Our team and a guest expert Phil Seibel of Collaborative Planning Group sat down last week to discuss insurance planning in a fiduciary firm. Together, they answered questions from our listeners and readers.
Tune in to the conversation and get ready to take notes. If you are unsure how the insurance industry is changing, how to choose the best insurance products for your clients, and whether or not commissions promote bias, you will walk away with lots of food for thought.
In a discussion facilitated by our Executive Podcast Producer Eric Lee, you will hear David DeCelle, Dan Allison, and our guest Phil Seibel discuss strategies, share personal experiences, and push against some antiquated ways of thinking about insurance planning.
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Model FA Creative Director and Executive Podcast Producer, Eric Lee
Model FA Founder and Podcast host, Patrick Brewer President of Model FA, David DeCelle
Founder and President of the Feedback Marketing Group, Dan Allison
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Dan Allison (00:00:05):
I hope they develop fee-only insurance products like a big portfolio. Right now they have one or two in the market. I hope they do someday. Guess why that's not going to happen soon? Insurance companies don't like paying death benefit.
Eric Lee (00:00:18):
Hi there, this is Eric Lee with the Model FA. I'm here with David DeCelle and Dan Alison from our team, as well as Phil Seibel. And today we are talking about insurance planning in a fiduciary firm. It's a hot topic right now in the financial planning world and we're excited to sit down with this panel today. With that, I'm going to let all the guys briefly introduce themselves and then we'll jump on in to the questions. Phil, why don't we start with you since you're our guest?
Phil Seibel (00:00:50):
Thanks. Appreciate it. Appreciate y'all having me be a part of this. My name is again Phil Seibel. I'm with Collaborative Planning Group. We're based out of Omaha, Nebraska, but I personally live in Austin, Texas. I'm a principal of the firm and I have been working with financial advisors on risk management needs for about 10 years now.
Eric Lee (00:01:07):
Dan Allison (00:01:08):
Dan Allison, I'm the managing partner of Brokers Clearing House. We do insurance planning primarily for fiduciary firms and wealth management operations, also a chief growth officer at Model FA.
David DeCelle (00:01:20):
David DeCelle, president of Model FA, and I am very excited about this episode. I think that we're going to have some good dialogue, have some fun and hopefully share some good perspective on this topic in particular.
Eric Lee (00:01:34):
For sure. Why not? On that note, let's jump on in. Our first couple of questions have to do with insurance industry and the way that it's changing and morphing right now. So Phil and Dan, in particular, what advancements have occurred in the life insurance industry to make delivering these products to clients easier? I know that some people have say that back in the day, they did a lot of insurance and the paperwork was very unprofitable for their business. So what do you think is different about that now?
Dan Allison (00:01:59):
I'll run with that. As you said, Eric, anybody who claims to be a holistic wealth management firm or a financial planner or fiduciary, nobody can ignore that risk is a huge part of developing a really good financial plan for somebody because you can have all the great investment philosophies in the world, you can get great returns on your investment, but if somebody dies prematurely that a family relies on as a breadwinner or gets disabled, all those kinds of things, derails the plan pretty quickly.
Dan Allison (00:02:30):
And I believe what happened, a lot of financial advisors came up out of the life insurance world and back then life insurance was really difficult to do. It involved 70, 80-page paper applications, I got to drive across town and meet the guy in his office, and then I sign all the paperwork. I get back to my office and I realize I missed initials on page 43. You know what I mean? And so now I got to go back edit it. So inefficient and at the end of the day, while it would put great coverage in place for that family, for me it wasn't very profitable. Maybe I made a thousand bucks, and in addition to that after the paperwork, all the underwriting and learning about all my client's medical issues. And I think a lot of advisors gravitated away from providing life insurance solutions to their clients, even though they know it's an important part of planning.
Dan Allison (00:03:23):
And so a couple of advancements happened that I think are important because a lot of the listeners for your podcast are aged, they are fiduciaries, they do promote themselves as holistic wealth management firms and fiduciaries. But if they're being honest, a lot of them are not really strong in the risk management part of the world and it's because it's historically been a pain in the ass to do it. And so a couple of things, number one, technology has changed incredibly in that world. Today, and I think Phil, his firm and our firm worked together a lot in supporting fiduciary firms in wealth management companies, but out of the 35 companies carriers that I think we represent...
Dan Allison (00:04:06):
Which are all the biggest ones in the world, the [Prus 00:04:08], the John Hancocks, the Lincoln, all the biggest companies in the world, probably the top 10 or 12 have developed tech-savvy solutions to insurance where not only do you not have to complete 80 pages of paperwork, you literally don't have to be in front of a client. Everything is e-signature, they call it drop ticket. So I could sit with a client, for instance a 40-year-old business owner that's got three children and the wife raises the kids. And the guy makes a half a million bucks. That guy should probably have $4 million or $5 million retirement insurance at the very least.
Dan Allison (00:04:41):
Well, before, that was difficult to deliver, but today I can deliver that in about two minutes, I can hop online, run quotes, never have a piece of paper in front of me. Underwriting can be streamlined today. Not always, but a lot of times, you can deliver a policy anymore in a few days with younger, healthier people and it's all because of tech. First, they streamline technology with regard to paperwork. And right now they're streamlining it with regard to underwriting. We call it data analytic underwriting. So the carriers know a lot about us just based on our buying habits and the credit cards we use and the social media that we go on, David DeCelle every day on his social media. Literally, we're telling the world everything about us and they can make underwriting decisions now based on that.
Dan Allison (00:05:30):
So I think fiduciary firms gravitated away from that because it was not profitable, it was arduous. It was uncomfortable that medical conversations in our industries finally responded with a way to deliver these solutions that are profitable, confidential, and don't involve all the awkward things that are typical.
Phil Seibel (00:05:50):
I agree with Dan. From our end, Dan's team helps us a lot with the backend processing of all this work. So when find the case or work with the client or the advisor, our job is to collect all this data and then get it to his team to help get it processed on the back end and work with the carriers and the underwriters. From our perspective on the front end, look, insurance carriers are big behemoths and they take a while to make these moves and transition. And candidly, a lot of them can be slow just because there's a lot of stuff in infrastructure that they have to move to progress. And it's not because they don't see it, it's just because there's just a lot of stuff they got to go through to make that change. So they're working as fast as they can to get there. I know in this state of the union, there's, "Hurry, faster, I want it all now," that's the mentality.
Phil Seibel (00:06:32):
I understand and respect that. And I would like to give it all now because, man, I'd love to have that service level for our client. That would be great. But at the end of the day, there still are some things that have to go through. From our perspective, taking away a lot of that paper has helped us a lot, back to technology, and especially in this COVID environment right now, where we're doing a lot more online and doing with Zooms or whatever your method is, it does make things easier.
Phil Seibel (00:06:56):
And what it allows us as the agent or advisor insurance agent to do is when we're going through this stuff with a client, I can be online in a portal for the client and going through all the questions I know the carriers are going to want to know information about and help them get through that and not leave it to them to have to be like, "Wait, if I say it this way, does that get me in trouble with the carriers that way?" And I can help them through that process and generally get them through faster, way faster than they could do it on their own.
Phil Seibel (00:07:24):
In addition to that, it allows me the opportunity to take that off of their plate so that they don't feel overwhelmed by this process. If the carrier is like damages, a lot of carriers are taking away this paperwork. The other thing carriers are doing, if they haven't gotten there from a technological perspective, they're allowing us to do a lot more DocuSign. So even if it's not paid, but they're allowing us to grab DocuSign and send that out and use that format so they don't miss that signature on page 43 or initial on page 42, we have to go all the way back and do that for, it's helping a lot.
Phil Seibel (00:07:55):
I think the other thing too is Dan mentioned the data analytics on the backend is fun to watch how these characters are progressing on that end. There's the information that they're using to make underwriting decisions, especially on younger, healthier clients. It makes a lot of sense when you look at it and two, it's also, we can have the conference and tell the client, "Look, they're not going to do the experiment. They're going to check this, they're going to check this, and they're going to check this and you can still get the best class possible and pay the same premium as if you go through the whole process over here. So why not take that chance and make this real simple and be done in potentially a week, versus go through this and take six weeks?"
