Nerd's Eye View blog for Financial Planners at Kitces.com

Instant-Issue Term Life Insurance: What Are The Costs Of Low-Hassle Coverage, And When Are They Worth It?

March 22, 2023 07:01 am 0 Comments CATEGORY: Insurance

Traditionally, when a person applies for individual life insurance, they would need to go through an extensive underwriting process that lasts several weeks (or months) and may include personal and family health questionnaires, interviews, and/or physical examinations. Though this process was time-consuming and intrusive from the perspective of the person applying for insurance, it was considered a 'necessary evil' in order for the insurance company to feel comfortable issuing the policy on the person’s life. In more recent years, however, insurance carriers have increasingly offered “instant-issue” term life insurance policies, where a decision is made whether or not to issue a policy for a person within minutes of their submitting an application, with no additional underwriting.

Although these policies make it possible to fast-track the insurance application process for some individuals (who might otherwise be stymied by the traditional underwriting process), they aren’t necessarily right for everyone. For instance, because instant-issue policies require insurers to arrive at a decision without knowing the full details of an applicant’s current health or medical situation, they are generally only offered to the healthiest individuals – while those with pre-existing health conditions (who might still be eligible for insurance through the traditional underwriting process) might be declined after applying for an instant-issue policy. Which frustratingly can make it more difficult (or expensive) to subsequently be insured through traditional underwriting, since the fact of having been declined – albeit for an instant-issue policy with higher health standards than traditional underwriting – can create a ‘black mark’ on the individual’s health history.

Consequently, despite the convenience of instant-issue policies, it’s important not to automatically assume that they will always be the right choice for a person looking to apply for life insurance. Instead, it can be better to weigh the potential benefits of instant-issue (which, beyond the speed and convenience of obtaining coverage, can also avoid the scenario of a previously unknown medical issue coming up during underwriting and jeopardizing the person’s ability to obtain coverage) against the potential costs (which can include higher premiums than traditional underwriting, limits on the amount of death benefit available, and inability to convert to permanent insurance).

Financial advisors can play a key role in helping their clients weigh these factors against their own needs, and – in situations where the client just needs to get at least some coverage in place – guiding them towards a decision that will lead to action. Because ultimately, one of the greatest benefits of instant-issue life insurance is that it can make it much more convenient for healthier individuals to obtain life insurance – which could make it well worth the potential higher costs and other risks involved if the convenience of instant-issue is what catalyzes the client to actually get coverage to begin with!

#FA Success Ep 325: Building Success In The Financial Advice Business From A Financially Challenged Upbringing, With Brenda Hiscock

March 21, 2023 07:05 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Brenda Hiscock Podcast Featured Image FAS

Welcome back to the 325th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Brenda Hiscock. Brenda is a financial planner with Objective Financial Partners, an advice-only advisory firm based in Ontario, Canada, that works with clients on project-based financial plans, and also offers outsourced paraplanning to other Canadian advisory firms.

What's unique about Brenda, though, is how she not only came to the financial services industry without any financial background, but did so despite a very financially challenging upbringing, and while navigating challenges of homelessness, bankruptcy, and alcoholism in her 20s, through which she not only persevered and rose through the ranks as a financial advisor, but has been able to leverage those real-world experiences and challenges to provide an even deeper more meaningful level of engagement with her current clients and how their financial pasts can impact their financial behaviors in the present and future, too.

In this episode, we talk in-depth about how, while Brenda was still in high school, her mother died suddenly and she was left with the responsibility of caring for her younger sibling which created a large financial burden that Brenda couldn’t handle despite working 2 jobs and eventually led to her becoming homeless and beginning a cycle of alcohol addiction as a coping mechanism, how Brenda learned after her early struggle with alcoholism and 2 failed stints in rehab before finally getting sober 19 years ago that being able to work from home with a flexible schedule wasn’t just a nice-to-have for work/life balance but essential for her to have the space she needed for her mental health, and how Brenda’s perspectives on financial planning and especially the benefits of insurance were so deeply shaped by both her financial struggles as a teenager after her mother died without life insurance, and her financial stability after disability insurance kept her from falling back into homelessness when she was diagnosed with cancer just 1 year after getting sober and had to take a year off from work to get the care she needed.

