries. This publication is devotedto self-help, inspirational guidance,personal motivation and sales training.
Today Marden’s famous volume continues to help many people around ourglobe. He created the “self-helpmovement” that is still going strong in theUSA, and he also founded Successmagazine. Marden, a prolific author,appeared years before Napoleon Hill,Norman Vincent Peale, Dale Carnegie,Maxwell Maltz, Frank Bettger, ClaudeBristol, W. Clement Stone, Og Mandino,and many other well remembered namesfrom the “self-help movement.”
These authors were followed by morecurrent writers like Tom Hopkins, Zig Ziglar,Lew Nason, Anthony Robbins, HarveyMackay, and others. From Marden’s dayuntil now, scientific surveys have proven,over-and-over, that the majority of people inany profession share the same thoughtsabout public speaking. They all:
• Understand the benefits of being able to speak in public and desire to do so effectively.
• Fail to commit, and then fail to masterthe requirements for becomingsuccessful at public speaking.
• Lack the courage to become anadequate speaker for any size group,and thus highly fear speaking in public.
• Dread public speaking to the point thatthey consider this to be an obstaclethey cannot overcome.
• Assume that public speaking is apower they will never attain. Presumepeople are born with the gift of publicspeaking and that others cannotdevelop this ability.
• Believe most public speakers are dull,boring, and not especially skilled atmaking platform presentations.
• Have love-hate feelings about publicspeaking and thus consider publicspeaking to be an impossible goal for them.
• Do not even begin their journey tomaster public speaking.
• Think they are not in a position to everbecome an effective public speaker.
• Feel they would, like most others, notbe a superior speaker but only anaverage speaker.
Orison Swett Marden observed, TheCreator has not given you a longing to dothat which you have no ability to do.Marden knew — just as all research hasconfirmed again and again —that public speaking is essential tosuccess. Your ability to effectivelycommunicate is vital, if you areaddressing one person, three radiomicrophones, a press conference, or avast audience composed mostly of peopleyou do not know.
What Did Marden Say?
Here are Marden’s actual words. Thoughnow dated his comments are stilltimeless. Marden said, Resolve thatwhatever you do, you will bring the wholeof you to it. That you will fling the wholeweight of your being into it.
Orison Swett Marden
If readers of The IARFC Register are likemost people, public speaking is mostlikely not your favorite endeavor. MonroeM. Diefendorf, Jr., MI, CLU, ChFC, CFP®,RFC®, C3DWP, of Diefendorf CapitalPlanning Associates in Locust Valley,(Long Island) New York, directs the oldestfinancial planning agency in America,dating back to 1875.
“Roey” Diefendorf explained, “Experienceshows us all that platform presentationskills are crucial to success in your work.But, as we all know, there is a bigdifference between the financial advisorwho considers himself an excellentspeaker, and a financial advisor whoactually is an excellent speaker. Thisability is not only needed for everyfinancial planning career, but in theplanner’s personal and social life as well.”
Marden said, Be larger than your task.This includes public speaking.
Any size group can be attentive to you,once you become an effective speaker.Canada’s Jeff Eshun, RFC®, President ofSolution 21 Finance in Woodbridge,Ontario, stated, “The financial plannerwith strong verbal communication skillshas a clear advantage over almost allothers who remain reluctant, afraid,bashful, tongue-tied, uncertain aboutspeaking, or unwilling to try speaking. Theskilled speaker has many advantageseven over the more senior colleagues whohave not developed their speaking skills.”Eshun adds, “ The effective ‘financialplanner speaker’ is perceived asintelligent, learned, a leader, confident,informed, acting with authority,disciplined, knowledgeable, andembodying other qualities.”
Marden said, Obstacles are like wildanimals. Wild animals will bluff you ifthey can. If they see you are afraid ofthem, they are liable to spring upon you.But if you look them squarely in the eye,they will slink out of sight. Mardenbecame a successful speaker byovercoming his stage fright while a young man. Next he overcame allobstacles that limited or prevented hisability to become a polished speaker. Forthe rest of his life he still had pre-speechjitters, as do many of today’s leading‘financial planner speakers.’
Cato Comments – About Your Image...Become a More Effective Speaker!
continued on page 11
Page 10 The Register • February 2007
Bernard Anderson, AIF, RFC®, President ofAnderson Financial Solutions in Atlanta,Georgia, a skilled speaker, says experiencetaught him that, “Pre-speech jitters can betolerated and help you to hone your abilityat this specialty skill. Many famousspeakers, like many famous actors andsingers, believe pre-speech jitters helpstimulate your adrenalin, enabling you toalways perform at your best.”
Marden said, Deep within man dwellthose slumbering powers, powers thatwould astonish him or her, that he or shenever dreamed of possessing, forces thatwould revolutionize his or her life, ifaroused and put into action. You havethis power within you. Every Registerreader is born with this ability. This powermay be hidden deep within each RFC.You can find this power and bring it forth,then develop your speaking talent, asmany RFC’s have. To be able to speakeffectively is to have power!
Here are the names of just a few RFC’swho, I believe, have this power, JerryReiter, Ed Morrow, “Roey” Diefendorf, HalChorney, Mehdi Fakharzadeh, Lew Nason,Norman G. Levine, Phil Calandra, BernardAnderson, Jeff Eshun, Jim McCarty, BenBaldwin, Ed Ledford, Steve Bailey, andmany more. This ability often goes withleadership and productivity.
Marden said: Resolve that whatever youdo, you will bring your whole being to it.Be larger than your task! You are indeedlarger than your obstacles. Once yourealize this, you can prove that you arelarger than your challenge, by planning andtaking correct action. Once you developyour speaking power, there are many waysin which you can use your speaking ability.
Three frequent objectives are, toempower, to educate, and to persuade.Clyde Cleveland, RFC® of the RandallMarketing Group explains, “Seminars thatreach peak potential involve proven directmail and skilled speaking ability. Wherethese two elements are combined you willoften find a multi- million dollar producer.”
There are many other specific objectiveswhere you may use your developedspeaking talent. Among these are publicrelations, entertaining, informing, politicalaction, training, motivating, instructing,discussing, announcing, educating,representing management, storytelling,interpreting, interpersonal communicationand humor.
Marden said, All who have accomplishedgreat things have had a great aim, have fixed their gaze on a goal which was high, one which sometimes seemedimpossible. You should realize that it isvery realistic for you to eventually attainthe status of an admired speaker who canattract attention, create interest, andstimulate desired action.
President of Pinnacle Financial Services,Phil Calandra, RFC® of Kennesaw,Georgia, is a highly successful seminarspeaker. Phil Calandra began studyingthe master speakers and acclaimedmotivators when he was a teenager. Phil believes, “It is an honor and aresponsibility to speak at a seminar of anysize. Each person in the group is uniqueand deserves special attention. I alwaysmake special preparations because sucha gathering is so important. I try to makecertain that those present at my seminarshave an opportunity to express theirthoughts. Their comments are essentialfor what I have to say.”
Phil Calandra adds, “Master publicspeaking and you can implant ideas,impart knowledge, and conveyunderstanding. You can even help people to act immediately in their ownbest interest. The goal of becoming amore skilled speaker is absolutelypossible for any RFC and definitely not impossible. Of course a price must be paid in time and effort. This price, for speaker success, can only be paid by you!”
Marden said, We advance on our journeyonly when we face our goal, when we areconfident and believe we are going to winout. Most of our obstacles would meltaway if, before them, we should make upour minds to walk boldly through theminstead of cowering.
The only way you can be certain to fail is ifyou never start. Veteran financial plannerSteve Bailey, CEBA, MFP, LUTCF, LLM,CSA, CEP, RFC®, of HB FinancialResources, in Charlotte, North Carolina,uses his Southern charm when makingplatform presentations. Bailey, Presidentof the IARFC says, “Once you start on yourroad to speaker success, and takespecific desired steps, over a period oftime, you will eventually reach your goal.Begin your journey and keep going untilyou reach your objective. Then you canhelp far more people to achieve theirfinancial objectives.”
Marden said, There is only one thing foryou to do, and that is to do your level bestright where you are, every day of your life.Use your best judgment, and then to trustthe rest of that power which holds theforces of the universe in your hands. Actnow. Begin immediately, despite anypresent circumstances you may considerless than ideal. Do not wait for perfectconditions or “better times.” Use thisbook as your guide. Apply the teachingsof Orison Swett Marden to your presentenvironment and circumstances. Keeppositive expectations.