Phil Seibel (00:08:32):
So it's the cool story to finally get to tell. And I'm just going to say cool relatively because I'm in the insurance business. I understand it's not that cool. To me it is, because again, it's a better story for the client. It helps them understand that we're trying to do as much as we can to help them make it simpler.
Eric Lee (00:08:46):
That's great. I think it's interesting, for once technology seems to actually be helping streamline and make the process easier for the advisor, which obviously for this industry is a big plus for the advisor, but it's also a big plus for their clients as a fiduciary for them to be able to offer that to their clients. I think is really a great thing. Which life insurance products do you think in today's market are good versus which ones may not be so good right now?
Phil Seibel (00:09:12):
That's a fun question. It's also a tough one because a lot of people in our industry like to attack certain products, that this one's bad, this one's terrible. Why did you do this? Why did you do the whole life strategy? Dan and I talk about this a lot on the back end because of all the advisors we work with and all the clients that... We look at a lot of policies. In our practice, we don't always just sell the insurance, we're helping advisors to engage and doing reviews and looking at what somebody bought 30 years ago to see what's going on, how we do it. I can tell you this, every product was designed for a specific situation, depending on the client's situation dictates what should be used for that.
Phil Seibel (00:09:49):
What unfortunately happens in our industry is that incentives are thrown out there to push certain products, and then that creates a bad recipe, square peg round hole where people now are getting pushed a product that does not fit that situation. And then in a few years, they look back on that and go, "No, now we've got a problem." And then that creates this product is terrible, if you go back to it... No, it should never have been that product in the first place. It should have been this product because that's the need.
Phil Seibel (00:10:18):
All the time we see the young person who is starting to make money, who has the whole life contract, who is way under insured, but that was the premium model they could afford at the time. And now they're swimming, trying to catch up and they're never getting there because they got all these expenses in life and they get... And it doesn't mean that the product, whether it be whole life or whatever it is was bad, it just was that's the wrong timing to look at that product. You should have just done term and let's move on with our lives and make this simpler for ourselves.
Phil Seibel (00:10:47):
I'm sure we'll talk about commission-free and commission-based. Again, they all have a fit and it's, I believe, a hundred percent the commission-free products that are out there fit in the right situations, the right time. The commission-based ones still fit in other scenarios because the need is dictating that answer. It's the job of the insurance advisor to look under all those rocks and make sure that they're working in the context of a plan instead of making decisions [inaudible 00:11:14].
Dan Allison (00:11:15):
I'm going to jump tail on that answer, Eric, because the... And this is what I know, anybody who's listened to our past podcasts, I can only be appropriate for so long and then I get angry. I say, there's certain things that, like David said before we started, that are a little bit controversial, but they're true. And they're the things we hide behind the curtain and pretend the monster is not in the closet, but it is. And this question, whoever asked that, what they're really asking is, I heard that Northwestern Mutual whole life is bad, or I heard annuities are bad, or I heard indexed universal life, or VUL or whatever, buy term, invest the rest, all the garbage. And the reality is, again, I go back to this word fiduciary, which I believe is starting to become the standard in financial planning theoretically. It hasn't become the standard in application. People pretend they are, but they're not yet. Not that nobody is, some are, but a lot say they are, and if you're a true fiduciary, your sole job is to always act in the best interests of the client.
Dan Allison (00:12:20):
What does that mean? Well, in the insurance industry, if you look at his firm and my firm, we have 35 of the biggest carriers in the world, but we... I mean, thousands of products, term insurance, IUL, VUL, whatever. I always say the way a fiduciary ought to think about risk management planning, life insurance, long-term care planning, disability, is that if you view it like medicine, like a doctor views medicine, every medicine that has ever been developed is brilliant as long as it's utilized to treat the exact symptoms that required its development. Period. But if I prescribe chemotherapy to somebody who has asthma, I'm going to kill them. If I give IUL to every single person regardless of symptoms, or I give whole life insurance, which a lot of companies, they know one medicine so they diagnose everybody with that problem. That product is toxic, not because the product is toxic, because the prescriber was toxic, which is why our industry has a bad reputation.
Dan Allison (00:13:21):
I know Dave, Dave was at Northwestern Mutual for a long time. And if you go in the independent space where we exist, Phil and I and a lot of people like us, people will bash Northwestern Mutual and their company. All they're trying to do is this and then that and they'll do that. Guess what? I own an independent insurance firm with 35 companies. And I own a large Northwestern Mutual whole life insurance contract in my portfolio. Why? Because for me, it serves a need within a bigger portfolio. I've got real estate investments. I've got plenty of stocks. I own companies. For me, it filled a void for me, and that medicine solved my symptom for that need.
Dan Allison (00:14:05):
I think the biggest problem of our industry is insurance professionals. We don't have the confidence to stand up to fiduciaries who look down on us and say, "Look, we're not bad people, we're not all bad people and our products are not garbage." In fact, our products are incredibly important to planning, but we've got to acknowledge that, like Phil said, we'll get to, is it commission? Is it fee-only? Is it whatever. But to me it's not about the product, it's about the need of the client and finding the best soul for the need. And if you have the platform to find any solve, the product type is irrelevant. It's about the need of the client. It gets me fired up because it bothers me because everybody has just their preconceived notions of what's good and bad. And the answer is, it depends on what the client needs and person prescribing the medicine to the client. They can be good or bad, but the product's not.
Eric Lee (00:14:55):
Yeah, they're asking the wrong question. That makes sense.
Phil Seibel (00:14:57):
In addition to that, unfortunately in our business, because this is where commission does come in and getting paid, that's the bulk of how our industry earns a living. You sometimes set improper expectations with clients on product design. And we see it all the time where illustrations were set at certain rates of return that you're like, "Man, if you looked at okay, over the next 30 years, are you going to expect a 9% rate of return on this policy? Can you seriously say that to yourself, walking away from this product?" And it's got a lot to do with distribution systems pushing this to get a sale so they get paid. And so we see a lot of times also is improper expectations for clients. And that's something that on the back end for the industry, that Dan and I talk about a lot, is we're setting better guidelines of here's how you're going to work with financial advisors, especially fee-only financial advisors with insurance-based products to set proper expectations, to set more a fiduciary behavior.
Phil Seibel (00:15:58):
I know that the definition of fiduciary commission can't be fiduciary, I get that people are going to go back and forth on that one, but at least a fiduciary behavior to set better expectations with clients and to get the goal done, which is to take care of the client. Just to make sure it's the right thing for them. And if that's taken care of, it should work fine. Now life changes, we get that that's going to happen. But if it's all in the context of that, then it should eliminate a lot of the bad name, whatever we want to call it, the sleazy used car salesman in the [crosstalk 00:16:30].
Eric Lee (00:16:29):
Let me ask you this then, how do you think from an advisor standpoint who is our audience here, how do you think that they can help facilitate setting those expectations in the correct way?
Phil Seibel (00:16:38):
I think that a lot of times understanding that... Term insurance is term insurance. You're buying it for a period of time and that's the cost, it's fixed, that's it. But if you really start to getting into more permanent insurance and that's whole life, universal life, IUL, VUL, all those things, it's insurance but they're still dynamic. They still have levers that you have to continually watch. Now the goal is like an A shares, C shares conversation for the financial advisors, insurance is more designed for [inaudible 00:17:08] and it's a buy and hold strategy. So you shouldn't have to do constant maintenance on it, but you still have to perform maintenance on it. And so setting up a system to where you have... I don't care if you're selling the product yourself, if you're fee-based, or if your fee-only working with a partner who has established a protocol of, okay, put this policy in place, here's the game plan for maintaining it, monitoring and keeping things up to date because it could be nothing but just a beneficiary change because there's a divorce.