We also talk about how, when Brenda realized she would have to take care of her younger sibling, she asked for help and her high school placed her in a cooperative education program that got her a job as a teller at a credit union which began her career in the financial services industry, how, later in her career, Brenda began a job in insurance (because she knew how important having insurance can be) but ultimately found that her first-hand experiences in the benefit of insurance didn’t make it any easier to sell insurance and prospect for new clients, and how Brenda’s effort to find the right position for her in the financial services industry ultimately led her to financial planning where she realized that she could have a greater impact in the lives of clients as she could use her personal experiences and life lessons to educate them on how to properly handle their finances and break through their emotional issues with money.

And be certain to listen to the end, where Brenda shares how she always thought she wasn’t good with numbers but found she enjoys financial planning because she can combine her intuitive math skills with her love of working with people, educating, and having deep conversations that can impact the future of clients’ lives, how Brenda is continually working on making peace with the struggles she has endured through her life but feels that they were necessary to get her where she is today and to become a living life lesson to others in the importance of having insurance, support from others, and a good financial plan of your own, and why Brenda believes it is important for younger, newer advisors to not only find mentors but be ready to proactively ask their mentors for help in achieving their career goals to ensure they get the support and wisdom they want and need.

So, whether you’re interested in learning about why Brenda feels it is vital and beneficial to have life and medical insurance, how Brenda overcame her addiction and cancer diagnosis, or how Brenda helps her clients get past their emotional connections with money, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Brenda Hiscock.

How Listing Fees On Advisory Firm Websites Can Clearly Communicate The Cost (And Value) Of Planning

March 20, 2023 07:06 am 0 Comments CATEGORY: Marketing

When a prospect is looking for a financial advisor, understanding how much they will need to pay can often be a tricky proposition. In part, this is due to the many commission-based advisors whose compensation depends on the sale of insurance or investment products, where the price that a client pays is baked into the price of the product or is included in (often opaque) fees associated with buying, selling, and/or holding the investment. But even as fee-only financial planning has gained in popularity and advisory firm websites have become ubiquitous, it can still sometimes be hard for prospective clients to determine how much they would pay for advice before actually reaching out to the firm. But by listing fees on the firms' websites in a transparent manner (no matter their fee model) and linking their fees to the value they offer, advisors can provide prospects with a better idea of whether the firm is a good fit, potentially leading to a higher conversion rate of prospects into clients.

Financial advisory firms have a wide range of options when it comes to displaying their fees on their website. For instance, firms charging on an Assets Under Management (AUM) basis can provide a chart (or even a calculator!) that connects a prospect’s assets with the percentage fee they would pay as a client. A firm with a retainer fee model might show what a prospect’s expected fee would be based on their individual circumstances and the criteria the firm uses to determine its fee (e.g., the complexity of the prospect’s financial situation). And firms that charge on an hourly basis can provide their hourly fee(s) and the estimated number of hours it will take to work with a client based on their particular circumstances.

Given that comprehensive financial planning is not a commodity service where consumers might make a choice on price alone, advisors also have the opportunity to use their website to demonstrate the unique value they provide to clients. And by showing prospects in advance of the initial discovery call how their specific financial planning needs will be met, advisors enable them to come to the call with a better understanding of the firm and what it offers, allowing them to prepare more specific and relevant questions about the planning process. This can be accomplished in a variety of graphical means, from a table comparing the firm’s service offerings with those of other types of advisors to a client service calendar that shows prospects the work the firm will be doing on their behalf once they become clients.

Ultimately, the key point is that because an advisor’s website often serves as the first touchpoint for prospective clients, it is an important tool to help explain the types of clients with whom the firm works and the value the firm provides. And by using the website to clearly communicate the information needed to help visitors understand the value the advisor provides as well as the fees charged, advisors can attract prospects who would be ideal clients for their firm!

