On Tuesday, the 6,000-plus attendees at the 2010 Million Dollar Round Table Annual Meeting, being held here June 13-17, heard from 8 speakers during the morning main platform session. The following are highlights.
What differences distinguish Baby Boomers from Generation Xers and the Millennials? How might these differences impact the producer’s relationship with the different age groups? What tips can help advisors win their business?
Cam Marston, an author, speaker and expert on the generational divide, offered his perspective on these questions. A key theme of the presentation was that the characteristics and motivating factors of the generations he studies–boomers, Xers and Millennials–require different approaches because of the varying ways the three groups receive messages on an emotional level.
“People’s decisions tend to be 85% emotional and 15% logical,” said Marston. “Clicking with your clients–rapport-building–is an emotional thing and requires an understanding of generational differences. You need to establish this emotional connection so that you can earn the right to win their business.”
One difference among the three generations, said Marston, is the extent to which they identify with others. In general, boomers tend be more group-oriented than younger generations. They also are more competitive, more likely define themselves by their work and are “very busy.”
Thus to connect with boomer prospects, he said, advisors should look for ways to save them time. That does not necessarily entail using the latest technology: Marston cautioned that many boomers remain averse to using new methods of communication, such as e-mail and online social networks.
In contrast with earlier generations, boomers also tend to see themselves as forever young, clinging to the pastimes of their formative years. This youthful spirit has been recognized by companies targeting boomers, noted Marston, who cited an ad by motorcycle manufacturer Harley-Davidson as an example.
For older boomers, the company has developed a motorbike featuring three wheels (like a tricycle) and a wide seat.
Generation Xers, said Marston, are more likely than boomers to question authority figures and be skeptical of vendor claims. But prospecting to them is usually worth the effort because, he noted, they are the most loyal of the three generations.
How to win an Xer’s business? Marston suggested that advisors thoroughly detail their services and product biases based on their expertise, but then elicit the prospect’s views on recommendations.
“Give them the decision-making ability,” said Marston. “Also, emphasize short-term solutions and near-term goals,” he added. “That will help you to build trust and credibility with them.”
As Xers also tend to trust most the views of their peers, advisors also would do well, he added, to secure testimonials and referrals from others within their age group. To that end, Facebook and other social media networks are useful tools.
As a group, observed Marston, the Millennials are “optimists,” in part because their parents have so well cared for them. They’re more group-oriented than Xers, traveling in “herds and packs.”
Seekers of instant gratification, Millennials are also coping with stress earlier in life than did prior generations. As a result, said Marston, they suffer from a new condition that sets in between adolescence and adulthood: “adultolescence.”
To help build rapport with Millennials, he said, producers should recognize their individuality and propose short-term solutions that can have an immediate impact. Advisors should also teach them about how to make smart purchases.
The Benefits of Mortality Credits
If there’s one concept absolutely not to overlook when talking about life income annuity features with a prospect, it is the product’s mortality credits–i.e., the reallocation of contributions of those who die to those who survive.
That was a key message of Tom Hegna, a chartered financial consultant and vice president of New York Life, New York, during Tuesday’s main platform session.
“The reason you buy a lifetime income annuity is to get paid mortality credits–and all lifetime income annuities offer them,” he said. “The older you are, and the longer you live, the more mortality credits you get paid.”
Hegna related a hypothetical scenario involving five women, each 90 years old, who agreed to share evenly, in each of 5 successive years, $500 placed in a box for their benefit. In the second year, one of the 5 women dies, leaving the remaining 4 with $125, a 25% gain over their original allotment.
In the 3rd year, a second dies, increasing the total $167 each, a 67% return. With each additional death in subsequent years, the amount apportioned to surviving women increases in like fashion.
Likewise, Hegna observed, annuity providers can offer progressively higher interest rates on their products as clients age. The example he used showed individuals age 65, 75 and 85 receiving payouts of 7%, 9% and 14%, respectively. They can do this precisely because of these mortality credits, a feature not available on alternate financial products.
How much of the client’s money should go into a lifetime income annuity? The “mathematically and scientifically correct” answer, said Hegna, is an amount that will at least cover basic expenses.
But he also noted that clients cannot optimize retirement income using the balance of their investable assets without rounding out the portfolio (including bonds, cash and various classes of mutual funds) with a second lifetime income annuity.
Without a life income annuity, the only way to optimize income in retirement is to know the day the client will die.
Though that’s not possible on an individual basis, Hegna said insurers can determine when, on average, a pool of individuals will die, thereby enabling the carriers to pay as though they knew when each person within the pool would die.