Marden said, Make it a life rule to giveyour best. Stamp it with your essence.Let superiority be your trademark. Thefact that so many other speakers areaverage, inadequate, mediocre, andsimply dull, or boring, does not mean youwill fall into this category. Most peopledread meetings because the speakers atmeeting are so unskilled at deliveringtheir messages.
Most of these speaker failures resultbecause these people do not pay theprice for speaker success. They try to“wing it.” They overestimate their ability.They falsely assume they have greatplatform talent. Most likely they violateone or more of the long-standing twelvelaws for successful public speaking.
Marden’s Twelve Laws of SpeakingSuccess: Feeling some nervousnessbefore giving your speech is natural andeven beneficial. Personally, I am alwaysnervous, but then as the audienceembraces I calm somewhat. But toomuch nervousness can be detrimental foryou. Here are Marden’s proven andtimeless tips on how to control yourbutterflies and give an effective speech.
1. Be well prepared in every way. Doyour groundwork. Never think it iseasy to be an outstanding speaker.
2. Know your material and keep itmoving. A too-slow speaker ismaddening!
3. Practice to develop your style,mannerisms, gestures, eye contact,voice projection, vocal emphasispoints, pauses for effect, etc.
4. Know your audience, their ages,education, concerns, and expectations.
continued from page 10 Cato Comments
The Register • February 2007 Page 11
continued on page 12
5. Show the real you, be natural, berelaxed, do not imitate or pretend, be sincere, be accurate. Never yell and shout like an old time country preacher.
6. Know your room, time limits,equipment, etc.
7. Do not self-promote from the lectern,don’t boast, brag, exaggerate, praiseyourself, etc.
8. Realize that your audience is rootingfor you. Warm to them and they willwarm to you.
9. Stay on-point, remain focused, andbuild appropriately, and pace to yourclimatic ending.
10. Respect your audience and show appreciation.
11. Use your common sense. Do notscold, surprise, curse, be vulgar, arrivelate or leave early.
12. Remain “on” when you leave thepodium, mingle, dine, when you areon the elevator, or pass audiencemembers in the hall, etc.
You can improve your oral communicationand leadership skills, starting now. Long time professional speaker andfinancial sales trainer, Jim McCarty, CLU,RHU, LUTCF, RFC®, says, “Public speaking will promote self-actualization,foster acceptance of you and your ideas, and increase your stature. In turn these dynamics will enhance yourself-confidence and advance yourpersonal growth.” Self-ImprovementThrough Public Speaking by Orison SwettMarden provides you with the core valuesthat will sustain you in your quest forspeaker mastery.
Alan W. Altmann, author of PersonalEmpowerment III and also Journey To The Jordan, says, “I was a very bashfulteen. In school I was always afraid thatthe teacher would ask me a question infront of the other students. At church Idreaded being asked to lead a prayer. Atboard meetings as an adult I was reluctantto speak. Then I read Orson Swett Mardenand applied his advice about publicspeaking.” Today, according to the Pacific-Rim Speakers Network, “Al Altmann is oneof the most- booked professional speakersin Asia and Europe.”
Lew Nason, Director of the famousInsurance Pro Shop, possibly the mostsuccessful training source for insuranceagents in the United States, explained,“Our program never really took-off until Iread and applied Marden’s writings onpublic speaking.”
Brian Tracy began his famous career as a financial products and servicessalesman. Then Brian Tracy became a professional speaker. According to the National Speakers Association, “… Tracy is one of America’s highest ratedspeakers.” Tracy told this writer, “Eachspeaking engagement is original, unique,and unique for me. It actually requiresspecial preparation. This specialpreparation takes hours or even days Ihave a learning curve to master. Todeliver the goods and earn my fee, I must be over prepared. It would beunthinkable to do otherwise.”
When young Orison Swett Marden readSamuel Smiles’s book Self-Help, andother works by Emerson, Oliver WendellHolmes, Longfellow, Phillip Brooks, and Ralph Waldo Trine, he never knewthat he would eventually become asuccessful speaker like today’s Charles“Tremendous” Jones, Zig Ziglar, or Rev.Dr. Robert H. Schuller. Nor did Mardenknow that he would one-day write a now-classic book that would “live on-and-on bystaying in print, and help many-manythousands of others, from all walks of life,to also become highly effective speakers.You too can be among those who masterand use public speaking.
Forrest Wallace Cato, RFMA,RFC® has over 25-yearsexperience as a multi-national Media Advocate forfinancial professionals. Heis former Editor-In-Chief ofTrusts & Estates: The
Journal of Wealth Management andFinancial Planning Magazines.
Cato wrote the Introduction to the classic book, How To Sell Your WayThrough Life by Napoleon Hill, author of the all-time best selling motivationalbook Think and Grow Rich. He presentsThe Cato Award at the IARFC Forum.Contact: Intergroup II/Atlanta, Inc.,www.CatoMakesYouFamous.com770 516 9395 [email protected]
continued from page 11 Cato Comments
Page 12 The Register • February 2007
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Presenting Your Financial Services to Prospects
It’s a great time for agents and financialadvisors to help clients purchase long-term-care insurance — if you knoweffective sales techniques that will ensureyou can be productive and won’t getdiscouraged. Let’s look at some of thekey trends in the industry and examinewhat they mean for us:
1. Insurers Have Tightened Underwriting
Insurers have tightened up theirunderwriting over the past several years. Inthe past, insurance companies wouldaccept applicants who had had one strokewithin the past three to five years. Now,they won’t take anyone who’s had a strokeor a trans-ischemic attack (a TIA, or mini-stroke) in the last five years. Even then, it’svery problematic to get a policy issued withan applicant who has any other medicalconditions after the stroke occurred.
They’re also much more restrictive onosteoporosis. LTC insurers generally won’t underwrite anyone who’s had afracture. A diabetic will be screened for peripheral neuropathy and anyindication of other conditions which are a normal result from the onset of diabetes or its mismanagement.
Because of tighter underwriting, theadvisor’s initial health interview hasbecome more important. It doesn’t dothe advisor any good to submit cases thatwill definitely get turned down just to get acouple a marital discount on theirpremiums. You don’t want your profile atthe Insurer to indicate anything except anormal ratio of declined cases.
2. Focus on Younger Prospects
Along with tougher underwriting, as partof their efforts to cut claims costs,
insurers are redoubling their efforts to sell LTCI to younger people. Whereaspeople over 64 have traditionally been the prime buyers, now insurers arelooking to broaden their market to peopleas young as 40.
From a financial planning standpoint, thisis sound thinking. While people in their40s and 50s have a low risk of needinglong-term care, their risk isn’t zero. Bybuying early, these clients ensure thatthey’ll be underwritten and they can lockin lower premiums. Insurers want toattract younger customers because they’llkeep the policies in force much longerbefore using them than older buyers will.
The problem is that it’s a much moredifficult sale to younger individuals, sinceit’s hard for advisors to create the needwith people who are saving for theirchild’s education or currently payingcollege tuition. Long-term-care just isn’ton their radar screen.
3. Product Innovation
It’s a great time to be offering LTCIbecause today’s policies are moreconsumer-friendly, rich with a variety ofbuilt-in and optional benefits. With somepolicies, cash benefits can be paid tofamily members who are providing care.
Various new riders make LTCI moreattractive to younger buyers. For instance,some insurers are offering survivorshipbenefits. If you buy this rider before age65, the rider will pay the survivingspouse’s premiums for the rest of his orher life, as long as they’ve owned theirpolicy for 10 years and have not made anyclaims. The rider typically costs just alittle bit extra.
A 10-pay policy that guarantees lifetimecoverage is another attractive innovation.Some insurers offer an optional return-of-premium benefit for younger clients. If the insured has not used any benefitsbefore his or her death, the insurer will return a portion of the premium to the beneficiary.
A shared benefit pool rider is anotherattractive development. It lets onespouse access the other spouse’s pool ofbenefit money if they have used up thebenefits on one person’s policy. Andfinally, dual-purpose policies arebecoming more popular. They provide LTCcoverage inside a life insurance policy andare excellent fit for the right client.
4. Advisors Can Get Assistance
As an Advisor, ask for guidance from yourMGA, GA, or B/D about how to sell LTCIsince it’s a VERY different kind of salesprocess from start to finish. That’s whereto start.
