For a couple of years, carriers, brokerage general agencies (BGAs) and agents themselves pushed the “sunset’s coming” marketing schtick for all it was worth and then some. But now that there likely won’t be a sunset, what am I hearing? Not much.
Meanwhile, I can only assume that some agents in the advanced market have concluded that they’ll have to go even further upscale and concentrate on $30 million-plus prospects. To the extent that these agents need to adjust their marketing and other aspects of their practices to address those prospects and, of course, their advisors, they should start now and not wait for carriers, BGAs and their advanced planners to find their voices. Across the spectrum of those adjustments, one topic that stands out to me as a focal point of that preparation is the paradigm shift in how the agents should present their proposals to the prospects and advisors they’ll encounter in this market.
Reasons for Buying Insurance
I see no meaningful change in why these prospects will buy life insurance. They’ll continue to buy for one or more of these reasons: estate liquidity, tax-efficient wealth transfer, tax-efficient wealth accumulation and, of course, business succession planning. Presumably, they’ll continue to house insurance for estate liquidity and wealth transfer in irrevocable life insurance trusts (ILITs). After all, they’re just taking what the tax law gives them. Life insurance for wealth accumulation, meaning their own wealth, could be held outright so they can maintain control over the asset, but that depends. Life insurance in the business succession context is a story unto itself. So, for purposes of this discussion, let’s focus on ILITs.
Getting Up to Speed
One thing I hear from agents who work with the very rich is that many of them have used up their gift and generation-skipping transfer (GST) tax exemptions. So, they and their advisors will place a premium, pun intended, on methods of supporting large ILIT-owned policies with large premiums at minimal gift and GST tax cost. I sense that the emphasis on gift tax minimization will call for a higher level of technical knowledge and access to resources than many agents, even those in the advanced markets, currently have. Unfortunately, given what I see out there, including what I perceive to be a change in focus among advanced planners, these agents may have to fend for themselves for a while to get up to speed.
What do they need to get up to speed about? What’s the paradigm shift? In a nutshell, we’re talking about taking their presentations of premium funding techniques to the next level, meaning giving their prospects and their knowledgeable advisors, a newly widened panorama of the legal, tax and economic working parts of these techniques, including of course the risks, the what ifs, the exit strategies and the critical role of product selection and design and plan servicing as foundations for success of the techniques. They should also have just enough working knowledge of how grantor retained annuity trusts, sales to defective trusts and other wealth transfer techniques can turbocharge “basic” split-dollar or other techniques used to fund ILITs on a tax-efficient basis. After all, the advisors will look for this to confirm their involvement in the planning!
A Challenge for Some Agents
This could all be a challenge for some agents, as it’s a new, more comprehensive form of presentation that squarely addresses the issues and downsides associated with the funding techniques rather than leaving them for another day. For some insight on these points, see my article “A Sound Approach to Composing a Melodious Life Insurance Presentation.”
An Urgent Matter
I attach some urgency to agents getting started on this preparation. With the anticipated rush among many agents to move further upscale, the competition to get in front of these prospects and their advisors will only intensify. And many advisors tell me that most of their clients already have agents, so it’s already a crowded space. What’s more, advisors may be skeptical of the more “sophisticated” insurance planning techniques, so they’ll be taking a very hard look at both the presentations and, of course, the agents who present them. But that’s okay, because a significant additional benefit of this preparation is that it will allow agents to showcase how they collaborate with advisors on these cases. It will also pave the way for them to have much more substantive conversations with these advisors who, remember, are also looking to generate business.
It seems that if you look up “great topics for a study group discussion co-moderated by an advanced planning resource,” you’ll find this one!
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