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In this uncertain and continually changing environment, Clarity 2 Prosperity has been committed to sharing both defensive and offensive strategies for advisors to keep their clients and prospects engaged. Through our series of recent podcasts and other virtual resources, we’ve covered topics from market volatility and running your business virtually, to new product opportunities and proven referral processes. With so much focus on current conditions, however, an area that can be easily overlooked is opportunities for clients’ Later Buckets.
In a recent Bucket Plan Podcast episode, Dave Alison sits down with wealth advisor, Tim Clairmont, founder and CEO of Clear Financial Partners, to dig into those long-term care opportunities about which advisors can speak offensively with clients right now. Tim elaborates on why it’s important to focus on that Later Bucket – now and always – and he discusses the kind of planning that goes into it. He gives some practical advice on how to bring up the conversation with clients, and he talks about some products that can help solve your clients’ more common goals around long-term care planning.
WHY IT’S IMPORTANT
Discussing long-term care needs is an important part of any complete financial review or new prospect conversation. As a sort of checklist for making sure all his clients’ needs are always addressed, Tim talks in depth about the five tenets of financial planning that he follows as a Certified Financial Planner™.
“You’ve got the first one, which is rate of return. Second is retirement income planning. Third is estate planning. Fourth is tax planning. And fifth is protection planning. And we go through those five tenets with our clients in our reviews. And I think most advisors are focused on rate of return and retirement income planning. And that’s great. It’s really powerful. Estate planning and tax planning, bringing those up lets your clients know that you’re working in conjunction with their other key professionals to make sure those are taken care of and maybe some of them you take care of yourself within your firms, and others you refer out but that’s all okay; you just touch on it.”
The fifth tenet, protection planning, includes, among other things, life insurance, long-term care insurance, and long-term disability insurance.
“And so, when you go through these five tenets with your client conversationally, you just let them know that we’re paying attention to the whole thing. And we want to make sure everything’s taken care of. And when you hit that last tenet of life insurance, long-term care insurance, and long-term disability insurance, you’re just telling your client, ‘I’m just doing my job to bring this up, and I want to make sure that you’re taken care of, that you have a plan in place for it.’”
HOW TO BRING IT UP
When you are meeting with an existing client – whether you’re doing it in person, by phone, or virtually – Tim describes a three-step process for structuring your conversation to cover everything you need to, including long-term care:
- Step One – The most important step. You go through any questions, thoughts, or concerns the client has.
- Step Two – You go through any questions, thoughts, or concerns that you, the advisor, have.
- Step Three – You go through the five tenets of financial planning.
Sometimes you may only get through step one in a meeting. If newer clients, especially, have a lot of questions and concerns, it’s okay to just spend the time helping them feel heard. Other times you may only make it through step two. But when you are able to finish the process with that third step what can often happen is something will come up that either you or your client just didn’t think of independently. This added step can give your clients the peace of mind that their financials been thoroughly reviewed.
POSITIONING LIFE INSURANCE IN THE CONVERSATION
Right now, there are a lot of different strategies for dealing with long-term care. It can seem overwhelming to advisors. However, finding a way to sub-categorize it or to present it in different ways can make it simpler to discuss.
One strategy is to talk to clients about looking at long-term care as an alternative to earning interest on cash. With current interest rates as low as they are, clients already know they aren’t getting a good return on their cash. An easy alternative to discuss is investing in something like Lincoln’s MoneyGuard® III or Pacific Life’s PremierCare products, where clients would essentially just park this money, not get any interest on it, but get long-term care insurance for it.
Tim explains, “If you decide you need to take all that money right back out, no problem. You can grab it the day after you stick it in, no consequences, no fees…other than that, you’re going to forfeit the long-term care insurance. But if you let it sit there, instead of earning interest on it, you get long-term care insurance, and that long-term care insurance gets better and better, the longer you let it marinate, the longer you let it sit there.”
Another approach to positioning life insurance with long-term care is to take advantage of the tax-free income benefits of life insurance after a 10+ year deferral period. Especially now, when you think about the trillions of dollars that are being spent on the stimulus package, and you think about our current tax rate being historically and extremely low, people are going to eventually be dealing with inflation or taxes or both. Tim points out, “If you can protect some of your clients’ income so that income is tax free later on, instead of having all of it taxable, well, that’s huge. You’re a hero later when those tax rates go back up.”
When clients are able to build a big cash value bucket inside of a life insurance policy and then borrow against it, they’re going to produce a tax-free income stream. They’re borrowing against it, and then they can pay that all back later when they die. The remainder death benefit will still pass on to their heirs as long as the policy is still functional. So, there’s always a remainder death benefit of some size.
At Clear Financial Partners, we explain an easy and powerful strategy to help execute this concept for clients – the ClearFP COLA (Cost of Living Adjustment Strategy).
“So, the ClearFP COLA takes, say, $100,000. We’re going to fund a indexed universal life insurance policy. We’re going to feed it in over a period of four years. A lot of carriers will allow you to do this with what’s called a premium deposit account. So, you fund $100,000 in, it feeds in over four years automatically. So, your client feels like they’re writing one check; they don’t think about it ever again, no other payments. We will design the policy to shrink the death benefit as low as possible to allow it to feed in over that four-year period. And then in policy-year eight, after the TAMRA guidelines go away, we’re going to shrink wrap the policy death benefit even further. We’re going to drop the death benefit as low as possible to allow those costs to go down so that our cash value can grow more. And then we’re going to try to grow that cash value.” Later on in life, the client has the ability to take tax-free distributions from the insurance policy as long as those distributions are structured properly. This distribution can help be used as an inflation hedge to the clients other income sources in retirement.
CONCLUSION
In these unprecedented times, the most important outreach advisors can do is to just check in – calling clients to say hello and to make sure they are doing well. But whether you are just checking in or holding an annual review, what Tim outlines is a framework and an approach to seamlessly and offensively discuss your client’s full financial situation.
Related: How to Gather $100 Million in New Assets in One Year
To hear more about the ClearFP COLA product and for a much more in-depth discussion from Tim on the topics above, watch their Bucket Plan On-Demand video interview.
To learn more about our proven processes, contact a Business Development representative and join other top financial advisors today.