Over the years, the industry hasdeveloped an infrastructure to trainadvisors how to sell life insurance andfinancial products by conducting a salesinterview and overcoming objections. Butwhen it comes to selling LTCI, advisorsoften tell me that they feel like they aremore or less on their own.
Advisors who persistently fail to sell LTCIget discouraged. They start thinking, “Idon’t know if I want to do this.” Just asdestructive to their morale is making asale, but failing to get the case throughunderwriting because the advisor didn’tknow how to health-qualify the prospect.
Sales organizations need to be aware ofadvisors’ ambiguous attitudes andconflicts. On one hand, advisors want tosell LTCI because it’s the right thing to dofor their clients. The commissions areattractive too. But many don’t quitebelieve in the product and don’t know howto make the face-to-face sale. And whileselling to the 60-plus crowd is challengingenough, it can be even more difficult tosell to younger people and explain all thenew options in plain English.
Changes in LTCI Products Make Sales Training Imperative
Wilma G. Anderson, RFC®
The Register • February 2007 Page 13
continued on page 14
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continued from page 13 Changes in LTCI Products
You can’t learn to how to sell LTCI withoutsomeone showing you how to avoid thespeed bumps — client objections that canderail the sale. You need to have thetools to do the best presentation, not justa sales manual to memorize.
5. Making the Face-to-Face Sale
Advisors need to know the basics of whatto say when they’re with an LTCI prospect.They must know how set up trial closesthat will expose possible objections asthey go along. That way, when they get tothe end, the prospect won’t have anymajor objections and they can close theirsale easily.
Once the advisor has challenged theprospect’s denial (“It won’t happen to me)and established the need for LTCI, he orshe must show prospects how they canpay for insurance, based on their assetsand income. This removes the objection,“I can’t afford it.”
The advisor must be sure that theprospect really understands the product’sbenefits. One trial close is, “Can you seehow this feature would work when yourhealth changes?”
At key points, the advisor should alwaysask, “Do you have any questions?” Thiswill expose any objections and allow theadvisor to answer and continue. Everytime the advisor answers a question, heor she gets the prospect’s permission togo forward, and their resistance willcontinue to decrease. An unansweredobjection will stick in the prospect’s mind — a little voice in the back of themind that keeps nagging, raising doubt —and the client won’t listen to what the
advisor is saying to them, making theclose an uphill battle.
Advisors must avoid get painted into the“Yes-but!” corner. This is when advisorhears the prospect’s objection and then iseager to try and challenge it. “Yes, but didyou know that….etc.” This is a surefirerecipe for failure.
By probing and asking questions, advisorsengage the client in the sale instead ofdoing all the talking. The client becomesa participant in the purchase.
People can’t be sold anything they don’treally want — they’ll just cancel the policylater anyway. The advisor must help andguide the client/prospect, so they’ll sellthemselves, understand what they’rebuying and feel good about their decision.They’ll view the advisor as a consultant,not a salesperson who shoved somethingdown their throats.
Advisors who go through these steps earnthe right to close the sale. The advisorand the clients will find it easy to wrapthings up.
Advisors also must know how to pivot toan investment sale in case the client isn’thealthy enough to qualify for insurance.That way, the sales call isn’t wasted, andthe advisor has a chance to sell anannuity that can help the client save forlong-term care.
6. Training Options
There are many options for trainingadvisors: in-person workshops, tele-coaching sessions, videotapes andwritten material.
Attend a full-day or half-day workshopfrom a speaker who actually sells LTCI toclients, not someone who has littleexperience eyeball-to-eyeball with theirclients. Instructional videotapes canmake it easy to study at home. You canwatch the DVDs at your convenience, andthey will reinforce the lessons you learnedin the workshop.
Personalized coaching is also invaluable.Coaching can help any Advisor to reachtheir sales goals. Interview potentialCoaches and see if one of them can giveyou personalized attention, if that’s whatyou need to become a Winner.
The biggest question is: Can you affordnot to learn how to sell LTCI?
Get the tools to do make your sales presentations effective andpowerful. Your clients need to hear a sales presentation from YOU, not your competitor.
Wilma Anderson, RFC®, is known as TheLTC Coach, one of America’s leading LTCIsales trainers and a practicing producerwho sells 400 LTC policies a year. Sheoffers personalized tele-coachingsessions, workshops, speeches andseveral sales tools to help Advisors learnhow to master the LTCI sale. Wilma is awidely published author and frequentspeaker at conferences and salesseminars, including this year’s Forum.Contact: www.TheLTCcoach.com 720 344 0312 [email protected]
Page 14 The Register • February 2007
The Register • February 2007 Page 15
currently provides that $455 per week is the minimum amount an employeemust receive in order to meet the criteriafor the exemption. In addition, the salarymust be a regularly received andpredetermined amount that cannot bereduced by the quantity or quality of theemployee’s work. Also commissions ordraws don’t qualify.
Most brokers work more than 40 hoursper week, and yet never knew they wereentitled to overtime. This can add up tohundreds of hours per year per rep.
The bottom line: just about everybrokerage firm has violated theemployment law according to Ecclestonand is now exposed to a barrage oflawsuits and claims. Eccleston’s firm andcoalition of other law firms have alreadystarted filing class action suits on behalf ofthe reps. Their plan is to file class actionsuits against every firm in every state.
The settlements have been staggering.UBS settled nationally for $87 milliondollars. Citigroup settled recently for awhopping $98 million by consolidatingthree suits from New York, New Jerseyand California that involved about 20,000 reps. Merrill Lynch and MorganStanley each settled in California; MorganStanley for $42.5 million and Merrill for$37 million. Some of these firms arelikely to be facing actions in the other 49 states as well.
On the surface it appears there are no legitimate defenses to these cases.Either the firms paid overtime to theirreps or they did not. If they didn’t, theyare probably going to be facing classactions until the statue of limitationsexpires. Some states have a two-yearstatue of limitations on these claims. But it can go up to five or six years inother venues.
“These are such open and shut cases thatnone of them are going to trial,” accordingto Eccleston. It is in the firm’s bestinterest to settle early rather than go tothe time and expense of a trial where theydon’t have any meaningful defenses.
Going forward Eccleston expects mostbrokerage firms to change their policies.
Trouble in the WorkplaceBy Katherine Vessenes, JD, CFP®, RFC®
Investors are not the only group goingafter the industry’s deep pockets. Withnumerous class action lawsuits pendingagainst broker dealers by unhappy reps, it has become clear that claims betweenreps and their firms can be even more costly than the claims made byunhappy investors.
With both broker dealers and their repsgetting bad legal advice, the issues keepescalating. Let’s look at the six mostcommon claims and issues that arecurrently making their way through thecourts or arbitration.
1. Class actions for unpaid overtime.
To avoid paying registered reps overtime,virtually every wire house has relied onlegal counsel’s advice that their repswould qualify for the administrativeexemption to the Federal Labor StandardsAct. The problem: the advice was dead wrong.
“This is an area where the broker dealersgot caught with their pants down,” saidJim Eccleston, a nationally known attorneyfrom the law firm of Shaheen, Novoselksy,Staat, Filipowski & Eccleston, in Chicago,who specializes in securities litigation andemployment law.
There are a number of conditions to beeligible for the exemption. “One of themis the employee must be paid a salary,”according to Eccleston. He says the law
“They will probably pay the minimum insalary and then create a plan for the repsto get the balance of their compensationin bonuses or commissions,” heexplained. Many attorneys think thisarrangement will allow brokerage firms toavoid paying overtime, but the issue hasnot been definitely decided.
In the meantime, Eccleston cautions thatchanging a compensation policy now doesnot affect liability for past behavior. Therewill still be lawsuits because the firms’activities were illegal in the past.
The easiest cases are where the rep has recently left a firm and, feeling safeand secure with the new employer, knowsthey can seek unpaid overtime from theold broker dealer without jeopardizingtheir new employment. “We definitelywant to hear from these people,” saysEccleston, “There is a good chance wecan help them.” He goes on to say thathe also likes to hear from reps who arecurrently employed at a firm they thinkviolated the law. “Frequently they know arep who has left the firm and that repfeels more comfortable about suing. Inthat case the current employee will stillbenefit once the case is filed and theydon’t have to be labeled as the troublemaker who brought the suit,” according to Eccleston.
The coalition of law firms is open tomeeting with reps who might beinterested in being a plaintiff, particularlythe lead plaintiff in the class action suits.Reps may hesitate to file a suit againsttheir current firm because they fearretaliation. This is true even though someof the settlements have been $10,000 to$30,000 per rep, Eccleston explained.