Phil Seibel (00:17:37):
How many times do we see that one go South? We're like, "Something happened. They didn't change the beneficiary after the divorce. And they missed that. And now it's a whole mess that the man is going to deal with." It is a big thing if it happens, but it's not this big dynamic thing you got to watch all the time. It's just something that's got to be done. So a protocol for maintenance is one. And then just like the advisers, the hardest thing with insurance illustrations is that unfortunately they're linear, we're not allowed to play Monte-Carlo games with it, that's just the way with the interest rates. Maybe it'll change. I don't know. It's really tough on the carriers to play that game, but stress testing.
Phil Seibel (00:18:11):
So what happens at this level versus this level to see how the policy reacts so that the client can understand this is the risk I'm taking on? Because at the end of the day, it's still a risk tolerance question with all of these policy designs. I want these guarantees, that means less risk, I'm going to pay more premium for that less risk. If I want to take more risk and pay less premium, but I can capture the upside with that. But that upside, I got to be ready for this deviation. So with stress testing, but not helping the advisor understand that cratering policies doesn't work either because it's at the wrong expectation the other way, because we get that one a lot. Crater to policy, what's the odds it's going to crater? It's nationwide. They're not going to crater. If they do crater, they're selling off and we have a whole other world of issues we've got to deal with in this country at the end of the day.
Dan Allison (00:18:58):
And we have a great sound bite that you predicted they would not crater and they did. So you're going to be-
Phil Seibel (00:19:03):
[crosstalk 00:19:03] I know, right?
Dan Allison (00:19:04):
... you're going to be ruined in this industry, Phil. I have a real quick, Eric, I want adapt. Again, I will always have commentary on stuff like that but-
Eric Lee (00:19:12):
No, please [crosstalk 00:19:12]
Dan Allison (00:19:13):
... but how they position it. I always tell people there's really two kinds of insurance. And obviously, anybody listening or watching can tell that Phil, from a technician standpoint, is a hundred times smarter than me with building product. He just is. I don't have an insurance license and I own a big insurance company. To me, I'm a company owner. The product isn't necessarily my skillset. But when I look at, what is life insurance specifically? There's two kinds. There's number one, if you die prematurely, somebody that you absolutely love is going to be devastated, whether it's a business partner, a wife, a husband, children, and in those circumstances, term insurance, it's a period of time that you got to ensure that kind of risk.
Dan Allison (00:19:58):
But after that, there's also a strategic life insurance that utilizes the construct of an insurance policy, the tax benefits, the accumulation opportunity inside of a policy to accomplish a strategy. We just did a policy where a guy paid... I think he's paying $1.3 million a year of premium. That's a lot of money he's paying, but he's also worth $4 billion. And when he dies, his estate tax is enormous. So it's a leverage play for him. It's strategic. So, was life insurance the fiduciary thing to do there? Absolutely, unless he wanted to pay the government $130 million when he died. So we help solve for that problem, but I think that focus on the front end about setting expectations, Phil's point is there's strategic life insurance that involves performance of a product. And there's a million indicators and economic factors and levers, like Phil said, that make a product perform or not perform.
Dan Allison (00:20:56):
But really it's just understanding that it's taking risk that is real and pushing it off onto the insurance company, which is a smart thing to do unless you don't manage that policy, because then the insurance company wins. Then the insurance company doesn't write the check when the client dies, because technically you miss that payment by two days or technically that cash didn't perform and now the policy lapsed. That's the game we play. So initially, somebody has got to understand it's a real asset. You would never buy an apartment complex and never go visit the thing and maintain the thing as an investment. You wouldn't do that. But people do that with insurance contracts and don't realize that's a real asset on the books just waiting for an event. It's a liquidation event. Does that make sense, Eric?
Eric Lee (00:21:42):
Yeah, absolutely. It makes perfect sense. David, obviously you were a financial advisor, you work with financial advisors, talking about this whole idea of risk management as part of the holistic financial planning process. How do you think that that fits in to that financial planning engagement?
David DeCelle (00:21:58):
I think that insurance in general, when there's a need that needs to be included, to what Dan and Phil have been alluding to and saying directly, even during this call, is it just needs to be the appropriate fit. What I think Northwestern does a really good job at is teaching the advisor how to also be a sales person because insurance, for the most part, isn't bought, it is sold. And I think that that's where some of the independents of the world can lack is they think a lot of times that because they've said it or had it on a list of recommendation that someone's just going to go and do it. And because there is no compensation involved on their end if they're fee-only, there may not be as much accountability with following through. Now on the flip side, I think that Northwestern, because it's a company, there's clear potential conflicts of interest and yes, they have access to other products through a company like Dan's and then a company like Phil's.
David DeCelle (00:23:01):
So I think, when you have the right person, who's not just a slick sales person, they're going to do the right thing. But at the end of the day, when you include it into a financial plan, it's not as sexy as an investment portfolio. People don't wake up in the morning and they're like, "Look at this." And they're looking at the market every day, to Dan's point, you apply and you acquire your insurance and then you don't look at it again until something happens by and large. So I think it most certainly needs to be included in a financial plan if it needs to be included in a financial plan. And I think that advisors need to do a better job holding their clients accountable to actually putting into place and understanding that it doesn't necessarily excite the client so it needs to be sold.
David DeCelle (00:23:49):
It's not just something that, because you put it on a piece of paper, they're just going to say, "Yeah, sounds great." It's probably going to be the line item on the plan, like their estate planning if you have this experience too, where they just drag their feet and you show up for the annual review and you're like, "Nope, haven't done it yet." Well, the difference between the state planning and insurance planning is that year long that was in between they're older, so it's more expensive and God forbid anything changes with their health and maybe they're not able to get it or the price just skyrockets. So I think when it's appropriate for a financial plan, of course you need to include it. But there also needs to be some salesmanship along the way to make sure that they follow through.
Dan Allison (00:24:27):
To me, that's a sound bite, what David said when he said, "If it's necessary in a financial plan." Period. It's that simple. I tell people all the time that I've been pretty savvy business wise. Luckily, I had a liquidation event when I was in my twenties. That was great. Then I bought some other companies. I have some real estate. If you look at my portfolio at 45-years-old, it's all fine and good. But I also fly a hundred times a year and if my plane goes down tomorrow, the most valuable asset in my portfolio is that death benefit. Period. I'm a provider for my wife and two kids. But for me, it was necessary in my financial plan, like David said, and that is what I hope people understand. You can meet people that think it's necessary in every financial plan but it's not.
David DeCelle (00:25:14):
I think too it's important... For me, I'm single, I don't have any kids or anything like that. And I think a lot of times advisors would look at someone like me and help me with my investment portfolio, help me accumulate wealth. But for me, it's incredibly important to take care of my parents, to take care of my cousins, to take care of my high school. So I have the most amount of life insurance that I can qualify for because, A, I come from the industry so I get it, but B, there's people in my life that I want to take care of while I'm alive. And God forbid I pass away that doesn't change at all. I still want them to be taken care of. And I recognize that it's based on age and health. So the younger that you get it, the lower your premium is locked in.
David DeCelle (00:26:02):
So I think advisors need to do a really good job asking great questions to understand what they want to do, and when they share exactly what it is they want to do, ask them if something bad were to happen to you, if you got sick or hurt, or if you passed away way sooner than you're probably planning on, what of what you just said would you still want to happen? And start to identify that need at that point in time, as opposed to just making the assumption that it's not important to me because I don't have a family.
Eric Lee (00:26:34):
I love this discussion because at some point it becomes irresponsible or "anti-fiduciary" to not offer insurance as part of that process. So I think that that's a really important thing. Let's unpack that idea of the whole sales person thing. Now there's an old joke that a woman goes into the hospital, is very ill. The doctor says, "I have some really bad news, you're going to die in three months." And she says, "What am I going to do?" And he responds to her, "Well, you need to marry an insurance salesman." And she says, "Is that going to make me live longer?" And he says, "No, but it would feel like you're living longer."
Eric Lee (00:27:06):
The idea that there is a bit of a stigma around this industry and about the "sales process." So how do you, as a fiduciary advisor, as an advisor come across and avoid that feeling of snake oil, if you will?
