You preach diversification to your clients, but are you practicing what you preach with your own business? As the recent financial market firestorm made clear, the more versatile an advisor is from a product standpoint, the better equipped he will be to weather upheaval in the marketplace.
Just as the long-term success of an investment portfolio depends on diversity of assets, so, too, does the long-term welfare of a practice depend on the advisor or agent’s ability to skillfully handle more than just a single product or class of products. And one of the most effective ways for agents and advisors with annuity-centric books of business to gain diversity is through a producer’s best friend, the cross-sale.
A valuable tool
The ability to uncover cross-selling opportunities with annuities and capitalize on them when they emerge “is extraordinarily valuable,” asserts Jeff Leib, CFP, CLU, RFC, co-founder of ICON Wealth and Legacy Partners in Woodland Hills, Calif.
“We cross-sell every single day,” says William E. Kauffman, Jr., CLU, ChFC, LLIF, director of marketing for life and
annuities at Senior Market Sales, an independent marketing organization in Omaha, Neb. “It’s how we built this
“But the problem is,” adds Kauffman’s colleague, Pat Sheridan, director of life sales at SMS, “so often agents don’t take the time or don’t know how to cross-sell. If they sell annuities, they are content being very good at that.”
One of the prerequisites to cross-selling is a strong working knowledge of the products involved. Then it’s a matter of uncovering need, a more nuanced process that, according to Kauffman, any responsible advisor should be following as part of the needs-based analysis he conducts with clients. “You could think of it as cross-selling, or you can just think of it as doing a better job for your clients.”
Ask the Big Questions
The most effective way to spot cross-selling opportunities is via holistic, financial planning types of discussions, Kauffman says, where every aspect of a client’s portfolio is scrutinized. Then, he says, it’s time to ask the Big Questions to expose need: Have you, the client, accumulated enough assets to retire when you want to? Do you have enough to last a lifetime, living the lifestyle you want to live? To what extent are your retirement assets–and your spouse–protected in the event either of you dies or requires long term care?
“We’ve been trying to educate [product] specialists on how they can sit down with a client, do a thumbnail sketch of their retirement and distribution situations and spot any holes in their program,” Kauffman explains. “Because once you have that know-how, that skill set, you can very easily pivot from one product to another.”
Permanent life insurance and long term care insurance top the list of products most readily cross-sold with annuities, says Leib. “We tend to look at the long term care [insurance] piece first. Generally that’s where we are likely to find the biggest hole in somebody’s financial plan.”
LTCI offers an extra guarantee
Often Leib positions LTCI as a form of “portfolio insurance” for clients who have invested in a variable annuity or a fixed-index annuity to build their asset base. Instead of classifying the funds used to pay for an LTCI policy as an expense, he prefers to position them as an asset reallocation, “because without [an LTCI policy], you would be using assets to pay for care anyway.” That logic appeals to a wide range of clients, including the wealthiest ones, he says. “Why pay for something out of pocket when you can insure it away?”
The versatility of permanent life insurance as a tax-efficient wealth-transfer, income-replacement and liquidity-generation tool makes it a popular cross-selling partner with annuities. Typically the type of annuity a client has will dictate the type of life insurance he or she purchases, notes Kauffman. On the conservative end of the spectrum, a client with a traditional fixed annuity might be inclined to buy a traditional fixed universal life or whole life policy, while more aggressive investors with a variable annuity tend to opt for variable universal life. Likewise, a client with a fixed index annuity might be best suited to an indexed UL policy.
In a cross-sell situation with annuities, Leib says he’s most apt to use permanent life insurance to create liquidity for a surviving spouse, to equalize an inheritance or as a wealth transfer vehicle within a trust, such as an irrevocable life insurance trust or a charitable remainder annuity trust. In situations involving trusts, the annuity–generally an immediate annuity with a withdrawal rider–might serve as an income source for the person who established the trust, while the permanent life insurance policy (preferably with a death benefit guaranteed to at least age 120) is the asset that replaces whatever amount he or she donated to the trust. This is where estate planning expertise is a must. Agents and advisors who lack that expertise should be sure to bring in a professional, such as an attorney, to be sure it’s structured and executed properly, Leib adds.