Lessons for broker dealers: Now is the time to get good advice about your overtime policies. Every day you wait to change your policies increasesyour exposure.
Lessons for reps: if you think you are owed back overtime pay, you cancontact a firm like Jim Eccleston’s to see if you qualify. Going forward you shouldkeep track of the hours you work every
continued on page 16
Katherine Vessenes, JD, CFP®, RFC®
continued from page 15 Compliance-Friendly Marketing
week. This information may be helpful in your suit.
2. Claims for illegal charges for salesassistants, trading errors, marketingcosts and technology fees.
Another area that will be getting moreattention in the near future is the practiceof firms to charge their employee/brokersfor the wages paid to their salesassistants, and for trading errors,marketing costs and technology fees.Eccleston states it is illegal in most statesfor employee/brokers to pay for their ownsales assistance. He sites New Jersey asa state where employers are not allowedto divert the wages of one employee forthe expenses of other employees.
“These are all areas that are particularlyirksome to brokers,” says Eccleston, “andthey are fighting back.” It is really irritatingto brokers to be charged for trading errorsonly when the firm loses money on theerror. Most firms don’t share the profitsof trading errors with reps, and this makesthem angry Eccleston explained.
Technology charges are another area thatseems to make reps upset enough toseek out legal advice. Ecclestonexplained that it is not unusual for a firmto charge a branch $10,000 to $30,000per month in technology fees. This isreally an offset of the company expensesagainst an employee’s wages. Ecclestonpointed out that no class action has been settled or won but, in his opinion,the law seems to be on the side of theemployee. He has noticed some firms arehoping these cases will slip under theradar, so they are quietly settled withoutmuch publicity.
Lessons for broker dealers: Do a carefulreview of the labor laws in every state youdo business. Then you can determine ifyou should end these practices.
Lessons for registered reps: If you thinkyou might be charged illegally, contact a law firm that specializes in theemployment issues facing reps and broker dealers. They should be able to tell you if you have a good claim.
3. Promissory notes
Another area that is receiving a lot ofattention is promissory notes. Althoughthis is not a new issue, some recenttrends in the amount of the loans andtheir durations have brought the issue ofloans to the forefront.
It is becoming increasingly common for arep to receive a large up front bonus,frequently called a “waffle”, as aninducement to switch firms. Althoughcalled a bonus, it is in fact a loan that canbe forgivable if the rep stays long enoughwith the receiving firm. As each portion isforgiven, the rep must report it to the IRSand pay taxes on the forgiven amount.
These loans are usually based on 100% to 150% of the rep’s trailing 12 month commission. They are gettingso large, it is not unusual to see bonuses in the range of $1 to $1.5 millionbe used to motivate a rep to switch firms. As the bonuses have gotten larger,so has the length of the term of the loan.The notes are now commonly six to nine years long.
For the reps, it looks good on the surface,but the strings to the bonuses couldcause problems down the road. Repsneed to realize they will be an indenturedservant for the period of the loan, and sixto nine years can be a very long time ifthey are not happy at the new firm.
Should the rep leave before the noteexpires, there can be some veryunpleasant tax consequences. Ecclestonexplains it like this: A typical situation iswhere the rep doesn’t want to leave thereceiving firm, but some circumstancesforce him to move on. Many of thesecases involve a bad start at the new firm.Typically there were problems with the on-boarding process and the rep hassuffered financially as a result. It could bethe ACAT transfers did not come over asquickly or completely as anticipated.Maybe the new manager wasuncooperative in some way and it cost therep some commissions, or maybe thephones aren’t working. The net result isthe rep realizes they are not makingnearly as much money as they should andthey decide to leave.
The firm will then file a lawsuit against therep for the balance of the loan. The portion of the note not then forgivenis owed and payment accelerated. Therep, who was struggling anyway, now findsthey owe the firm they have just left agreat deal of money.
“Sometimes, after reviewing the facts, wefeel the firm should owe a check to therep, not the other way around,” Ecclestonexplained. That is because the firm madethe rep’s life so difficult, they couldn’tmake a decent living at the new firm andin fact ruined the rep’s business.
By this time the rep has had enough,according to Eccleston. First theirbusiness is ruined and then they areasked to pay back the loan. “That’s whenthey call me and ask about theirremedies,” he said.
A typical counterclaim is brought by theregistered rep for lost revenue over threeyears. These cases usually settle,according to Eccleston.
The problems arise when the rep consults with an attorney who may not be familiar with the tax consequences of these issues. Eccleston says when his firm negotiates on behalf of the repthey try to string out the payments over aslong a period of time as possible. Thereason is at the final payment all theunforgiven portions, those the brokerdealer agreed to waive during thesettlement process, are reportable asincome and taxable.
Here is the example Eccleston gave. Saythe rep was given a bonus of $500,000and signed the promissory note. At the point in time where $250,000 had been forgiven, reported and the rep paid the taxes due, she decides toleave the firm, thus accelerating thebalance due of $250,000.
After hiring an ace attorney to negotiate a lower settlement, our rep is determinedto only owe $100,000 because thebroker/dealer agreed to waive $150,000to settle the suit. It is at this point whereEccleston has seen a number of reps hurtby incompetent counsel. The reason isthe firm will issue a 1099 for the unpaidamount, in our example, a whopping$150,000, treating it like a furtherforgiveness of the original loan. The repwill then owe taxes on the $150,000.
Unfortunately, Eccleston says most repsare clueless until they get the tax bill. Inthe higher income tax brackets they couldbe looking at close to 40% of the amountthe broker dealer waived going to the IRS.At that stage the settlement doesn’t looknearly as good.
Lessons for registered reps: • Read the language in the promissory
note very carefully. • Get legal advice before you sign
the note.• If you decide to leave, take careful
notes about any problems with the on-boarding process. Make sure they
continued on page 17Page 16 The Register • February 2007
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are detailed and dated because thiswill help strengthen your case.
• Watch out for the tax consequences.
Lessons for broker/dealers: • Good file notes can also strengthen
your case. Make sure your branchoffice managers are documenting thetransfer process and noting things aregoing smoothly.
• If the transfer is not going smoothly,you should document how you fixed the problem.
4. Wrongful termination
Eccleston says he has seen a number ofwrongful termination cases that havecome up after the rep has left the firm.Usually the rep doesn’t know they have aright to bring an action for wrongfultermination and they are not inclined tosue until they get the note advising themthe firm is going to sue them for thebalance of the promissory note. “This is usually the last straw,” Eccleston stated. “This just sends the rep over the end and they will file a wrongfultermination as a counterclaim.”
5. U-5 Defamation
The U-5 is a Termination Form that theNASD requires member firms to fill outwhenever a registered employee leavesthe firm, explaining the reasons for thetermination. Certain comments on thisdocument can effectively end a rep’scareer in the industry since most firms will not hire any registered person whohas been terminated at another firm if the termination was precipitated byegregious conduct.
Sometimes the reps will sue to reform thestatements on a U-5. The statementsmust be both defamatory and false inorder for the rep to have a chance atwinning. In addition, they usually have toprove the broker dealer filed thestatements knowingly and maliciously.Some categories of defamation are soheinous, that damages are presumed,according to Eccleston. One area is job performance.
Attorney Richard Levan of Levan andFriedman in Philadelphia, noted that thisarea is in a state of flux. The questionbecomes whether the broker dealer hasan “absolute” or “qualified” privilegeregarding the statements on the U-5.
If b/ds have an absolute privilege, thebroker dealer can state whatever they
want on the form and be immune from arep’s lawsuits, even if the statements aredeliberately false and defamatory. If ab/d has a qualified privilege, the reps cansue only if they can prove the statementsare false, defamatory and the employermade statements with malice.
Reps faced with a state law that holds abroker dealer has an absolute privilegecan be in a difficult position, because theyhave been falsely defamed and are thenwithout a means to get the language onthe U-5 amended to reflect the truth. Theend result is that they are usually out ofwork, since no one will hire them.
Levan is intrigued by a New York case inthe Second Circuit of the US Court ofAppeals, Rosenberg v. MetLife Inc.Rosenberg was terminated by New YorkLife who filed a U-5, which stated in part:“... Rosenberg appeared to violatecompany policies and proceduresinvolving speculative insurance sales andpossible accessory to money launderingviolations.” Rosenberg says the realreason he was fired is because he is aHasidic Jew.