David DeCelle (00:27:21):
I think that we just need to think of sales differently. The vibe that can come from sales is that snake oil example that you just shared, Eric. I mean, who would enjoy an interaction like that? Probably no one. I think that people need to change their mindset and understand that sales is about being strategically helpful and inspiring someone to have the motivation to take action. That's how I view sales. So it's, again, identifying that need, explaining to them how to fill that need, explaining to them the emotional component of what it's going to feel like when they're properly protected and ultimately motivating them to get to the next step.
David DeCelle (00:28:04):
I'm a big mindset type of person, and if you are doing it for the commission, you're going to have commission breath, they're going to smell it and it's going to stink and they're going to run away and they're not going to schedule the meeting, but if you're doing it truly to help the person on the other side of the table, so to speak, or on the Zoom call nowadays, I think that your delivery changes drastically and you're really focused on motivating them to do what's appropriate based on what they already told you. That would be my two cents there.
Phil Seibel (00:28:36):
From our perspective and the role that we provide with the advisor, one of the things that we get the opportunity to work with them is we tell them fine, that's your fiduciary. This is the person making sure that these pieces fit your plan. We're here as a subject matter expert to go through it. They're saying the plan has this gap that can be potentially filled with insurance. Our job is to go out and figure out what product or policy or whatever it is, can fill that gap the best at a premium amount, at a coverage amount, all that stuff. And the plan will dictate this, not my objective for commissions or anything like that. And Dave's exactly right. If you come across for the commission, it will come across the LDA. That feeling will be there.
Phil Seibel (00:29:16):
Now, I promise you, I built my career to do it that way, but it still is an uphill battle every day and all the advisors we work with and every interaction that we go through with a new relationship, but we do have some great friends in the industry from a financial advisor perspective that believe in us and trust in us to say, "Okay, if you say this, then this is what we're doing. This is the path we're going down." But on the other side too, I've met a lot of great insurance professionals in my world that think, act and behave just like I feel like we do. So we're out there, we're there, but again, in the health [inaudible 00:29:51] better, when I started going down the path of working behind them through the financial advisor and helping support their plan, all of a sudden this engagement from the client started to shift because that advisor was sitting there in the room on the right hand side of the client and still we're going, "Okay, what do you think I should do?"
Phil Seibel (00:30:07):
And all it was there to just do it. And then they had ultimately the advisor sitting there saying to me, "No, that doesn't make sense." If we had somebody to wear a hat saying I was the bad guy if they needed to be that. And I was okay with that role. But at the end of day, when the advisor looked, the client said, "This makes sense. This is going to fit. This is going to work." All of a sudden the conviction behind the client is take the next step and take action just got supported because usually we support it with math. We were going through the emotional piece, then it got supported with math. And then we move forward.
David DeCelle (00:30:34):
One way, and Dan and Phil maybe you have the term for this, or maybe the term was just made up, but some of the folks that I work with, and when I was in the business, I did something similar to this as well where if someone basically looked at the financial plan and said yes to everything, except for the insurance, as opposed to pushing really hard, which I think depending on the circumstance you still should, because you clearly didn't motivate them enough, which was the initial goal, so you've got to deal with the objection there two or three. But then if they are standing strong, you need to print out a form that basically says, "I chose not to take the recommendation on the insurance planning, and I acknowledge the fact that if I pass away or if I get sick or hurt, my financial plan implodes, and my family will not be taken care of."
David DeCelle (00:31:24):
That in and of itself will probably motivate a good percentage of those people to say, "Okay, I'm not signing this piece of paper because one thing that you want to make sure that you're doing is covering your own butt. And if a spouse shows up and says, "Well, why didn't they have this or that?" It's like, "Well, they didn't want to take it." And then it's hearsay and you're going back to case notes, but if you can hold the form and say, "I tried," at least it can help motivate them to actually take action on it and cover your butt in the event that something actually does happen.
Eric Lee (00:31:57):
Yeah, that'd be a very difficult piece of paper for most people to sign.
Phil Seibel (00:32:01):
For that reason, our firm has adopted the email tracking and the note tracking systems inside every client profile. So if it does, we go through this and say this, anybody ever comes back to us, our job is to have that documentation. Like, "Yup, here it is, this is what we went through. Here's all the planning we went through and now they chose it for this reason or did not choose it for that reason." And again, it's the client's decision at the end of the day. And that's fine. It is what it is. But you're right, the spouse or the family, or what did you do? You're like, "Here's all the documentation to go through for that."
Dan Allison (00:32:31):
I have a couple of thoughts, again, to end on for me. But number one, your joke about insurance. I had an investment wholesaler a few years ago that I was talking to and I told him, I'm on airplanes probably a hundred times a year, 150 times a year. And I said I really hate talking to people on airplanes. So I don't like the person next to me saying, "What do you do? Where are you going?" I'm never going to see him again. I don't want to do that. And so we were talking about that. And about two weeks later, I got a FedEx package and he knew I liked to read books on airplanes. So he said, "Hey, next time you get on your plane, put this book cover on your book. Your problem is solved." And the book cover said, How to Sell Life Insurance on Airplanes.
Dan Allison (00:33:14):
He said, "If you put that on your book and just set it on your life, nobody will ever talk to you again." I laughed for a while until I realized that I own an insurance company. And that's a horrible stigma, but it's a well-deserved stigma. If you look at the history, I've said about our industry a million times, I've never seen a product in my life that is so valuable to the end consumer when it's built in the factory, but so flawed in the way that it gets to the end consumer, whether it's bias or unethical... It's just a valuable product that gets totally screwed up en route to the consumer.
Dan Allison (00:33:51):
I think the second point I would make is number one, the bad stigma is well deserved, but also again, this is going to piss some people off, but it's true. There is as much unethical behavior in the investment world as there is the insurance world. Period. Every time, to Dave's point, what is sales? If I'm sitting with you and telling you, "My investment philosophy is better than his investment philosophy, fee-only is better than fee-based," whatever. I'm selling. I'm selling my belief system. Now, is it better? I don't know. Nobody can empirically prove ever that that's better than this, but it's my philosophy.
Dan Allison (00:34:28):
So everybody sells, otherwise they're not making a living. So this term that selling is bad, unfortunately, you have to convince people to be responsible. You've got to convince people to save money instead of spending a thousand bucks a month on Starbucks, you have to convince families to do that stuff. So everything we all do is selling, but I feel like the third thing is that our industry, the insurance industry is evolving to a point where we're trying to adjust to the idea that fiduciaries and wealth managers think commission is bad. Commission is bad, and I think there's a question about fee-based or fee-only or commission, and [crosstalk 00:35:09]. Yeah. I won't belabor it, but it's like the compensation methodology is not commensurate with whether or not I'm a fiduciary.
Dan Allison (00:35:18):
And the analogy I always give is it better to pay a realtor 6% to sell your house or 1% for every year you live in your house? The answer is, it depends, it depends on how long I'm in the house. If I'm there for 40 years, 1% is a lot over 40 years, but 6% upfront and then never paying again is better. But if you look at every wealth management... Well, not every, but almost every single one, I charge 75 basis points, a hundred basis points. That's not a commission, it's a fee. What the hell is the difference? That's like a realtor saying, "I'm not like any of these scumbags that charge you 6% to sell your house. I charge 600 basis points because I'm fee-based." I'm still paying 600 grand to sell my $10 million house.
Dan Allison (00:36:07):
The vernacular is the problem with our industry. And we like to say, we're better than them, they're better than us because of fees and all this and we forget about the consumer at the end of the day, and that's what we got to get back to... It doesn't matter how the person makes money. It does matter if they behave badly, but so do investment advisors, they behave badly. So let's quit focusing on theory and start focusing on behavior.
David DeCelle (00:36:31):
I agree with all that. And Dan, maybe you and I should set up a call after this. If you're spending a thousand bucks a month on Starbucks currently, there's an issue that we've got to fix. So [crosstalk 00:36:41] we'll talk offline.
Dan Allison (00:36:45):
I don't know if you've ever had the Nitro Cold Brew bro, but it is amazing.