Weekend Reading For Financial Planners (March 18-19)

March 17, 2023 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that just weeks after introducing its own self-clearing platform, RIA custodian Altruist announced this week that it is acquiring fellow custodial platform Shareholder Services Group (SSG), a move that will make the combined RIA custodial platform the third-largest in terms of RIAs served. This is significant, as most ‘upstart’ RIA custodians have struggled to gain material traction in a hyper-competitive RIA custodial landscape, but Altruist appears to be winning small-to-mid-sized firms in particular by cutting down on their outside technology costs with its unique ‘all-in-one’ that has the core portfolio management and performance reporting components built in directly to the platform.

Also in industry news this week:

How the collapse of Silicon Valley Bank could impact Federal Reserve policy and market performance going forward
Why advisors could soon be an important access point for consumers looking to add private investments to their portfolio

From there, we have several articles on the collapse of Silicon Valley Bank (SVB):

A play-by-play of how SVB went from a rapidly growing regional bank to a failed one in mere months
How banking practices could change for consumers in the wake of the SVB collapse
How government officials have attempted to balance the stability of the banking system while avoiding ‘moral hazard’

We also have a number of articles on cash flow and spending:

How advisors can help clients create a cash management plan that keeps their bank deposits within FDIC limits and earns them a relatively strong return
Why being ‘rich’ goes well beyond where one stands in the national income distribution
A new study suggests that while happiness increases with income on the whole, unhappy people are less likely to see happiness gains once they reach higher income levels

We wrap up with 3 final articles, all about living a healthy lifestyle:

Recent research upends previous assumptions about how one’s metabolism changes over time
Why walking can bring many of the health benefits of more strenuous exercise routines
How short bursts of exercise throughout the day can lead to significant health benefits

Enjoy the ‘light’ reading!

Cyber Threats To Client Wealth And Well-Being: Why And How Wealth Managers Will Soon Play A Key Role In Managing These Risks

March 15, 2023 07:02 am 0 Comments CATEGORY: Client Trust & Communication

Risk management is a key part of many financial advisors’ value propositions. For instance, ensuring clients maintain the proper insurance coverage based on their needs is an important part of the financial planning process. At the same time, clients face another class of risks that advisors often do not consider: cyber.

In this article, guest authors Mark Hurley, Carmin Cicalese, Bryce Washum, and Douglas Garbutt discuss how financial advisory clients face a range of cyber risks, including cybertheft (i.e., stealing a client’s financial assets that are accessible online), identity theft (i.e., using a client’s personal information for financial gain or other purposes), reputational risk (i.e., the release of potentially embarrassing personal information), and physical danger (e.g., when tagged online pictures can be used to identify an individual’s location). Notably, taking steps to protect from these threats not only benefits the client, but can also benefit the advisor as well. Equally important, it is relatively easy and inexpensive to do so. Moreover, given the closeness of advisor-client relationships and the financial implications of many cyber threats, clients often look to their advisors to help them recover from a cyberattack (whether or not the advisor is prepared!); therefore, advisors who help their clients take preventive steps can save both the clients and the advisors themselves significant amounts of time and cost.

While advisory clients are potentially exposed to a variety of cyberthreats, operating online with basic cyber hygiene can reduce and manage them by making the client a more hardened – and therefore, a less attractive – target and preparing them to identify breaches, enabling them to quickly respond and mitigate the damage. Basic cyber hygiene comprises 2 general categories – creating a layered digital security structure (e.g., a combination of technology and series of steps) and overseeing risk management on an ongoing basis (e.g., monitoring the dark web and corporate data breaches, reviewing credit reports annually, and regularly updating protection).

Given the higher financial stakes of cyberthreats, many family offices and advisors working with UHNW clients already offer these and other cybersecurity services to their clients. But when taking into account the ubiquity of cyberthreats and the recognition by clients of potential cyber risks, offering these services to advisory clients further down the wealth spectrum can be an important value-add for advisors to implement. Of course, advisors themselves do not have to be experts in cybersecurity or in implementing a cyber-hygiene program; instead, many advisors will likely choose to work with outside vendors that provide cybersecurity services commensurate with their clients’ needs.

