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"Don't Waste This Crisis"

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“My advice to you is this: Don’t waste this crisis,” said Joseph Jordan. “Never before in our lifetimes have so many with so much money been so mad with their current investment advisor. This is the time for us and for the products and services we sell.”

Jordan, a senior vice president at MetLife, New York, spoke at GAMA International’s LAMP ’09 annual meeting, held here last month. He repeatedly invoked the current recession during his talk as an opportunity for general agents, managers and producers to build their businesses, in part by speaking to the unique ability of insurance products to provide a reliable source of income in an uncertain economy.

Jordan said the insurance and financial service community had during the late “information age” created “left brain” tools to deal with “right brain” emotional issues. To spur prospects to action in the current “conceptual age,” it’s not enough to appeal to the analytical- and statistical-based thought processes in which the left hemisphere of the brain specializes. The advisor also has to address the emotional and contextual orientation of the right hemisphere.

To aid clients in realizing retirement planning objectives, he added, insurance professionals must help them manage their investment behaviors. To that end, advisors should promote these principles: faith in the future, patience, and discipline; as well as best practices (“behaviors”) respecting asset allocation, diversification and proper portfolio rebalancing.

To ensure that accumulated savings will last through retirement, said Jordan, advisors must shift their clients’ focus from average investment returns (which is important during the accumulation phase of retirement planning) to the order of returns (a key factor during the income planning phase). The reason: Clients are more likely to run out of income if they experience negative returns on a portfolio during the early years of retirement and positive returns in later years than if the order is reversed–though both hypothetical portfolios may yield the same average return.

To illustrate, Jordan showed two portfolios with the same starting portfolio value and average investment returns over the length of the client’s retirement. But because of differences in the order of returns, one portfolio runs out at age 86, while the other continues to age 90.

“Whereas return on investment was a measurement of success during the accumulation phase, once the client hits retirement age, it’s all about the reliability of income,” said Jordan. “And asset allocation, my friend in accumulation, doesn’t help me when I want to draw down funds. I have no leverage.”

Like Social Security, he added, immediate annuities can provide the needed leverage, thanks to the product’s unique ability to provide mortality credits: Those who contribute funds to a “mortality pool” and subsequently die pay for others in the pool who live. As a result, the longer one waits to annuitize a product–and thus the closer one is to life expectancy–the greater will be the income for the annuitant.

With respect to Social Security, he noted, an individual who would expect to receive $18,000 in yearly income starting at age 62 can, by waiting 5 years to start taking income, boost the annual payout to $28,000. Multiplied by 25 years (the expected length of retirement), and total distributions rise to $700,000 (for the person who waits to age 67) versus $450,000 (for the individual who starts income at age 62.)

“By waiting, clients can substantially increase their income,” said Jordan. “It’s all driven by the mortality pool. And we’re talking here about Social Security, which isn’t as efficient as an immediate annuity. We [as insurance professionals] have the ability to give people substantially more income and leverage to retirees.”

Jordan noted also that insurance professionals have a responsibility to help clients preserve their wealth and establish a legacy for future generations. In so doing, they can become “heroes” to others.

“What will matter in the end is not what you bought, but what you built in life,” said Jordan. “What will matter is not what you got, but what you gave; not what you learned, but what you taught; and not your competence, but your character.

“Living a life of significance is not something you do by accident, but by choice,” he added. “And by joining our profession, you have chosen to do that. If you stay in this business for just 10 years, the legacy impact you’ll have on others could fill this auditorium. Be a hero; make heroes. Recognize the significant life you live.”


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