The district court dismissed Rosenberg’sclaim holding that Met Life had anabsolute privilege to say whatever theywanted on the U-5, even if it was falseand defamed Rosenberg.
“What is quite unusual about this case,”said Levan “is that on appeal the SecondCircuit sent the case directly to New York’shighest court to get an opinion on theissue.” Levan thinks this case, because it is from New York, our financial center,will have a bearing on similar cases in the future.
Another case that Levan believes ishopeful for brokers is Galarneau v. MerrillLynch decided in July of this year. In thatcase Debora Galarneau, a 15-year Merrillbroker, sued Merrill for filing a false anddefamatory U-5. A Portland Maine juryagreed with her and awarded her $3 million in damages. Merrill has statedthey will appeal.
According to Levan this is a difficult caseto prove because the plaintiff must provethat the form was incorrect and the firmknew it was incorrect and proceeded tofile it anyway. In essence they had toprove that Merrill was knowinglyblackballing Galarneau from the industry.Although Galarneau may have won thebattle, it is unclear whether she will winthe war. She is still facing an appeal and
as of August has still not found anotherjob in the industry. She fears that the U-5may have permanently damaged herreputation in the industry.
Lessons for broker dealers: Although itcan be tempting to ruin a rep’s career andlivelihood, take the high ground and onlyprint true statements on a U-5 and makesure you can defend them if you are sued.
Lessons for reps: if you are unwillinglyterminated from your broker/dealer,consult with an attorney. They canfrequently negotiate language on the U-5that will not damage your career.
6. Errors and Omissions Coverage
It is rare to find Errors and Omissionsinsurance involved in employment based complaints between reps andbroker/dealers. The reason, according toBud Bigelow, President of The CambridgeAlliance, a firm that offers E and O to RIAsand registered reps, is E and O coverageexcludes employment practices.
Bigelow described a case he had recently:the investor filed a claim against the rep’sb/d, but not the rep. Bigelow said this isbecoming increasingly more commonbecause it is getting harder for registeredreps to have their records expunged.Savvy plaintiff’s bar understand this newchange in the expungement rules andknow that if the rep is not named in thecase, they are not likely to fight asettlement. The thinking is, Bigelow says,a broker/dealer is not as worried abouttheir reputation and will settle the matterin a business-like manner. The rep wouldfight the case tooth and nail.
What made Bigelow’s case so unusual isthat the rep had E and O insurancethrough Bigelow’s company, but the BDwas uninsured. Since the BD was thenamed party, they were the only ones atthe bargaining table; the rep was excluded.
The problem came when the BD usedtheir employment contract with the rep,which included an indemnificationagreement under a hold harmless clause,to pass the entire award and otherexpenses off on to the rep. The rep wasstuck with a bill of $275,000, which was887% of the total. “Our goal,” Bigelowexplained, “was to make sure the rep,who did not have a seat at the table, didnot get unduly singed.” The E and Ocompany did end up reimbursing the rep,
The Register • February 2007 Page 17
continued on page 18
continued from page 17 Compliance-Friendly Marketing
even though he was not a named party inthe arbitration claim.
Bigelow predicts there will be many more cases that involve a rep’s conductbut don’t specifically name the rep in the complaint. Unfortunately the rep may end up paying the award even though they are not involved in thesettlement negotiations.
Lessons learned for reps: now is the time to take a good look at youremployment contract and determine ifthere are any hold harmless orindemnification clauses. If one of yourinvestors does file a complaint againstyour firm, request that you be included in all the negotiations.
Lessons for broker dealers: even if yourrep is not named in the suit, include themin the negotiations anyway, particularly ifyou are expecting them to reimburse youfor expenses.
In conclusion, it is anticipated that thenumber of employment related claimsbetween brokers and their firms willcontinue to increase. This is one areawhere it pays to get good legal advicefrom a law firm that specializes in these issues. Many of the problems listedhere could have been avoided if theparties had used a qualified legal expertfrom the beginning. Whether you are abroker dealer or a rep, get the best helpyou can and you will increase yourchances for success.
The author wishes to express herappreciation to all the people interviewedin this article, including complianceconsultant Paul Bruce of Waterside who provided background information.They may be reached at: Paul Bruce:[email protected], JamesEccleston: [email protected] Levan:[email protected], Bud Bigelow:[email protected]
Katherine Vessenes, JD, CFP®, RFC®, is anationally known author and speaker,focusing on sales, marketing, complianceand practice management issues forbroker/dealers and advisors. Look for her latest book: Become aMultimillion Dollar Financial Advisor. Contact: . www.vestment.net952 401 [email protected] 18 The Register • February 2007
Business Mirrors Life —Don’t Get Too Serious!
“Hesh, we want you to speak at ourRotary meeting,” the program chair said.“I’d be happy to,” I answered. Of course, Iwould; I’d been hounding her for monthshoping she’d invite me to speak. “Ourmembers need something lighter. We’vehad too many serious speakers — schoolviolence, the mayor’s death, and thelatest job-loss statistics.”
Suddenly, I wasn’t so happy about theinvitation. Did she think I wasn’t a serious speaker? I am. The onlydifference is that I use humor to get atserious issues. I’ll show them. I’ll speakon the history of American humor and theimpact of social commentators, like MarkTwain or Will Rogers. The problem wasthat except for watching Hal Holbrook asMark Twain on PBS, I knew very littleabout him. To do a serious speech wouldtake time and hard work. Forget it. OK,back to the problem at hand — I have tospeak for a half hour.
Could I read some of my columns to theaudience? But, I hate speakers who readto their audiences. Could I memorize afew of my columns. Again, that takesmore work than I want to do. In junior-high when I had to memorize theGettysburg Address, I sounded very stiffand unnatural. I checked my notes for apresentation I gave a few months ago fora small group of businessmen. We all sataround a table at Panera, (humor aroundthe scones) and I didn’t even need tostand up to speak.
But the Rotary would be different. I’d besitting at the dais. I’d have a podium anda microphone. I was planning on wearinga suit — maybe even a tie. Books onspeech writing suggest a simple structure.
Tell the audience at the beginning themessage you want to deliver. Deliver themessage with a few examples, and thensummarize the points that you’ve made.Then sit down quickly.
Let me try my message: Don’t takeyourself so seriously. I could summarizesome of my stories and the elements ofhumor in each. But I knew if I dissectedmy humor — it would get boring quickly.No one would laugh. It would sound like ahistory report for school. But, I do wantpeople to laugh. I’m just afraid that theywon’t. I’m afraid to tell an anecdote andhave all those serious faces looking up atme, bored to death. Now I get it — I’d belike every other speaker — afraid, hidingbehind my speech. But I can’t. I shouldfeel comfortable with the fear. I face itevery week when I e-mail a new column toan editor. I’m always worried that I will geta message back, saying, “Hesh, this istotal garbage.”
But I know that fear. Speaking is a newfear for me. I’ll have to say what I reallywant to say. And hope some people in theaudience laugh just a little. I wantsomeone to like my speech, and like me.Now that is scary. It all comes down tojust wanting to be liked. I guess that’swhy I always wanted a dog. Excuse me; I have a speech to write.
Hesh Reinfeld uses his story telling skillsto help financial advisors with marketingbiographies that transform their imagefrom financial calculators into authenticand appealing people. As an experiencedjournalist, Hesh passionately believes that a properly crafted bio or marketingprofile will cause a prospective client to be sufficiently attracted to read it, and to feel, “I’d like to meet this person.” In this issue of the Register, you will enjoy his two-page interview of IARFCmember, Gary Storie, in a format well designed for reproduction.
Meanwhile, Hesh will be entertaining us with his glimpses of Business MirrorsLife — a humorous examination of theworld we live and work in. We all need towork hard to be successful, but not takethe world too seriously, and laugh just abit at ourselves. If you would like Hesh tohelp you prepare a similar biography foryou, or to assist you with writingassignments that will help you in yourmarket, phone him at: 412 421 8379 ore-mail: [email protected]
Hesh Reinfeld
Everywhere you turn these dayssomeone’s writing about the customerexperience. Understanding theexperience. Maximizing the experience.Creating the experience. I don’t knowabout you, but too often those “expert”opinions strike me as too academic, notreal world. Then all of a sudden, youexperience the customer experience donewell... and it clicks. You get it. The piecesjust snap into focus.
