But now on to what I learned about the new product. In April I attended a meeting of the Family Wealth Alliance in Chicago and met a financial planner named Benjamin Baldwin III. Baldwin is using a new policy, developed by TIAA-CREF, that allows him to arrange life insurance for his clients and receive downloads of client policies every day so that he can include them in client portfolios. The product is no-load and he receives no commission or fees from TIAA-CREF.
"TIAA-CREF has developed an entirely no-load life and annuity product," Baldwin says. No one can become an appointed agent to sell this product. The product is sold only by employees of TIAA-CREF, who are paid a salary and work in a call center in the office talking with customers. They never go out soliciting.
If one of Baldwin's clients needs insurance, he writes out a prescription and has the client deal with a TIAA-CREF employee to set up the policy. He sends a form to let the insurer know if it is a replacement policy. Baldwin gets a limited power of attorney that allows him to receive downloaded information.
The contract works just like an investment. "When you hit $100,000, the asset charge goes from 95 to 65 basis points," he says. The product has no surrender charges. "If you get in and want to get out, there is no charge," The only fee subtracted from the premium is the premium tax that goes to the state. For example, the premium tax in Illinois is 50 basis points.
The problem with traditional investment insurance policies is that they separate the actuarial costs from distribution costs, "ruining the product," Baldwin says. "So all life insurance in force today is crippled by the distribution process." The TIAA-CREF product has "eliminated the cost of entry and exit."
TIAA-CREF does not compensate Baldwin for the policyholders he brings in. The insurer does provide a daily download into his client investment portfolio. "So I'm more aware of my client's transaction than I ever was as a full-time agent." Baldwin planned to give a talk to NAPFA in early June about how to use the product in a fee-only practice. "RIAs don't understand insurance and they resent that agents get so much money," Baldwin says. "I'm going to talk for three hours about why a financial planner can do this better than an agent."
Baldwin's father, Ben Baldwin II, is an insurance agent who is highly respected among financial professionals. Baldwin said he and his father decided together that he should develop a fee-only planning practice rather than becoming a third-generation agent. The two worked with TIAA-CREF to develop the product, though they did not receive any fee for development. This spring they began receiving a $2,000 monthly retainer for the two of them. "That's our only compensation," Baldwin says.
The Baldwins insisted that the product must be completely transparent. The cost of insurance-the death benefit-is the same no matter what type of policy the client chooses. The cost of managing assets is applied only to the clients' investment assets. "Their actuary loved it," Baldwin says.
The new policy may deserve examination. Certainly providing disclosure of commissions to consumers, as the agents I quoted in the April column do, is a step in the right direction. Providing a better deal for consumers also has its rewards. "I haven't prospected for life insurance business for 15 years," says Chuck Hinners, an agent in Middleton, Wis. "I get all my business from existing clientele."
On another note: One financial advisor wrote to say that his practice is seeking merger candidates. He has found only one site in the independent RIA world-fptransitions.com-that provides information on mergers and acquisitions and wonders whether there is anything else. I don't know. Do any of you know?
Mary Rowland can be reached at [email protected]. She has been a business and personal finance journalist for 30 years and has written two books for financial advisors: Best Practices and In Search of the Perfect Model.