Speaker 1 (00:36:48):
Hey Model FAs, I know you're enjoying this conversation, but I wanted to take a quick break to talk to you about the Model FA Accelerator. This is a unique collaboration between us and you, where we help you build a financial advising practice that you can be proud of. We focus on the foundational around how to pick a niche or a specialization, how to price your services, how to construct an offer that people are going to buy and then how to market it and sell it in a way that'll get people to sign on the dotted line and become clients of your firm, all while giving you the information to scale and set up workflows and operational processes that will allow you to reclaim your time and build a practice that doesn't run you. So if you'd like to hear more about that, go to www.modelfa.com/accelerator or www.modelfa.com, hover over Work With Us and click on Accelerator. Hope to see in the program.
Eric Lee (00:37:38):
Well, before we do a deep dive into the whole commission discussion, because I know that's going to open up a huge can of worms, which needs to be opened, but before we get there, others have talked a lot about life insurance but there's also obviously other kinds of insurance. I have a question here from somebody that said, "How important is long-term care planning for advisors and their clients?" He says that many of his clients are wealthy and they can afford to self-insure. So what are your thoughts on that?
Phil Seibel (00:38:03):
My approach to long-term care planning has always been... Long-term care planning is not about buying insurance, it's about planning. And sometimes insurance, just like the theme of this whole podcast is that, hopefully you're hearing is insurance is an answer for certain situations and it's not the answer for other situations. What I feel like a lot of advisors have a hard time with, in my experience has been the emotional conversation around long-term care planning about how do you pull out the emotions from the family of what they dealt with with their parents, maybe a spouse, all the stuff that they're going through that creates that emotional connection to why they have to plan for it. And we tell clients who can self-insure all the time, that's fine. Good, great. Let's at least then discuss how are we going to tackle this when the event happens?
Phil Seibel (00:38:51):
Because right now it's going on in my house upstairs right now is my wife is dealing with her stepfather who doesn't have enough assets to pay for his own long-term care insurance. So we're having to do VA benefits, Medicaid, get all that stuff. We have kids that we're doing virtual schooling with, she has a full time job and she's helping her step dad. She loves him and she wants to make sure he's taken care of, but that is a strain and a stress on her. That again, it wasn't the fact that he needed to buy insurance. There was just no plan when the event happened. And so I'm a big believer in long-term care planning, and I am also a big believer in that it doesn't always need to be solved with insurance.
Dan Allison (00:39:33):
I'll tell you, Eric, a couple of things. Number one, I'm a guy that saw in the last 24 months... I didn't go to a funeral for like 25 years of my life. I was lucky from high school on [inaudible 00:39:44] funeral, and then within 24 months, I lost my father-in-law, my mom, both my business partners, my only aunt and uncle. Quite a string of bad luck. Well, not my bad luck, but I watched long-term care play out. Specifically, I remember my mom. And I hope that the people listening to this think about their parents, their wife, their kids, their clients, because it's real. My mom bought long-term care insurance, but she bought the old kind where every couple of years you get a notice that your payments are going up 20%.
Dan Allison (00:40:18):
Well, at some point you can't afford it. And you bought a product that literally the insurance company could just pull levers on to make profit. And then one day be like, "What? Sorry, you can't afford it. That's all pure profit." My mom had that and then she let it go. She couldn't afford it anymore. She got cancer, she had to be admitted into a nursing home. And I was lucky to spend the last week of her life with her in the nursing home. However, she was in the lowest level facility you could possibly imagine because that's what Medicaid, I think, was going to pay for. She had a roommate. She cried, cried. The last days and second day of her life saying, "I want my own room. I want to die in my own room."
Dan Allison (00:41:00):
And I told the director of the facility, "I'll pay whatever it costs. Give us our own room. I don't care. I'll write a check, get me a room." Well, they were at capacity. They didn't have one. Eric, my mom died. I was by myself with her, held her hand, she took her last breath at like 10:35, 10:40 at night, while her roommate, who had a hearing disorder, listened to Jimmy Fallon's monologue. So, think about the dichotomy of that, sitting in that moment and that's how they hear that moment of the last tracks of Jimmy. And that's real. That is what happened. I walked away from that event like that will never happen. My boys will not sit on the end of that bed with me and go through that experience.
Dan Allison (00:41:44):
But it's not about to sell somebody long-term care. No, nobody deserves that kind of experience. However, now long-term care planning has evolved. Phil, how many would you say out of a hundred people you do long-term care planning? Do you sell all long-term care where the premium might go up in a few years?
Phil Seibel (00:42:04):
Less that 10%.
Dan Allison (00:42:05):
Almost never because now they have products, they're called asset-based. And I'll tell you, tons of fiduciary firms I meet with say, "My clients can self-insure," just like your guy that asked that question. And my question to them is, but are they choosing to self-insure? I don't care that they can. I financially can totally self-insure for long-term care. I'm not doing it because I would rather put the risk on the insurance company. Are they choosing it? And the answer is almost never... Yes, the answer is, always they're not educated on what's going on in the long-term care planning space because there are products now that are absolute lay down, no brainers for relatively healthy people to buy.
Dan Allison (00:42:48):
And they don't even buy them. All they do is take some of their money and move them over here. And six months later, if they want the money moved back over here, they can. But if it's over here, they've got a million dollars, a long-term care pool, you know, money. The example I'll give you and then I'll shut up. But I had a guy, Dave, a smart guy... It's hard for me. I'm a public speaker, man. I'm sorry, you put a camera in front of me, I go. We have an advisor who his clients were 60 million bucks. Six, zero. Can he afford long-term care to self-insure? Of course he can. But I asked the advisor, "Did he choose to?" And he said, "Well, I don't know. I don't do a lot of that stuff." And I said, "Would you be open to me meeting with you and with them?" And he said, "Yeah, I would be open to that."
Dan Allison (00:43:29):
So I met with the guy, sold his company, and after tax liquidated 50 million. He already had 10 million. So he's worth 60 million, 65 million bucks. And I told him, "Look, if an event happens, it's probably going to be about 500 grand total, but a 70% chance people do have a long-term care of it. Average event is like a hundred grand, average timeframe is about five years but it's growing because of all time. So I said, "If an event happens, half a million dollar check for you is nothing. However, who is going to be the one to coordinate the care?"
Dan Allison (00:44:02):
Phil talked about his wife being upstairs and stepdad. And I said, "Who do you want to coordinate the care?" He said, "Well, I don't want anybody. I've got a daughter who's a lawyer in Europe, and I got a son who's a lawyer in New York. I don't want to become a burden to their life." And I said, "Okay, if you take your 60 million bucks and you move 300 grand of it over into this account, you're still worth 60 million bucks. You didn't spend it. You can have it back when you want it in 48 hours, they'll wire it back. But while it's over there, you not only have..." For him, it was a million, two of long-term care pool money. You have professional care coordination as part of that, for people to research nursing homes and take care for you and coordination. And the guy bought that policy for that reason, he still worth 60 million bucks. But for him it was like, "I don't want to be a burden to my kids."
Dan Allison (00:44:48):
To me, that's what long-term care planning is and where advisors miss the mark, and I hear it nonstop. I got clients that have 5 million bucks or more, they can afford to self-insure. And I tell them all, "If I sat with 98 out of a hundred of those people, they would never choose to self-insure." Period. So I would encourage advisors that listen to this, if they're not well-educated about what's currently going on in that space, they have got to get educated because it's incredible. And I think Phil would agree, the products today are layups. And when you listen to what they've built, I had to hear over and over and over again, because I'm pretty empirical-minded mathematically, and it didn't make sense. Well, how could I put 200 grand over there, get 800 grand of benefit, but be able to get my 200 grand back anytime I want from day one, how was that possible?"
Dan Allison (00:45:38):
And the answer from the insurance executives is simple, nobody takes the money back. They know they need to leave that money there. So while they do, the insurance company invests the money. That's it. People don't take it back because they know this is a big issue for them. So if there's one ask I have out of this podcast is for those people that listen to this, if you're not educated, get educated. If they're not, call somebody like Phil. Don't call me, because like I said, I'm a product guy, but call Phil's firm and get educated because no client would choose to be self-Insured just because they're wealthy. Warren Buffett doesn't do it. He lives nine blocks from me in a house that looks like it's going to burn down every day. He's got the oldest, junkiest house. It's like 130-years-old, but he's worth, whatever it is, $50 billion, $70 billion. He has long-term care insurance.