Ultimately, the key point is that even though cyberthreats are more prevalent than ever, cyber-risk management for clients still remains off the radar screens of many financial advisory firms. Which means that many firms have growing opportunities to provide services to their clients that can protect their assets and personal information and, at the same time, potentially improve client growth and retention in the process!

#FA Success Ep 324: Managing Revenue And Income Volatility Through The Scaling Phase Of Growth, With Nancy Knous

March 14, 2023 07:06 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 324th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Nancy Knous. Nancy is the CEO and Founder for Benchmark Wealth Management, an independent RIA affiliated with LPL Financial based in Memphis, Tennessee, that oversees nearly $340 million in assets under management for almost 1000 client households.

What's unique about Nancy, though, is how, after reaching a moment of business crisis during the market volatility of the 2008-2009 Financial Crisis, the market decline and associated decline in her AUM fees led to a cash flow squeeze and resulted in Nancy having to ask her assistant and best friend for a loan just to make payroll for her staff… which, fortunately, led to substantive changes in how Nancy now manages the profit margins of the firm, allowing her to scale up the business to more than 20 team members and not having any business cash flow problems during the 1,pandemic.

In this episode, we talk in-depth about how, during the Great Recession, Nancy (like many other advisory firm owners at the time) were facing the challenges of a 30-40% market drop and its subsequent effect on her firm’s revenue but because she took for granted that she was a CFP professional with a ‘good’ income she didn’t need to monitor it that closely (until the month she discovered she was coming up $5,000 short on her staff payroll obligations!), how, after struggling with her firm’s and her own personal finances, Nancy asked her business partner for help and he suggested she read Dave Ramsey’s “Total Money Makeover” which helped her transform her own money habits, pay off her accumulated debt over 7 years, and inspired her to become a SmartVestor Pro and even use the book to help her clients engage in deeper conversations about their money habits and savings, and how Nancy has been able leverage Ramsey’s SmartVestor lead generation program to grow her firm to 5 referrals per week (where 2-3 of those referrals became clients), and over a couple of years, gain more than 100 new clients per year.

We also talk about how Nancy and a few other advisors from her previous firm decided to follow one of their well-respected advisor colleagues to start an independent firm with LPL, but it wasn’t until later that she suddenly realized that she had now become not just an advisor but an advisory firm business owner as an independent but that becoming a business owner also meant she now had an opportunity to manage her business and treat her employees the way she felt was best (and steer away from some of the negative experiences she had previously as employee), how, as her firm has grown, Nancy has begun stepping away from client-facing duties and transitioning her clients to another advisor in her firm so that she can focus more on becoming the firm’s visionary and leading it forward to the next stage of growth, and how Nancy realized through trial and error the importance of having employees that are not like her and the need to find the types of employees that complement her strengths and weaknesses which has led to her now using personality tests (like Working Genius by Patrick Lencioni) and developing a 4-8 week hiring process that includes several meetings with team members and even a group dinner comprising of the candidate and their spouse along with firm members and their spouses to really ensure a good fit for the firm.

And be certain to listen to the end, where Nancy shares how she coped with failing her Series 7 exam 5 times in the span of a year before she realized she may have a learning disability and then after consulting with her doctor, she was able to find the right medication for her that improved her focus so much, that years later she got the highest grade in her class on her Series 24 exam, how Nancy spent the better part of 30 years of her career feeling inadequate about her abilities as an advisor because she feared she wasn’t as technical or analytical as other advisors but through supportive friends and colleagues realized that she can have great confidence in the success she’s created through her strength in relating to clients, and why Nancy has recently become a certified Dream Manager to develop her team and inspire them to go beyond traditional goal-setting as she feels that dreams have a deeper financial planning meaning than mere ‘goals’ and hopes to one day translate her training into workshops for her clients so that they create better connections with their dreams… and as a result, achieve more of their financial objectives.

So, whether you’re interested in learning about how Nancy overcame her debt challenges to help her firm scale and grow, why Nancy employs a stringent hiring process and personality tests to find the right employees, or how Nancy uses the lessons she learned to help her clients avoid financial pitfalls, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Nancy Knous.