That’s what happened to me a couple ofweeks ago thanks to my wife, who treatedour kids and me to Cirque du Soleil’slatest show, “Corteo”, on tour here in DC.
Now I could tell you about how I first fell inlove with Cirque du Soleil nearly 20 yearsago before they became a phenomenon;how seeing them brought me back to my(then recent) college days performingstreet magic at Quincy Market in Boston...but that’s a story for another day.
What hit me this time is how clearly andcompletely they’ve studied, andsystematically responded to, the wantsand needs of their audience — along theway wowing thousands of people nightafter night, city after city, year after year.The sights, sounds, and smells, theartistry, the feel of magic in the air. All thelittle touches. Making the impossibleseem effortless and in the processreconnecting that audience with thepower of imagination.
OK Kip, what the heck are you talkingabout? What on earth does a circus haveto do with running my business? Aren’tyou the technology guy?
Well, sort of. Which is part of what I’m pointing out here: how completely this organization has integrated
“technology” into the fiber of theexperience they deliver.
Do you know how Webster’s definestechnology? From the Greek technE —art, craft, skill. The practicalapplication of knowledge; a manner ofaccomplishing a task especially usingtechnical processes or methods.
Could be (or should be) a definitionof how you run your business.Skillful, practical application ofknowledge to accomplish a result.
Something to ponder as you beginfocusing energy on 2007: Howsmoothly are the movements of yourbusiness choreographed andexecuted, so that in every encounter with clients or prospects you arecompletely focused on delighting themand delivering lasting satisfaction, andnot scrambling to remember what you’resupposed to do next?
Tough to do if you’re constantly preparinglast-minute reports, spending your daymired in email, never getting around tomaking those touching base phone callsor putting out that monthly newsletter, orgoing into annual review sessions with noclue of how you’ll fill the other 50 minutesin the hour once you’ve reviewed theclient’s account.
So how do you break that cycle? Byidentifying, documenting, and thenassessing the different things you do day inand day out. Answering questions such as:
• What’s our process for preparing for,conducting, and then following up oneach meeting — from the first writtenreminder to the last “tying up looseends” phone call?
• What parts of that process could be eliminated? Which could beautomated? Which could I delegate, or outsource?
• Have I stopped to ask myself whatwould “Wow!” me if I were my client?
• Have I asked my clients what would Wow them? Have I done whatthey’ve suggested?
• Standing in my clients’ shoes, what would tell me unequivocally that I was the most important personin my advisor’s business at any time we interacted?
You get the idea. Wow doesn’t happen by accident.
One resource that can make the processeasier is a tool I use with my coachingclients: a work flow worksheet. It’s asimple form built in Microsoft Word that will help you map out key processesstep-by-step. Visit:
http://www.winningclients.com/workflow(4_col).doc
You can download it and be sure to shareit with your staff. Or take it a step furtherand put the topic on your next staffmeeting agenda, so you can discuss whatthings to focus on first.
Just one thing. Be aware that this sort ofwork isn’t completed overnight. It takestime. It takes effort. It takes thought.Which is exactly why you need to getstarted today... so that within two monthsyou’ll have the bulk of the heavy liftingbehind you. And if you need to rechargeyour batteries on where the combinationof dreams, effort, and persistence can take you, go spend an evening atCirque du Soleil.
Kip Gregory is the author of WinningClients in a Wired World and is aspecialist in creating and implementingsuccessful financial service businessdevelopment strategies. Did you enjoy this tidbit of information? To receive Kip’s Tips via e-mail for free or learn more about Kip’s coaching and consulting services. Contact: www.gregory-group.com202 364 6913
A Lesson in Systemizing the Client Experience
Kip Gregory
The Register • February 2007 Page 19
Relationships are key. Companies spenda fortune on customer relationshipmarketing programs to build thoserelationships. In turn, those CRM-centricrelationships are fundamental planks ofbrand loyalty. They justify loyalty and theyamplify loyalty.
And loyalty matters. According tobusiness trade publication Brandweek, 76 per cent of consumers across alldemographic groups consider a product’sbrand before making a final productselection. The same holds true when aconsumer acquires or retains a service —loyalty is the first consideration.
The average cost for acquiring a newcustomer is approximately five times morethan keeping an existing customer foralmost all industries. Therefore, buildingbrand loyalty can saveyour organization up to500 per cent on newcustomer acquisitioncosts, year-after-year.
Brand loyalty is therepeat purchase made ora professionalrelationship that issustained by theconsumer out ofcommitment to thebrand. Brand loyalty isevident when theconsumer deliberatelychooses a brand from a set of alternativebrands rather thansimply through inertia —there is inevitableoverlap between habitand loyalty.
Brand Building is anevolutionary process. When a consumerdevelops loyalty towards a brand he/shedevelops a favorable attitude towards thebrand resulting in commitment. When thecustomer becomes emotionally ratherthan merely intellectually vested in abrand, loyalty to the brand becomescemented. This is why many highlysuccessful financial advisors plan sometype of event for clients that is notfocused on business. They want to extendthis bonding/branding from merelybusiness to the emotional level. Respectbecomes trust and trust turns into loyalty.This is client retention at its best.However, it sets the stage fordisappointment if there is inadequate orunfeeling follow-up by the advisor or staff.
Customers will buy a company’s productsor services if there is true or perceiveddifferentiation, a high level of service andconsistent value. Brand differentiationpivots on a company’s ability to meetcustomer needs on that emotional level,rather than merely an intellectual level.
But functional differentiation isinevitably short-lived. Your attempts atbranding and loyalty creation can typicallybe replicated by rivals. You must expectthem to try. If you build a pizza brandbased on one concept, such as fastdelivery, you can expect competitors to try to steal it with — you guessed it —faster delivery. So, rather than fastdeliver, you’d want to build your brandbased on deliver that’s fast, hot andsavory. Now, that’s pizza!
Companies need to be able to executecustomer service at a consistently highlevel — hence the value of aligning yourClient Relationship Management (CRM)strategies correctly to create a quality ofservice differentiator.
There are good examples of how CRM can be used to boost brand loyalty. For example, L’Oreal, the world’slargest beauty, skin care and cosmeticscompany wanted to broaden the scope ofits luxury products marketing to shift thefocus from products to customers. Thefirm operates in a highly-competitivemarketplace for luxury beauty productswhere customer retention is a keyperformance indicator.
It standardized on Siebel CRM andAnalytics software, the steady use of whichresulted in greater customer loyalty. As wellas improving customer brand loyalty,L’Oreal benefited from an improvedresponse rate and lower cost of direct mail.It gained a consistent 360-degree view ofits customers across multiple channels.Most importantly, L’Oreal can now classify‘value customers’ more easily and retainthem, further boosting brand loyalty.
Annual purchase of L’Oreal products percustomer were increased by more than30% the first year and by more than 62%over prior second year expectations.
The ultimate goal of branding is tocreate loyal customers. With loyalcustomers, marketing is easier, selling isfaster, premium pricing is more
acceptable, repeatbusiness is extremelyhigher, and positive wordof mouth helps generatenew business.
From a marketingperspective, wellbranded customers builda relationship with thebrand and often becomeadvocates of the brandby word of mouth whichresults in furtherstrengthening the brand.
Action Branding.Personal Service can bebranded just aseffectively as a product –it must be a bitdifferently applied.When all branding andpromotion effort is onone advisor — it can
easily be interpreted as ego-centric.Nobody likes a braggart! The brandingmust be on Smith Financial Advisors andnot just on John Smith. Images andidentity should extend to Mary Brown theClient Service Manager, Mildred Joneswho manages all investment reports andrecords and Tommy Smith who organizersseminars and frequently participates inclient meetings and all the hospitalityfunctions. Yes — all the professionalaccolades of John Smith as he earns newdesignations and honors are part ofstrengthening the brand — but they mustfit into an overall customer-focused SmithFinancial Advisors brand image.
Is Your Practice Customer Centric?
Page 20 The Register • February 2007
continued on page 21
continued from page 20 Customer Centric
Consistency Counts! Delivering aconsistent customer experience acrossmarkets is essential for building a strong brand. Initially brand loyalty is most likely to stem from functionalbenefits, but the relationship thatdevelops is likely to go beyond this in ashort space of time.
So what does it take to strengthenbrand loyalty? As noted above, deliveringa high level of customer service andensuring customer satisfaction are clearlythe most powerful differentiators in themarketplace — cementing brand loyalty inthe process.