Phil Seibel (00:46:25):
I think a lot of times what we see with the clients as they age, if they have the policy, there's more of an openness on there. And again, it doesn't mean that they have to buy the policy, but those higher net worth clients, they have a propensity to say, "If the event is starting to happen and the family has to step in and say, "Hey mom or dad, hey, this is going on. We need somebody to help take care of you because you need help with these things."" And it doesn't mean they're going to the facility, 80% plus of the care happens in the home. Somebody coming in to take care of them. They're staying where they want to stay, they're in the control of what they want to be in control of.
Phil Seibel (00:46:57):
But if they have the policy versus not have the policy, so they don't have the policy, they're going to spend down their assets to start doing this, versus if they had the policy and there's an insurance carrier that they know they paid a premium to, the propensity for them to say, "Yeah, I'm going to go call with the insurance carrier and file this claim and get this thing moving." They act on things because they know that they're calling somebody else to help fund this thing. This whole thing is like health insurance. If you don't have health insurance and you're a little sick, are you going to go to a doctor and pat your pocket or you're like, "Nah, I'm going to suck this up for a little while?"
Phil Seibel (00:47:26):
But if you have insurance and you're feeling bad, "I got to pay a $15 deductible to go see my primary care physician. I'll do it because insurance is going to pick up the rest." People will use that. So it's the same mindset with that. Again, we do sit with clients and advisors. I'm not saying that it has to be insurance, but from our experience, what we see clients respond to is that they actually use it. And then on the back end, what happens is the percentage of their plan going to success goes up because they've levered it with insurance and the family just has this anxiety or stress taken off their plate because they know they have something to draw on when the event happens and there's not this finger pointing game with the siblings going like, "All right, who's got mom? I don't want to do it. I got these three kids at home. I got to deal with this." Nope, not it. And then they start bickering and fighting at the holiday event.
Phil Seibel (00:48:19):
That's back to planning though at the same time, and that's the other thing I will tell you about what advisors do, the ones that we see who engage the long-term care planning. They also start pulling in the kids because the assets will transition to the kids when the event happens and they ended up passing away. And if the kids are involved in that conversation, they start to get familiarity with mom and dad's adviser. And hopefully mom and dad's advisors bringing in potentially a younger advisor to create familiarity and create that bond and connection. And all of a sudden the kid's assets are coming in or when mom and dad do pass away, the assets stay with the firm and they end up just the kids' portfolios.
David DeCelle (00:48:56):
On that note, that's a good segue, Dan. I'll give you a soft ball with the example that you love to share that I think is really helpful. I think first and foremost, risk management planning needs to be right for the client and the client comes first. But typically when you help someone out, there's some added benefits to you as well for doing so. So Dan, I know that there is an example that you like to share about how risk management can help insulate your business model. Can you divulge on that place?
Dan Allison (00:49:28):
Yeah. David and Eric and Phil, you guys all know but for 17 years I've had a consulting firm and all we've done is consult wealth management operations. How do they grow their business? How do they get more clients? But there's certain things, certain statistics. I know you guys will get a huge following in the RIA world, fiduciary world are listening to your podcasts and following what you guys got going on, which is why I love being on these calls because I feel like that population of people has the... Way too many of the conversations that go on podcasts are too buttoned up. They're not honest, they've got a hidden angle or whatever. They're just not honest. Otherwise, there'd be a lot of controversy because if we're being honest, a lot of us aren't doing a great job for the client. So it's hard to say, "Look, we got to get better at this and that."
Dan Allison (00:50:16):
But one of the things David was talking about, I look at... My biggest corporate client that I've ever worked with is Dimensional Funds, DFA originally out of Boston where Phil's at. But now they're global. So they manage almost a trillion dollars of... They're huge. And they do surveys every year. And one of the stats I see year in, year out, there are two stats I want to focus on. So I would ask your RIAs or your wealth managers that are listening right now, literally to take out a piece of paper and a pen and apply these stats to their AUM, their own debt, Phil, and correct me, I know I'm right within 3% to 5%.
Phil Seibel (00:50:56):
Dan Allison (00:50:57):
But they say that roughly 40% to 45% of assets leave a firm when the first spouse dies. So if they manage assets for a couple, when one spouse dies, roughly 40%, 45% of the assets go away over time. It might be the breadwinner and that's why the assets leave, there's a variety of reasons. But when the second spouse dies, north of 90%... Phil, I think it's like 93%, 95% or something.
Phil Seibel (00:51:25):
Dan Allison (00:51:27):
Yeah, leave a firm. So you look at, okay. I was in the audience one time of an event. And there was somebody who had won the Nobel Peace Prize in economics giving a speech. And they were talking about these stats and I said, "How would that stat change if that wealth manager did good insurance planning, and when that second spouse died, transitioned death benefit to generation two? So a million bucks, 5 million, whatever it is, how would the stat change?" And his answer was, "It's interesting, we can't calculate that and haven't looked at that, but I can promise you it would be dramatically lower." So my first thing to your listeners is nobody would buy a restaurant if they knew that 95% of the patrons would not eat there in the future. Nobody. So why in the hell would you build a company and grow assets and not bubble wrap the assets by doing actual good planning, not to mention you make revenue while you do it?
Dan Allison (00:52:26):
So not only is it a good thing for the future of your company, not only is it the right thing for your client, or if you ever sell your company... I mean, my God, how much more is your company worth? That'd be number one. Think about that. Number two is this, it's the analogy that I think David's referring to, when I meet with a firm, I say, "Look, you got a billion dollars of assets, with a B. And I know some people listening at 50 million or a hundred million. So it's all relative, but a billion dollars of assets, a thousand households. Statistically, 70% of those households will have a long-term care event. Period. Not maybe, not kind of, 70% of those households will. And many of them will have more than one because there's a couple that each of them have a 70...
Dan Allison (00:53:11):
But if you look at that and say, "Let's say that only one in those households have an event. You've got 700 households. The average event is five years. The average event is a hundred grand a year, depending on where you live. It's 500 grand a household, 700 households, $350 million of assets exposed." Why? All because you don't understand how to do good long-term care planning and hedge that risk. And if you think like a business owner who hopes that you're going to be in business in 10 years, or that your child is going to take over your business, or you'll sell someday, $350 million. And if I charge 1% to manage assets, 3 1/2 million dollars a year of revenue. If I want to sell my company at three times revenue, that's 10 1/2 million dollars evaluation off my company.
Dan Allison (00:54:03):
Why would I do that? And that's the thing that I don't feel enough people... They dismiss risk management, "I hate commission. I hate this." Who cares how the product is built? I don't control and Phil doesn't control and Dave doesn't control. How does a product built its carrier, whether it's commission or not? We don't control that. But why on God's earth, if it's the right solution for a client? When you put it in place and by default bubble wrap your company for those two enormous risks.
Dan Allison (00:54:32):
I think that's a stat thing David you were talking about, but it's something that drives me crazy because all these guys... You're taking all the risk of an entrepreneur, you're taking all the risk, starting your own company, going out there on your own, doing your own thing. Why on God's earth would you build a company that has a 95% certainty that your customers are going to be gone? I don't get it. And it's all, "I don't want it. I'm a fiduciary. I don't like commissions." What does that mean? What the hell does that even mean? I think that's one of the questions. I'm sorry [crosstalk 00:55:01]
Eric Lee (00:55:00):
No, that's good. I think that's a perfect transition.
Dan Allison (00:55:03):
I know. It's for [crosstalk 00:55:03]
Eric Lee (00:55:07):
Let's talk about that mindset that fiduciary shouldn't accept commissions. If the commissions promote bias and all these other mentalities that are out there, what do you guys think about that mindset? Is that a valid concern, is it unfounded?
