The terrorist attacks of Sept. 11, 2001 were still casting their shadow on the business in 2002, some producers say.
“There was a deferred impact of 9-11,” says Guy Baker, managing director of BMI Consulting in Newport Beach, Calif. The impact on his business was a mid-summer lull in production. “The cash flow from deals I would have started during the last quarter of 2001 didnt really start hitting until June or July,” he says.
For his prospects, as for those of many producers, it was anywhere between February to April before they were ready to talk about financial planning again.
“9-11 hit, but that didnt stop a lot of the business that was already in the process,” Baker continues. “2002 started out as a really good year, but then it went flat. Now, its picked up again.”
This type of inactivity can drive a rookie producer out of the business, says Charles A. Brewster Jr., a planner from Osterville, Mass. “If you were just in the commission business, you were in trouble for the last few quarters. People are just now starting to be a little more open to making decisions on their financial planning and investments.”
But now that many people are ready to sit down and plan for their future, they are faced with the confusion brought about by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001. Under this law, the federal estate tax is gradually phased out, with repeal taking place in 2010. Then, under a “sunset” provision written into the law, the estate tax reappears a year later in 2011.
The result is that some agents have seen drops in insurance sales for the purpose of estate taxes. “There doesnt seem to be a sense of urgency from the publics perspective to do much life insurance planning for their estates,” says William Gettings, a partner with Gettings Reed Financial Services, Lafayette, Ind.
“That has really put a stop on the estate planning process–as far as funding estate taxes with life insurance,” says Brewster.
This is particularly the case with smaller estate owners, those in the $2 million to $5 million range, says Baker.
But Robert A. Kaiser, of Kaiser Financial, Fanwood, N.J., says he has not seen any drop in production. “No one believes that estate taxes are going away, and theyre proceeding full speed ahead.”
Most insurance professionals speculate that with federal defense spending levels where they currently are, estate taxes are sure to be a source of revenue for the government. But even so, many planners are hitting roadblocks when trying to plan for their clients estate taxes.
Other advisors, such as CPAs and attorneys, feel that their clients have to plan based on todays current law, rather than speculate on what changes may take place.
“They want to believe that this tax is going to go away and it will not be a problem. Thats what they want to believe because thats the easier solution,” says Richard A. Koob, a financial representative of the Northwestern Mutual Financial Network, Waukesha, Wis.
But Koob also notes that the decision to fund an estate plan with life insurance when the future of estate taxes is uncertain is a difficult commitment to ask of clients–especially when many times the dollars used to fund insurance are irrevocably gifted to a trust. “Its blurring some of these decisions; its not helping people be precise.”
Brewster feels that his clients should not be funding for estate taxes with life insurance. “The big question is What happens if they bring the tax back after 2010? Its simple, then we write life insurance to pay the tax,” he explains. “If estate taxes come back with the sunset, we write business again–until then, its gone.”
Looking ahead, Koob sees “some type of change, both on the level of estate taxation and carry-over basis.”
Baker also feels the estate tax law will change. “I think theyll raise the limit to around $5 million,” he says.
Uncertainty with the estate tax is an issue that agents will certainly continue to face in the year ahead.
But for some advisors, the biggest issues they are facing today are not legislation- or tax-related, but involve the relationships they have with their carriers, says Gettings.
As a veteran producer of 25 years with a career company, Gettings feels career companies today “need to figure out a way to give us an opportunity to be more independent as we mature with our company.”
Gettings says companies need to increase compensation by taking away some of the benefits they were providing–benefits that may not be needed by long-term producers. “Give us the opportunity to direct where some of the money is going,” he says.
This is a problem that has forced many veteran producers into an independent brokerage arrangement. Part of whats driving this problem is the fact that in most career distribution channels, the veteran producers subsidize the newer agents coming into the system, he says.
“That is an issue and a very real challenge the industry will face,” Gettings says.
Steve Bowlds faced this situation five years ago when he decided to leave his career agency of 17 years to become independent. The planner from Sand Springs, Okla., now sees a trend of veteran producers making the switch to become independent. “I think you can only go so far in the agency system,” he says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 30, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.