Going back to basic principles. Thereare some fundamental tenets of brand building that apply. For a start you need to have a proper identity to work with and to use as thespringboard for unique positioning and differentiation. It must be nurturedand remain consistent at every touchpoint, inside the company and outside.There has to be a single, cohesive brand experience. For the customer,every touch point must work together tocreate that experience.
What’s brand identity for an advisor?It starts with simple basic physical items: A logo that appears on everything,a service motto, consistent use of“signature” colors and typestyles. When
Ed Morrow, shown here lecturing tofinancial advisors in Hong Kong.
you send a message to a client at home,in either a small or large envelop theclient should instantly pull it from thestack, recognizing by your outer stationerythat it is from you.
Differentiation is essential. Once you have that in place, you need todifferentiate yourself. Focus on somethingthat sets you apart from the herd. Createa position. Positioning is the place aproduct or service occupies in the mindsof prospects. Decide what position suitsyour background, abilities, and audience,then build the marketing and CRMstrategies around that....
One lady advisor who had the RFCdesignation in addition to an MBA from a very prestigious school decidedshe liked lavender. Her stationery andbusiness cards are all in pale, discretelavender. She had 9” x 12” envelopesmade in her signature color. Small labels,naturally in lavender, could be affixed toany report or message she wanted topass on.
She knew it was working when client’sstarted to give her lavender scarves andbracelets. She had a genuine leatherlavender briefcase and yes — a lavenderAcura. Her motto:
“It’s not color, but carefulconsistent planning andexecution that creates ourhappy and comfortable clients.”
There are certain questions to be asked inorder to align CRM program customerloyalty activities and brand management.
• What is the annual and lifetimevalue of your loyal customers?
• How do you allocate marketingspending between loyalcustomers, in revenue and profits?
• What is your brand’s level ofrepeat purchase and how doesthis compare to your industryaverage?
• What is the profile of your loyalcustomers? How do you acquiremore of them?
• How well and how often do youreward loyal customers?
• What opportunities can you give to loyal customers to buy morefrom you?
• What opportunities orinducements will encourage loyalcustomers to recommend youmore often?
• Have you learned all you canabout the buying process from theincoming customers eg: what arethey buying, when, how importantis price as a factor and so on.
• Are there mechanisms in place togather feedback at the end of thesale? Eg: how was the customerpersonally experience, anysuggestions for improvement etc?Do you have Satisfaction Survey?
• Are you proactive enough in yourcustomer outreach? Eg: do youcontact customers on specialoccasions and ask directly if they would like additional services or to make additionalinvestments as you prioritize your existing customers.
Continuity is Critical. Above all, be aware that this is a long game. It’s goingto take time. Don’t confuse brandawareness with brand loyalty and certainlynot with brand equity. Awareness is stepone. If customers don’t know you exist,they certainly won’t consider you, butthat’s very different to having a loyal, longterm relationship.
A CRM program like Practice Builder, that is designed just for financial advisors,can be of great help, but loyalty comes through experience and time.Sending frequent mailings, articles andupdates is part of cementing arelationship, and it must be automated.But CRM technologies must be viewed as enablers that operate within thecontext of wider business strategies —valuable as a means to an end, but notthe ‘silver bullet’ that some might claimthem to be.
Ed Morrow, CLU, ChFC, CFP®, CEP, RFC®, is chairman and CEO of the IARFC. He lectures around the world on various aspects of financial planning and practice management. Hisaddresses to organizations such asMDRT, NAIFA, FPA, and SFSP have beenwidely reprinted. For information abouthis speaking engagements. Contact:[email protected] 424 1656 ext. 14
The Register • February 2007 Page 21
How do financial advisors get clients toremember the benefits they purchased intheir variable annuity contracts? How doadvisors make sure that clients have notforgotten why they chose those benefits inthe first place?
The Elements of Annuities. With anannuity, there are two parts: investmentand insurance. Most financial advisorsrecommend no less than an annualreview of investment performance —but what about those complicatedcontractual provisions? As the monthspass by, benefits that seemed soimportant at the “sales meeting” areoften forgotten or become confused in the client’s memory as the focus shifts to the more glamorous issue ofinvestment performance.
But what happens when a competitorsuggests to a client that annuities haveexcessive expenses and that thepurchaser has been overcharged? Orwhen well-intended financial journalistsprint erroneous or un-informed articlesthat suggest those variable annuitycharges are excessive and provide no realbenefit? Such articles are often reprintedto encourage replacement or even tostimulate a regulatory complaint.
Need for Continued Communication.If the ability to partake in positiveinvestment performance is one of thebenefits of a variable annuity contract,how do advisors remind their clients ofthe other benefits? What can advisors doto assure clients that those living benefitsare helping to mitigate a lifetime of risks?When do they remind clients that thosedeath benefits are intermingled into anestate plan matching their intentions withthe expectations of their loved ones? Howdo advisors let clients know that an
annuity is the only cost-effective way toprovide a guarantee of lifetime income?
In the book Wall Street Versus America:The Rampant Greed and Dishonesty ThatImperil Your Portfolio, author Gary Weissbemoans “a generation of Americans whosign papers they don’t read and buyinvestment products they don’t understandfrom brokers whose backgrounds theydon’t bother to research.” That quotealone may be enough to scare advisorsaway from providing complicated annuitycontracts to consumers who don’t want toknow details or who might not remembersales conversations.
“The Annual Review of Annuity Costsand Benefits needs to be a positivereminder of all the contractual andstatutory benefits that the client was motivated to purchase in the first place.”
Regulatory Requirements. The sale ofvariable annuities is subject to state andfederal regulations. The NASD Rules andNotices to Members (96-86 and 99-35)provide guidance about suitability andunderstanding the sophistication level of the client. The SEC’s Investor Tipsalso warns consumers about what theyshould know.
True financial professionals are caught in the crosshairs. On the one hand, they are aware that our society allows blame and penalties to be placed on a registered representativewhose only fault may be expecting theowner, annuitant, or beneficiary tounderstand and remember the terms of acontract. On the other hand, they are alsoexpected to provide the best answers forclients based on accurate data specific totheir situation.
Conveying Product Details. To makesure clients understand annuity features(both benefits and costs) many insurancecompanies have provided informationsuch as “product profiles” which outlineand explain these features. Work is being done at the regulatory level toensure the adequacy of point-of-saledisclosure and to consider variableannuity profile recommendations fromNAVA — the Association for InsuredRetirement Solutions.
The Importance of Repetition. Whilethese efforts to improve point-of-sales
disclosure are commendable, oneapproach which adds to this effort, andwhich offers consistent long-termenhancement of annuity understanding, isthe use of an Annual Review of AnnuityCosts and Benefits.
There is absolutely no reason for advisors to become defensive inpresenting and explaining the benefitsand costs of the variable annuity. For clients seeking secure retirementincome for their own lives and for theirloved ones, fixed and variable annuitiesprovide an effective, efficient answer formeeting these objectives.
The Annuity Review. Similar to aninvestment performance review or themonitoring of a financial plan’s progress,this review (to be performed at leastannually, but more often as deemedadvisable) would refocus attention on theliving or death benefits that were soimportant at implementation, when theproduct was selected and acquired.
Why was the Annuity Purchased? Let’sname a few examples of the benefits thatclients pay for and which have beenreferenced in many arbitration cases orSEC/NASD guidelines:
1. Death benefit: return of principal;enhanced by 140%; enhanced by 7% per year.
2. Living benefit: annuitant incomeguarantee; which may be increased at 7% per year for withdrawal.Spousal lifetime income guarantee.
Annual Annuity Review — A Powerful Service
Michael J. Zmistowski, RFC®
continued on page 23
Page 22 The Register • February 2007
continued from page 16 Compliance-Friendly Marketing
3. Expense Guarantee the contractexpenses (mortality and expense risk charge, contract administrativefees and maintenance charge) willnever be increased for as long as youown the contract.
4. Withdrawal Privileges. Ability towithdraw an amount, such as 25% ormore of the annuity value after thecontract has been put into its payoutphase (annuitized.)
5. A Lifetime Guarantee. Incomepayments are guaranteed for life or forjoint lives, with the ability to providecontinuing payments to beneficiariesin the event of death of the annuitant.