Dan Allison (00:55:19):
I'm mad. After this, I promise I'll take a Xanax and calm down, but right now I'm fired up. I'm going to give you a true story, and I hope that this guy listens to this podcast. I'm not going to say his name out of respect for your company, but if he's listening, he knows exactly who... I was on a panel at a very large conference. I've spoken for 15 years at conferences around the world and I was on a panel. There's maybe a thousand people in the audience, 800 people, it doesn't matter. And the topic was The Future of Wealth Management. My role on the panel was that I was the content expert for business development. Like, what does it look like in the future to gather new clients? That was my role. And then they had the academic who was brilliant about fee compression and all that stuff. But on the far end was a guy who owns a firm today with two partners, called... I'm just kidding. I'm not going to say what it's called.
Dan Allison (00:56:20):
$10 billion of assets under management. Good firm, they're fee-only. Awesome. I get a question from the audience. And one of the audience members asked me, "When you consult all these companies, what do you see as one of their biggest gaps, one of their biggest blind spots, in general, not just business development? And I said risk management. And I explained the stats that I just shared about all the assets that's leaving a firm, because die and you guys don't transition death benefit to the kids and people needing long-term care money and just bleeding assets because you guys don't pay attention to this stuff. And that was my response. And the guy at the end of the deal, he's a fiduciary fee-only firm, said, "What Mr. Allison is not telling you is that he also owns an insurance company," because I was there as a consultant and that kind of thing.
Dan Allison (00:57:15):
He's going to call me out in front of a thousand people, I'm not going to cower down. I said... We'll say his name is Paul, because his name is in fact Paul. So Paul said, "What he's not telling you is he owns a risk management company, a life insurance company specifically." And I said, "I don't understand what that has to do with anything." And he said, "Look, I believe that commission-based companies, which insurance companies are, because of the compensation methodology, it promotes laziness, complacency, and unethical behavior." And I told him I couldn't. And he said, "So you can't be a fiduciary and self-commission products." And I said to him, I said, "Completely agree that the compensation methodology of the insurance industry, or any industry that's commission-based does in fact promote unethical behavior and commission-based behavior and all those things, which is why I want to be in the industry because I want to be part of that change."
Dan Allison (00:58:14):
However, I would argue that waking up with $10 billion of assets on January 1st guaranteed to make 1% promotes complacency and laziness. So you're not having hard conversations with somebody who's got diabetes and difficult underwriting, but as children that need them if they die. So you're not even talking about this planning, but here's the one thing I want everybody listening to understand, I asked this guy on stage in front of all these people, I said, "You have two partners. Do you ever buy and sell agreement [inaudible 00:58:46]?" He said, "Well, of course." And I said, "That's smart. I'm assuming it's funded with fee-only life insurance." And it was silent because the answer is, hell no, it's not. It's funded with commission-based, cheap 20-year term insurance that some guy made a commission on, but he did the right thing for that guy. So is he not a fiduciary because he earned 1800 bucks on him and his partner?
Dan Allison (00:59:13):
That's the stuff that drives me crazy. The hypocrisy, this thought that commission is bad, fees are good. No, they're the same thing. Fees that never end or commissions that never go away. That's all they are. Think about that. "I don't believe in fees. I charge a hundred basis points." "That's 1%. How often do you charge at 1%?" "Well, forever." You're saint. Come on. Sometimes the commission does make sense. Sometimes a fee makes sense. And that guy called me out on stage. Why did he do that? One reason. He looks down on the industry that Phil and I are in and looked at theirs as being up here. When in reality, they need our industry, his buy/sell agreement, needed our industry. And the day we can all wake up and say, "We should all just knock the shit off and start actually just helping clients." Let's take that word fiduciary, and actually try to do it.
Dan Allison (01:00:12):
My advisor's a fiduciary. If I go and ask him today, "Hey, I want to buy that building over there. It's a great investment opportunity for me. I need to withdraw 5 million bucks out of my investment account. What do you think?" Is he a fiduciary now? 75 basis points, 38 grand a year out of his pocket. That's a mortgage payment. Is he a fiduciary in that moment? We got to stop that. And that really bothers me and fires me up. But that is a perfect example of where it doesn't matter, commission, fee, none of that matters. It depends on the client. Whatever product or solution fits, compensation's irrelevant to being a true fiduciary. It always will be. I hope they develop fee-only insurance products like a big portfolio. Right now they have one or two in the market. I hope they do someday.
Dan Allison (01:00:58):
Guess why that's not going to happen soon? Insurance companies don't like paying death benefit. They don't make money when they write your family a $9 million check because you died. They don't want those products to be managed the way they should be managed to fruition, because then you die with that product. They got to hike up the cost of insurance if that happens. So it's not going to happen anytime soon, all these firms, and I know there's listeners right now, I guarantee you, from some of the firms that commission-only insurance. Commission-only insurance, bullshit. There's no disability that's fee-only if there is this one product. If there's life insurance, it's one product. If you're claiming to be a fiduciary with one product on your shelf, I hope you never work with a business owner who needs to buy and sell put in place because you can't be a fiduciary anymore. [crosstalk 01:01:48] And I would say that in front of an audience of fiduciaries, because it's how I feel. I'm tired of it as an outsider. So, this industry-
Eric Lee (01:01:54):
You're absolutely right. It's a hundred percent a semantics issue. Somebody is still making money on the transaction and it's just a matter of what that looks like. But you can package pile of shit in whatever box you want, and it doesn't change what it is, it's still that.
Dan Allison (01:02:12):
I think you just paraphrased Tommy Boy, and I love that [crosstalk 01:02:16]
Eric Lee (01:02:19):
It must've been subconscious, it's just lingering back there. It just came out. Last question here. Somebody said that they've seen a lot of marketing about no commission insurance, and fiduciary, that seems like the best solution for the client, according to this advisor. So what is fee-based insurance? And is it actually better?
Phil Seibel (01:02:40):
Dan, this is probably one of the things that... To piggyback what Dan is saying, the frustration on our end. We understand that the carriers are working to get progressive, to serve a market and be better at that. And that's a fantastic strategy. You got these companies coming out that are entrepreneurial and try and do that. And it's great because of two things, one, it pushes the envelope to get better, to avoid complacency, but two, it also reenergizes people to look at things differently and get creative, because that's where... Most of us got into this business because they love puzzles and they like putting things together. They don't like to wake up every day, they're like making the donuts again, again, again. So it helps us get more creative. But one of my biggest frustrations with these commission-based and commission-free and commission policies is the fact that certain advisors hang their hat, just like with dancing, and this is the only solution for every freaking problem that's out there.
Phil Seibel (01:03:38):
And it's driving us nuts because you have products that were built for specific reasons. They're not going to fit every problem out there. And as Dan mentioned, there are no more term, if I'm not mistaken. I haven't seen one, if there is. If there is, I'm sorry. I should know more about that, but I don't think so. A lot of it's around annuities. Annuities are bad and they don't do this. But again, if an annuity is used in the planning context of the right scenario, just because of the commission, does that make it bad? Maybe they need guarantees. I don't know. That's dictated by this. Now the commission-free annuities work really well in a couple of scenarios for planning. We see them all the time. For that reason, our firm built a division to offer the commission-free products, because we believe if you're helping a fiduciary through this planning process, you've got to be able to offer both sides of the house to make sure that you're looking at the whole landscape and not just going, "We can always sell commission based product. Sorry, that's our answer for these things."
Phil Seibel (01:04:32):
So we looked at it from the flip side, we have to offer this as well, knowing that our relationship with the advisor means more to us than each winning every case of the commission-based product. On the flip side, when it comes to life and disability, everybody's talking about doing these commission-free products. Back to what Dan says, if nobody's getting paid on the deal, who's servicing it? I don't know any business model out there that you guess what, you're going to sell all this stuff, not make any money on that deal and yet you're going to have to take care of this thing for the next 20, 30 years. How does that deal sound to you? They're going to like, "No effing way. I'm not doing that. I'm not taking it."
