June 28th is National Insurance Awareness Day. As the day draws near, consider the ways a new category of fee-based insurance—expressly re-engineered to fit the way RIAs and fee-based advisors work—can help you offer clients a new approach to holistic financial planning. Whether they are saving for retirement, generating retirement income or making plans to leave an enduring legacy, fee-based insurance can help you provide unbiased advice in your clients’ best interest across all three stages of their financial lifecycle.
Likewise, protecting assets are one of investors’ top three concerns year over year, according to our annual “Advisor Authority” study of more than 1,600 RIAs, fee-based advisors and individual investors. So as the bull market winds down, and concerns about volatility and a potential bear market are on the rise, fee-based insurance may help you create the “safe haven” that your clients seek.
A Changing Reality
Despite offering benefits such as tax-deferred accumulation or guaranteed income streams, many traditional insurance solutions, such as fixed and variable annuities and variable universal life, have been difficult for RIAs and fee-based advisors to incorporate within financial planning. Most RIAs and fee-based advisors are not licensed to sell traditional insurance solutions—and even when they are, many of these insurance products are commission-based, raising clients’ questions and concerns about conflicts of interest.
Insurance is also considered a “held away” asset because it does not integrate seamlessly with most of platforms and portfolio management systems popular with RIAs and fee-based advisors. Without this level of technical integration, it is nearly impossible to clearly see how insurance solutions perform alongside other financial vehicles in support of a client’s short- and long-term goals.
The result is in an incomplete picture for the advisor, and a less-than-optimal experience for the client.
But in recent years, a new and expanding category of fee-based insurance solutions has been designed to fit the fee-based distribution model, eliminating commissions, integrating with many workstations and platforms, and made more accessible for RIAs and fee-based advisors through insurance companies that can provide a licensed insurance agent service. This changing reality makes it easier to incorporate insurance solutions into holistic financial planning in their clients’ best interest—from accumulation, to income to legacy planning.
Accumulating Wealth
Evaluating your clients’ portfolios to address the impact of taxes is key to helping them accumulate more wealth. Taxes are among the biggest investing expenses clients may face—especially the more affluent—with rates of 40 percent or more each year, after federal and state taxes are factored in.
While qualified accounts, such as 401(k)s and IRAs, can offer clients tax-deferred growth potential and have the benefit of being funded with pre-tax dollars, they can only shield a fraction of a high-net-worth client’s assets from taxes, due to contribution limits, age restrictions and minimum distribution requirements.
You can help affluent and high-earning clients accumulate more tax-deferred and protect investment gains using fee-based insurance such as investment-only variable annuities (IOVAs) or variable universal life (VUL). These can offer unlimited tax-deferred contributions and allow clients to contribute after age 70½ with no minimum distribution requirements during their lifetime. For clients who want growth but need protection, index linked annuities can provide upside potential while limiting downside risk, and in recent years many advisors have been recommending fixed indexed annuities (FIAs) as an alternative to bonds.