Clients need to receive a renewedunderstanding of these benefitsregularly. If not, it becomes somethingakin to taking prescription drugs andforgetting about side effects. Reviewingthe side effects of pharmaceuticals bydrug companies has become so farreaching that they are now listed ontelevision and radio commercials, inall print advertisements and at thedrug store. Drug companies arebeing defensive because they maylose millions of dollars with onlyone law suit. So, every time apatient gets prescriptions refilled,they again receive a pamphletreviewing the use of the drug andwarnings of side effects. With similarannuity reminding, we must do noless for the safety of our business andthe welfare of our clients.
What to Say? The review needs to be apositive reminder of all contractual andstatutory benefits that motivated the clientto make the purchase in the first place.Questions for the review may include:
1. You are paying 1.25% per year forMortality and Expense RiskGuarantees. How do you and yourloved ones benefit from this expense?
2. The cost of your guaranteed minimumwithdrawal benefit ride is 35 bps per year. It provides a guarantee of lifetime incomes without the risk of market decline. How is that income calculated? Let’s look at your statement….
3. You know that annuities and mutualfunds are taxed differently. Let’sreview the difference between taxdeferred and taxable, as we apply it toyour account.
4. You own this annuity inside of yourqualified retirement plan. Whatbenefit does this give you that theretirement plan alone does not? How important to you are theguarantees against market loss?Does your family understand thesebenefits? May we meet with them to review these benefits?
5. For non-qualified and some qualifiedannuities, when you take income forlife by annuitizing your contract, do you understand that payments aretaxed based upon a favorableexclusion ratio? This means you pay lower taxes because a portion ofeach payment will be treated as a tax-free return of principal.
6. Are you aware you can changeinvestment portfolios within yourannuity contract at any time withoutpaying taxes?
7. You can even change annuitycontracts from one insurancecompany to another, under IRCSection 1035, without incurring
income tax.
8. You’ve purchased an enhanced deathbenefit to ensure your family receivescertain after-tax inheritance. Howhave you let your family know aboutthis benefit?
Place Annuity Reviews on a Schedule.It is important for advisors to develop theirannual review questions based on thespecific contract and suitabilityconsiderations for each contract owner. Itis best to facilitate the client’sunderstanding by going through the
questions in person. Some financialadvisors may consider mailing the reviewin advance along with additionalinformation such as critical annuityarticles and responses, and insurancecompany explanatory literature.
Validating Your Communications. Aftercompleting the Review, have the clientsign off or initial acknowledgement of thisReview. Provide the original to the clientand always place a copy in the clients’ file.Protection for the advisor is only one ofthe benefits of these sessions.
Business Opportunities. This type ofannual review often leads to morebusiness as the client appreciates thebenefits of the annuity, and the thorough,accurate, informed expertise of theadvisor. Clients may decide to increasethe investment and certainly any financialprofessional who provides this high levelof service deserves referrals.
Maintaining a Positive Relationship.Further, in order to stay “top of mind” withclients, marketing experts recommendsome form of contact at least twelvetimes a year. The Annual Review ofAnnuity Costs and Benefits is a veryeffective way to stay in touch because itreduces the potential of losing clients.The Review increases the client’sappreciation for the expert planning the advisor has provided, and helps avoid misunderstandings that could leadto loss of time, energy, and money in
legal battles.
The Annual Review of Annuity Costand Benefits is a valuable
contact. It will help clientsremember not only what
benefits they currently havein their variable annuity,and why they initially
chose them, but also why theychose to do business with you. A win-winsituation for all involved.
Michael J. Zmistowski, RFC® is themanaging principal at First Gulf Advisorsof Tampa. He is an approved instructorfor the International Foundation forRetirement Education (InFRE) andpresents “Managing Retirement Income”to financial advisors. Michael is a directorof the IARFC and will present a half-dayworkshop on May 14, 2007 at theFinancial Advisors Forum in May.
Contact:: [email protected] 282 7200
The Register • February 2007 Page 23
A great deal of press coverage todayfocuses on the expense of variableannuities. An apples-to-applescomparison, however, shows that thereal cost differential between variable annuities and mutual funds in 2005was less than 1% (9.17 basis points).
Many articles exaggerate thisdifference. They assume thatmanagement fees for funds underlying variable annuities areidentical to fees for publicly availablemutual funds, when in fact fees forpublicly available mutual funds, when infact fees for variable annuity funds areusually much lower. This erroneousassumption leads to the equallymistaken conclusion that the costdifferential between variable annuitiesand mutual funds is approximatelyequal to the insurance charges.
According to 2005 Morningstar data, the average investment fundexpense for mutual funds is 1.423%.The comparable figure for variableannuities (.979%) is .444% lower. To some extent, the lower expense offunds underlying variable annuitiesoffsets the additional insurancecharges so that the actual costdifferential of the two products is, on average, .917%.
Why is the mutual fund investmentexpense charge higher than that of thevariable annuity? It has to do with theexpenses related to the handling andadministrative aspects of individualaccounts. For a variable annuity most of these functions are handled by the insurance company and arereflected in the insurance charge. The insurance company, in effect, is one “account holder” of theunderlying mutual fund. With a publicly available mutual fundmanagement involves a multitude of individual accounts makingadministration more expensive anddifficult than for a comparable fundunderlying a variable annuity.
It is important to remember that thisdata is for a limited time frame, andcaution is required in using the results.While it would be appropriate to citethis data in general discussions aboutvariable annuities, the results, whichare industry averages, are notnecessarily reflective of individualproduct lines.
Comparison of 2005 Average Expenses Mutual Funds vs. Variable Annuities
Mutual Funds Variable Annuities
Fund Expense 1.43% 0.979%
M&E - 1.199
Administrative - .140
Distribution - .022
Total 1.43% 2.340%
Difference 0.917%
Average 2005 Expense Analysis by Investment Category
Mutual FundFund Expenses
Variable AnnuitiesFund Expense
Variable AnnuityTotal Expense
Balance/Hybrid
Conservative Allocation 1.483% 0.721% 2.003%Moderate Allocation 1.482 0.837 2.202World Allocation 1.496 0.948 2.351
Core BondLong-Term Corporate 1.033 0.738 2.152
Long-Term Government 1.120 0.793 2.190
Intermediate-Term Corporate 1.064 0.723 2.044
Intermediate-Term Government 1.065 0.745 2.095
Short-Term Corporate 0.953 0.668 2.054
Short-Term Government 0.998 0.739 2.167
Domestic StockBear Market 1.983 1.937 3.492Large Cap 1.414 0.924 2.263Mid Cap 1.535 1.035 2.380Small Cap 1.602 1.078 2.432Natural Resources 1.573 1.112 2.599Real Estate 1.576 1.035 2.434
Specialty 1.745 1.215 2.593Utility 1.465 1.098 2.481
High Yield/Specialty Bond
Bank Loan 1.431 1.033 2.652
High Yield 1.239 0.855 2.214
Multi-sector Bond 1.261 0.951 2.314
International
Developed Markets Bond 1.303 1.024 2.404
Emerging Markets Bond 1.469 1.210 2.499
Money Market
Money Market 0.658 0.595 1.921
This article is reprinted with permission from the NAVA Outlook, which is publishedmonthly by the National Association for Variable Annuities, the Association forInsured Retirement Solutions as a service to it’s members. NAVA Outlookcontains articles and information on the latest developments and issues affectingfinancial advisors with regard to annuities and variable products. It also hosts aconsumer website: www.RetireONYOurTerms.com. For more information contact:703 707 8830 or visit: www.NAVAnet.org.
The Real Cost of a Variable Annuity
Page 24 The Register • February 2007
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Financial professionals helping people do a better job of spending, saving, investing, insuring & planning
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Members WhoRecommended New
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John ClaytonJeff Eshun
Peter GilbertsonRandy Luebke
Aidil Akbar MadjidEd MorrowLew NasonMike Owens
Referror of the MonthAdil Akbar Madjid
New RFC, RFA and RFM Members
Pictured with the IARFC Kuala Lumpur Graduation class of 2006 front center in a gold trimmed robe is Benjamin Kan, RFC®, the IARFC Malaysia Vice Chairman and instructor, to the left is Dr. Jeffrey Chiew, RFC®, the Asia Chair whose robe is edged in green,
followed by IARFC Chairman Ed Morrow, RFC®, whose robe is edged in red, Ng Jyi Vei, RFC®, the IARFC Malaysia Chairman, next trimmed in gold is Teh Hock Seong, then Heng Lee Meng, RFC®, Malaysia Secretary.
Ching-Chen Hsieh TaiwanYueh-Kuei Liou Taiwan
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