Hegna added that annuities can also be creatively used to establish a multi-generational legacy. He cited a hypothetical case in which a grandfather buys a joint lifetime income annuity with a starting investment of $100,000, naming a granddaughter as joint annuitant. The annuity also carried a 50% death benefit for the granddaughter’s beneficiary.
The product pays the grandfather $4,700 per year for life, and, at death, provides the granddaughter with an equal sum for the duration of her life (to age 100), each payment falling on her birthday.
With an annual 5% inflation rider attached, payouts to grandfather, granddaughter and the granddaughter’s beneficiary total, in Hegna’s example, nearly $2.6 million.
“What product other than an annuity allows a grandfather to transfer almost $2.6 million to two generations with a starting investment of just $100,000?” he asked.
Assuming a diversified portfolio, said Hegna, 25% of retirement accounts will “fail,” declining to zero before the retiree’s death. The failure rate increases as the annual withdrawal percentage increases: assuming withdrawals of 6%, 7% and 8% year, the portfolio failure rate increases to 50% 75% and 90%, respectively.
Key reason: the order of returns. While average annual returns on investments will determine how much money a client has at retirement, the order of returns during distribution will dictate whether the accumulated savings will last the length of retirement.
Significant negative returns during the early years of retirement, followed by positive returns in later years, will drain retirement funds faster than when the order of returns is reversed–even though average annual returns are the same in both cases.
“If you lose money early in retirement, it could devastate your savings,” said Hegna. “Losses later in life will have much less of an impact.”
The Value of a Helping Hand
For Philip Harriman, achieving success as a life insurance and financial service professional would not have been possible without the mentoring he received at critical phases in his life–a life that might have turned out much differently because of the difficult home environment he faced as a young teenager.
Harriman, a 27-year member of the Round Table who went on to become the 2007 MDRT president and a four-time state senator from Maine, lived comfortably enough as a child. Family vacations, a new car, a beautiful home–all this and more were possible thanks to a first-of-its kind supermarket the family owned.
But Harriman said his life of relative privilege turned sour as an adolescent because of deteriorating relations between his parents: a physically disabled father; and a mother who suffered from mental illness and required psychiatric care.
“By the time I was 13, my parents had become abusive to one another,” he said. “I still remember having to step in between them to keep the peace. Their marriage was ending after many years. And I thought it was my fault.”
By age 15, Harriman said, he was adrift, lonely and heading in the wrong direction with the wrong people. How did he manage to turn his life around?
“I’m here because my life was deeply affected by certain people who, rather than simply notice me and walk on by, chose to stop and to challenge me,” he said. “They challenged me to take charge of my destiny and create a life that I someday could be proud of.”
The first of these of these mentors, a basketball coach named Ron, inspired Harriman to develop his athletic abilities He subsequently earned a spot on his high school basketball team during his freshman year.
Ron’s coaching, which taught Harriman about discipline, commitment and the need to have big goals, enabled him to become his team’s co-captain by his senior year, to play in the state championship, and to secure a college scholarship.
At the university, Harriman then crossed paths with a professor, Bill, who chaired the institution’s insurance and business administration program. The professor introduced him to the fields of insurance and financial planning and their potential as a career path.
“The professor could have just walked by, but he didn’t,” said Harriman. “And thanks to him, I discovered the miracle of how insurance works and what it does for families and businesses and communities around the world. Bill’s mentorship allowed me to start a career that has enriched my life in so many ways.”
Other mentors followed, including an MDRT member, David, who recruited Harriman, encouraged him to join the association, and instilled in him a deeper understanding of the industry’s products and services.
There was, too, a friend and client, Chuck, who warned of the dangers that excessive government bureaucracy posed to small businesses and who motivated Harriman to campaign for a seat in the Maine State Senate. To “everyone’s surprise” Harriman, said, he won on election, and was honored with three more victories in subsequent elections.
“I believe that success finds us because someone crossed our path and cared enough to stop when they could have walked on by,” Harriman said, reflecting on his mentors over the years. “It’s the mentors, those unsung heroes in our lives, who inspire us to move onward despite frustrations and disappointments.
“It’s the mentor we follow who assures us that the time to sing is in the darkness, just before the daybreak of the next opportunity,” he added. “It’s the mentor who guides us to believe that you can’t fight or flee, that we have to flow with the challenges we face at the moment. It’s the mentor who inspires us to wear the gold medal from within, before we earn the right to have it placed around the neck.”