Thursday, July 28, 2016

Putting in the Work to Discover Success

Inspirational Thought for the Week
By Oscar Toledo, Director of Sales & Marketing

Growing up, they don’t tell you how many hours of studying is required to get straight A's, or when applying for a job, you aren’t told the amount of successful projects you have to complete to climb up to your ideal position.

When you hear about the most successful people in the world, whether it’s in business, sports, or entertainment, there is always one common factor among them all.

Day after day after day, they put in the WORK.

Tomorrow morning, think about what you want to accomplish that day. Think about what you want from life.

Will you do whatever it takes, including sacrificing free time now so that you reap the reward later?

I know what it’s like to feel stuck, to fail, and to have people around you doubt your capabilities. But I will never know what it feels like to quit.

Today, is yours for the taking, make it a day for which your future self will thank you.

For Financial Professional use only. Not for use with consumers.


Thursday, July 21, 2016

"Experts" Hate Annuities - Clients Disagree

By: Charlie Gipple, CLU, ChFC, SVP Sales and Marketing at Partners Advantage Insurance Services, LLC

I was most of the way through my fourth seminar of the week, just wrapping up with a discussion on “sequence of returns risk” as one of the five retirement risks and I was about to enter the last part of the seminar where I propose potential solutions to this risk.  I went on to discuss that the conventional “rule” for withdrawing money from a securities portfolio is 4% adjusted for inflation (i.e. if you have $1 million at retirement then the first year of retirement you can withdraw $40,000 per year). I then went on to explain an alternative solution which can often times allow one retiring at 65 to withdraw maybe 5% of their “income value” guaranteed* for the life of the client. 

At this point I had to introduce the audience to the harsh reality that this potential solution is (hold your breath!), an annuity.  I told the audience what I just explained was a Fixed Indexed Annuity (FIA) with a Guaranteed Lifetime Withdrawal Benefit (GLWB).  After doing this, you would never guess what the reaction was from the audience, again, for the fourth time that week.  Here is what they did; they nodded their heads in agreement and wrote down on their notepads the words, Fixed Indexed Annuity!

Not dramatic, but the point is that consumers’ disgust toward low annuity rates and annuities in general was more in my head than any of the clients’ heads.  That is because over the last 16 years the stock market has been chopped in half twice!  The consumers in the room know that all too well and they are also familiar with the historically low rates on bank savings products. I believe that while discussing annuities with clients you should have a conversation about the relativity of annuities to what the clients do know (market, bank-type products, etc.).  And we should be confident in discussing this “relativity” because when the market was being chopped in half, clients with retirement dollars in an FIA would not have lost any of their premium or interest.** 

Consumers also appear to disagree with what the financial “experts” like Suze Orman and Ken Fisher say about annuities.  In fact, 78% of people who own annuities are satisfied with their access to their money.1 More than 80% of fixed annuity buyers are happy with their purchase2, which is a very high happiness factor among financial products.

Even in light of the challenges we face with the Department of Labor’s Fiduciary Rule, I am confident we will adjust and FIAs will continue to be a mainstay of our industry.  However, in the short run we will likely experience some changes with the FIA product line. For financial professionals that may have their businesses highly concentrated on FIAs, I would propose a way to “smooth out” the volatility in your practice. I propose Life Insurance!  If you don’t like underwriting, there are attractive Simplified Issue Life Insurance products.  There are also Single Premium Whole Life products and Single Premium Indexed Universal Life products, which offer an attractive alternative to FIAs, when the client doesn't need the money during their lifetime. 

I can comfortably assure you that if you know FIAs, it's not a very far leap to also learn and write IUL.  I have taken this leap myself and at the time I had less educational resources and support than what you have when you partner with a marketing organization with a strong training platform. This is what we at Partners Advantage specializes in -  Education that Causes Sales. I encourage you to prepare for the future of our industry and continue to broaden your knowledge to truly serve your clients needs. 

For financial professional use only.  Not for use with the public.

* Guarantees are backed by the Financial Strength and claims-paying ability of issuing company.
**Insurance and annuity products: Are not deposits. Are not guaranteed by a bank or its affiliates.  May decrease in value. Are not insured by the FDIC or any other federal government agency.

1 Genworth The Future of Retirement Income Study 2014
2 LIMRA Study – August 2012

Annuities are designed to meet long-term needs for retirement income. They provide guarantees against the loss of premium and credited interest, and the reassurance of a death benefit for beneficiaries.
An income rider or benefit (sometimes called Guaranteed Lifetime Withdrawal benefits, or GLWB) is an additional feature available with some annuities and generally optional and come with additional costs. Income benefits are designed to provide income options above and beyond the standard annuitization or free withdrawal features in annuities.

Pursuant to IRS Circular 230, Partners Advantage Insurance Services and their representatives do not give tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Encourage your clients to consult their tax advisor or attorney.

The information contained in this article is not intended to serve as tax or legal advice and is not intended to provide financial or legal advice and does not address individual circumstances. 


Thursday, July 14, 2016

Succession Options for the One Business Owner

By: Bill Jackson, J.D., CLU, Sr. Advanced Markets Consultant
Partners Advantage Insurance Services, LLC

One of the most difficult scenarios in business planning is the solely owned business. Without another major owner to participate in a traditional buy out, many businesses end up being liquidated at little value with a negative impact on the employees. Assuming the business has some capable key employees or can attract them, all is not lost. The following are some of the possible options.

