How should advisors approach sales in a market where many insurance products are being modified or even removed from the market? Kevin Cott, CEO of managing general agency Qualified Financial Services, recommends they follow a planning-based solution rather than focusing on product solutions.His firm uses MoneyTrax Inc.’s, Circle of Wealth System. He describes it as an economic-based planning platform that helps communicate to clients how money works and allows for creating solutions that meet long-term and short-term concerns without being product sensitive.
This approach is not needs-based, Cott emphasizes. Instead it is about optimizing the money you have available to get the best results for the client. “If someone said to you ‘You’re going to have disposable income of $5000 a year for the next 40 years to create your retirement’, your objective should not be, ‘I want a million dollars’. Your objective should be, ‘I want to get the most possible out of my $5000 over the next 40 years’, explains Cott. Using a planning process, brings more efficiency and flexibility and achieves greater results, he adds.
Making the most of it
“At the end of the day, you only have so much to spend and only so much time with which to deal with that. Your objective should not be to get what you think you need, it should really be to get the most out of that.”
The problem with a needs-based approach is that it is not possible to accurately predict what someone’s needs are going to be in the future, he says. For example, 20 years ago, no one anticipated they’d be spending money on cell phones and internet fees.
Focusing on products is a risky strategy subject to continuing change, he adds.
Guaranteed minimum withdrawal benefits (GMWBs) illustrate this point.
“Nobody knew what GMWBs were six years ago…It’s a product that came out of the blue and sort of left in a similar fashion. It came as part of the upswing in the economy and then, when the downswing came, it left just as quickly.”
It is also problematic to follow sales concepts because they may also be subject to change. One example is the 10/8 strategy that is no longer valid due to taxation changes.
“Your planning should try to avoid, as much as possible, things that are contingent on interest rates and the economic environment. The more they’re contingent on it, the more risk you have.”
Instead, products should be viewed as a parking spot, advises Cott. “If the GMWB is no longer there, you’ve got to find another vehicle in which to park your money that is going to accomplish the same thing in terms of efficiency and growth and so on. It’s really about saying to yourself, ‘What’s available?’”
Cott adds that using a verifiable planning process “will take you to better places, it won’t be product sensitive and you won’t be reliant on whether the insurance companies are going to continue to have that product a year from now, six months from now, or three years from now.”