Phil Seibel (01:05:06):
There's that conflict there. In addition to that, if you have a commission, and I'm going to pick on TIAA CREF right now, because they had a commission-free term product that was being distributed through the RIA channel. When an advisor engaged us to look at planning for term insurance for that client, again, especially term, a lot of times that term price was not competitive compared to the commission-based product with the same underwriting in perspective. And everybody would go, "How in the hell is that possible?" Got everything to do with a much bigger machine designers product that we have zero control over and how they design the product at the end of the day. So we would go back and say, okay, TIAA CREF is here. Doesn't make it bad, it just means it's here and then principal's way up here.
Phil Seibel (01:05:49):
Does the client want to spend a thousand dollars less per year on this product? And there's a commission going up. Or if that stands so important to you that you're willing to charge your client more for this product based on that? Right then and there, you get a feel of how the advisor really felt about this industry and what it [inaudible 01:06:04]. But a lot of times they finally have to eat a bowl on site. You know what, you're right. This just doesn't make sense. Again, certain scenarios. There were times where TIAA CREF products did work and it was perfect, but in a lot of scenarios, that's what happened. And so the commission-free, commission-based again, it's not that one's better than the other. I'm tired of hearing that this is the only way to do it, this is how they have to do it because it's insurance, they're not be-all, end-all solutions.
Phil Seibel (01:06:30):
If there were, all of us can quit, we're done. I don't have a job. Because there's your answer right there. And I'm moving on with my life. I'm going to go figure out something else. I'm going to get a wealth management business and do it that way because I have no other job to do. Dan's got me all fired up too because he's motivated me. But I get frustrated by advisors just putting the complete blanket over it and dismissing everything else just because of the word commission. And again, it's about how the product is used in a plan context, not about just because it's designed a certain way means it is the answer. I hope your industry continues to progress. But as Dan mentioned, there's a lot of competing agendas going on.
Dan Allison (01:07:16):
There's a couple of companies that I would say are competitors. Phil's firm, CPG, all they do is partner with RIAs to provide insurance planning. So that's really all they do, is say if you've got a client and you're not insurance experts, come to his firm and his team will go out and do what he's talking about and there's competitors to him. And there's a couple specifically that they promote commission-free insurance. It's the only way to go. A couple of problems. Number one, there's probably 1500 commission-based insurance products that we represent between 35 companies. There's literally probably about five fee-only insurance products. And to Phil's point, when you get into term insurance and strip out there, it's just not profitable. It's not price-sensitive. But I was on a panel, again a different panel to illustrate I'm big into real life trying to illustrate this stuff.
Dan Allison (01:08:11):
My company, we are the founders originally of a group that's now called Libra. We do about $550 million of target premium life insurance a year, which puts us neck and neck number one and two in North America. I'm on the board of that company. And then I was on a panel at their annual conference. Well, at that annual conference, all the members come, so there's probably 300 or 400 CEOs of companies like mine. But also the top executives of all the top insurance companies come to the meeting and they have one meeting where everybody gets to be in the room together. And I was on a panel and the panel, the whole point of the panel is, how can the insurance industry be more attractive to the RIA space? I bit my tongue for as long as I could, and one of the questions was, fee-based or fee-only insurance, which is better? That was one of the things.
Dan Allison (01:09:08):
And I finally said two things. Number one, do you think anywhere in the world there is an RIA conference that's enormous, with a panel of high level CEOs that do very, very well, and the topic is, how do we become more valuable to insurance people? It's not happening anywhere in the world. It's the insurance industry acknowledging we're subservient to the RIAs, how can we be valuable to you? They're not looking, how do we bring value to you? How do we partner together? For the most part, they're looking at us in that way. That was number one point on that panel. Number two, there were probably at that point 600 people in that room. And like I said, highest level executives of all the big companies, Prudential, John Hancock, all of them. And then all CEOs like me. And I said with regard to the question is fee-based insurance, the answer.
Dan Allison (01:09:58):
I said, the smartest people in the life insurance industry are in this room. All of them. The architects of the products were in the room. The underwriters were in the room, the top executives. And I said, "I want all of you to raise your hand if you own a fee-only life insurance product right now." How many hands do you think went up in that room? Not one, not one single hand. The top people in the world. They are people from Europe, from Banner, Legal & General, all the top executives, not one hand went up. So it's like, why are we having a two-hour panel about commission-free insurance when we are the smartest people in the industry and none of us own it?
Dan Allison (01:10:38):
Should it occur at some point? For sure. If we can figure out how to build it profitably, to Phil's point, manage it profitably so we can make a living doing it. But my God, we blow this out of proportion, commission-based, fee-based. It's like, God, just have access to the whole market Like Phil's from. They got access to thousands of products. Bring your client there, let them go figure out what's best. And if it's commission-based, Oh my God, big deal. It's the right product to solve. The guy who sold me whole life, David knows better than anybody, he made a commission. I love opening, when the market's down 20%, that's the only piece of mail that I open, is my whole life insurance statement.
Dan Allison (01:11:19):
I love it. David knows that. I open, I'm like, "Oh my God! It keeps going like this? It's awesome." But that guy made a commission, the guy who did my buy-sell agreement made a commission. If you're listeners, number one, I hope there's going to be certain people that are upset, that are annoyed by what I'm saying. Totally don't care. I understand that. I hope that some people acknowledge what I'm saying is true and say, "That's accurate." And keep in mind, I entered the industry about five years ago. I wasn't even in the insurance industry, I was in the mental health field before this.
Dan Allison (01:11:51):
But I think the outsider view of this industry allowed me to see, we're all... You said semantics earlier. We're batting around semantics. And I haven't seen anybody really has put a flag down and said, "This is stupid. Can we all knock this off?" We got a lot of consumers that their livelihood and their family depends on us all doing the right stuff, could we all knock this off and go think about them for a minute? And from the carrier to the investment company to the fund company, to the RIA, to the insurance guy, I don't feel like it's a hundred people are doing that, but we all pretend we are. So my favorite day is going to be when we figure out how to do that profitably, we all want to make a living, but we stopped at semantics game and you're bad and I'm good, the commission sucks and that kind of stuff because it's ridiculous.
Eric Lee (01:12:38):
Phil and David, do you guys have some parting thoughts before we sign off?
David DeCelle (01:12:41):
I'm definitely going to blow off some steam and go for a walk after this.
Dan Allison (01:12:48):
It's my anger, not yours.
David DeCelle (01:12:52):
It's contagious, Dan, it's contagious.
Dan Allison (01:12:55):
It's all right.
Eric Lee (01:12:56):
How about you Phil, any parting thoughts?
Phil Seibel (01:12:58):
I think this industry is evolving. If we're all going to stick our heads in the sand and say this way is better, we need to do the same thing if you're talking advisors around their investment philosophies, this EFA versus Avantis versus an ETF, [inaudible 01:13:12] all that stuff. Some of them will get angry, but some of them just dig their views in. And if we all look at it from the perspective of this way is the absolute correct way to do it, at some point you got to realize there's no absolute in this whole process. We all should be focused on doing the right thing as much as we know, as best decisions as we can at the time, knowing that things are going to change, and then surrounding yourself with a team to help do this. That's the other thing I say to our advisors a lot, is, information is really too fast now, way too accessible for clients, to try to be a controller of all of these pieces.
Phil Seibel (01:13:49):
I look at a lot of firms and say, "You have to start to partner and bring in experts on all this stuff because there's no way one person can hold all of this stuff in their head and getting regurgitated in the middle of a client meeting when they throw out a random scenario. That's why all of us are here, so engage us. Don't be afraid of us, just engage. I'm talking about the CPAs, the attorneys, us, whatever it is, it's only going to help the practice because of the fact that there's just no way, I think, somebody can do it all at once.
Eric Lee (01:14:17):
Absolutely. All right. Everybody, well, thanks for tuning in. Thanks for joining us, Phil. We appreciate having the insight and your expertise on our panel today.
Phil Seibel (01:14:23):
Eric Lee (01:14:24):
And thank all of you for listening in. Be sure to join us and follow us on all of the social media, Facebook, Twitter, Instagram, other places that you can find us. You can get more information about our coaching programs and our other programs there. And we'll also put information about Phil and his company in our show notes if you are curious about working with him as well. Thanks again for tuning in, this is Eric Lee with Model FA, and we look forward to catching you on the next time. Bye-bye.