It’s every advisor’s dream: a client who walks into an appointment with glaring voids in his portfolio and a willingness to let the advisor do whatever he deems necessary to fill those voids.
Unfortunately dream clients don’t come along that often. But cross-selling opportunities do. The challenge for advisors is identifying and capitalizing on situations in which the use of one product uncovers the need for another. Often, cross-selling opportunities arise organically within the financial planning process. Certain products work symbiotically: You can’t fully unlock the benefits of one without also purchasing the other. In other instances, a product that serves a single purpose when used on a stand-alone basis suddenly serves multiple purposes when it’s packaged with another complementary product.
Here’s where it’s particularly valuable for the advisor to have a solid working knowledge of a multitude of financial instruments, estate planning tools and retirement products, plus a firm grasp of how certain products and instruments can work together within the framework of a financial or estate plan. Advisors who bring those diverse skills to the table may discover that in investigating all the options for a client, they’re in a great position to uncover a wealth of cross-selling opportunities for themselves. And according to John Freiburger, CLU, ChFC, CFP, principal at Partners Wealth Management Inc. in Naperville, Ill., advisors who take advantage of those opportunities by giving clients access to multiple products are in the best position to retain clients over the long haul – as long as the products involved in a cross-selling scenario work in the context of a broader financial plan and serve the client’s best interests, not just those of the advisor.
“It became obvious to me early in my career that I needed to be multifaceted in the products and services I offered,” he explains. “What we talk about is being a one-stop shop, because being a multifaceted firm is wonderful for tying clients to us long term.”
Ultimately the cross-sell should be a win-win. The advisor’s practice benefits in the form of fees, commissions or increased assets under management. The client benefits by gaining access to products that help accomplish his financial, retirement or wealth transfer goals. Some cross-selling opportunities are obvious to spot, such as pairing an annuity with life insurance for tax-favored wealth transfer. Others require a bit more acumen and creativity on the advisor’s part. We’ve compiled a few situations where advisors who are experienced in the cross-sell see opportunity knocking.
1. Annuity arbitrage
When tax-favored wealth transfer is the goal, it’s hard to match the benefits of cross-selling an annuity with permanent life insurance. Freiburger says the best environment for using the two is within the framework of an irrevocable life insurance trust. For the insurance component, he favors universal life policies from a highly rated carrier that offer a guaranteed death benefit and a fixed premium. The annuity component can be a fixed, equity-indexed or variable product, depending on the profile of the client. In cases where income is a priority, Freiburger says he often recommends an immediate annuity of some form. Typically in those situations, qualified assets are used to purchase the annuity and the money paid out by the annuity is used to pay premiums on the life insurance policy. The life insurance serves as the instrument for wealth transfer. For convenience, proceeds from the annuity can be automatically channeled to pay premiums on the life policy.
2. An insurance exchange with an LTCI upgrade
If, following an evaluation of a client’s life insurance policy, it’s clear the policy is outdated and not delivering the value it should for the price, financial consultant H. Stephen Bailey, RFC, CSA, principal at HB Financial Resources in Charlotte, N.C., will suggest the client exchange that policy for a new one via a tax-favored 1035 exchange. Then he’ll often suggest tacking on a long term care insurance rider to the new policy, using value created by the exchange to cover the cost of the rider. This is a cost-effective maneuver, especially for seniors in good health who lack LTCI coverage.
3. An immediate annuity to backstop an equity portfolio
Granted, says Freiburger, the returns immediate annuities offer these days aren’t sexy. But in cases where clients want a greater measure of certainty in their income stream, having an immediate annuity provides just that. It’s a valuable risk-mitigation tool for money managers and investment advisors with clients who still want to be involved in the stock market but need greater protection for their income stream during retirement.
“The immediate annuity takes the pressure off the [equity] portfolio to create income and allows us to stick to longer-term investing goals with the portfolio,” Freiburger says. “If we’re not distracted by the need for income, we’re able to focus on the bigger picture.”
Advisors who are focused on rebalancing, liquidating positions and initiating new ones within a client’s equity portfolio now have a cross-selling opportunity in the annuity realm.
4. A double dose of single premium
If a senior client isn’t averse to getting creative with annuities (and as Bailey notes, many clients are skittish about annuities), it is sometimes smart to pair a single-premium immediate annuity with an single-premium deferred annuity. “If someone has funds in a bank that they’re being heavily taxed on, maybe you move some of that money into a single-premium deferred annuity,” he says, “and if guaranteed income is a priority, put the rest in a single-premium immediate annuity. These products really do complement each other.”
5. Filling a void in a buy-sell agreement
It’s common – and wise – for succession-minded business owners to have buy-sell agreements. Most of those agreements allocate funding for life insurance. But, says Freiburger, “Nine out of 10 [buy-sell agreements] we’re asked to audit don’t have disability buy-out insurance.” Whether it’s full or partial coverage, some form of disability buy-out insurance is crucial. The reason most buy-sell agreements don’t have it, he says, is general unfamiliarity with the product. For advisors in the know, it’s another cross-selling opportunity.
6. Long term care insurance, the perfect complement to just about any component of a financial or estate plan
LTCI, says Freiburger, is a product that should appeal to anybody with wealth to protect and transfer, which is why it can be cross-sold with virtually any retirement and estate planning product. Recommending LTCI to clients (other than those whose poor health or advanced age precludes them from qualifying for a policy), he says, “is a no-brainer.” Still, many clients balk at investing in LTCI. That’s when Freiburger changes tactics. “I’ll jokingly refer to it as portfolio insurance, for obvious reasons. Because people have to understand that’s exactly what it is. It’s protection for the wealth they’ve worked so hard to create or that they have inherited and want to pass on to future generations. That’s why we discuss it with every single client we have, guaranteed.”