A long-term installment sale was a traditional approach to employees buying a business. After agreeing on a value the employee or employees agree to buy the business over a period of seven to ten years. The former owner holds a promissory note with installment payments over a seven to ten year period with a reasonable interest rate, signed by the buyers. The note is secured by the assets and stock of the business and the personal guarantee and collateral (usually residences) of the buyers. This is the least secure option.

This transaction structure draws upon the company’s management resources, outside equity or seller equity, and significant debt financing. This structure can be an ideal way to reward your key employees, position the company for growth, and minimize or eliminate ongoing financial risk. To effectively execute a leveraged management buyout, the business should possess the following characteristics.
  •  A management team that is capable of operating and growing the business without your involvement
  • Stable and predictable cash flow.
  • Good prospects for future prosperity and growth. The growth of the company should be described in detail in a management prepared business plan.
  • A solid tangible asset base, such as accounts receivable, inventory, machinery and equipment. Hard assets make it easier to finance the acquisition through the use of debt, but service companies without significant tangible assets can obtain debt financing, albeit at higher cost.
  • Have a fair market value of at least $5 million (probably $10 million in order to attract the interest of private capital 

An ESOP is a tax-qualified retirement plan that must invest primarily in the stock of the company. In operation, it works just like a profit sharing plan: the company’s contributions to the ESOP are tax-deductible to the company and tax-free to the ESOP and its participants essentially all of the company’s employees. In the context of selling at least part of the business to the key employees, the ESOP is used to accumulate cash as well as to borrow money from a financial institution. It uses this money to buy the business owner’s stock. Key employees will likely own a significant part of that stock because ESOP allocations to participants are based on compensation. Typically, however, key employees will want more than indirect ownership. They will want to control the company and purchase a controlling minority interest in the company. There can be significant tax advantages with this approach. It works best with stable long term employee groups.
This plan works best for most owners who want to:
  • Transfer their businesses to key employees.
  • Motivate and retain key employees; and
  • Receive full value for their businesses and tie key employees to the company. This is done  by making it economically rewarding for key employees  to stay with the company.
  • The following is an example of this type of plan.
  • Establish a plan in writing  for the eventual buyout of all ownership in the company;
  • Begin the buyout of a portion of the owners interest in the company by selling to two existing key employees 10% of the stock which has been converted to non-voting shares. The initial purchase price will be paid in cash. If either key employee needs to borrow funds to secure the necessary cash, the owner will be willing to guarantee the key employee’s promissory note to a bank.
  • The plan also includes a two-phase sale of the business. First will be the sale of an initial minority interest from a pool of 40 percent of the company’s total outstanding stock, which has been converted to non-voting shares, for current and future purchases by key employees. Initially, five percent will be owned by each buyer. For purposes of the initial buy-in and any future repurchases of that stock, the value of the stock is based on a valuation (with minority and other discounts) provided by a formal valuation. In many cases this discounted value could be as low as 50% of the true value of the shares. A lower initial value is necessary in order to make the purchase affordable to the employees as well as to provide them an incentive to remain with the company.
  • Even though the key employees will not receive voting stock, there will be significant benefits to them in purchasing non-voting stock.
  • Enjoy actual stock ownership in the company, and receive any appreciation in the stock.
  • Participate based on their stock ownership in any distributions made by the company.
  • Receive fair market value paid by a third party for their percentage of stock if the company were to be sold to a third party
  • Participate more directly in day-to-day operating decisions
  • Initially be appointed as directors to serve under the terms of the bylaws on a guaranteed basis
  • Participate in determining which if any additional key employees will be offered stock out of the 40 percent pool.
  • Ongoing purchase payments can be made by the key employees using bonuses and earnings from the company. Once they have acquired a significant minority interest. Loans may be available through private or banking sources to continue the buyout.  

Each key employee purchasing stock will enter into a stock purchase agreement. Of course the agreement with the company would provide for the repurchase of stock in the event of death, long-term disability, or termination of employment of each party to the agreement. An entity type of agreement is most suitable for this strategy. This plan needs a backstop and a way for the key employees to make the final completing purchase payments. The backstop could be provided by permanent life insurance on each party to the agreement, which would complete the sale if a party to the agreement dies prematurely. If the policies are permanent and smartly funded, tax free cash value via policy loans could be used to complete the sale at the end of the instalment period. The entity style of buy sell agreement provides an additional element of security to the original business owner, because the business owns the policies that are being used to fund the agreement  completing stock redemption.

How it works for a $2,000,000 business with two key person purchasers 

Source of Funds
Key Person A
Key Person B
Initial buy in purchasers own money
$84783  50% Minority Discount
$84783 50% Minority Discount
Buy in using distributions or bonuses
$84783 Discount Possible
$84783  Discount Possible
Distributions or Bonuses
$84783 Discount Possible
$84783 Discount Possible
Distributions or Bonuses
$84783 Discount Possible
$84783 Discount Possible
Loans Distributions or bonuses
Loans Distributions or Bonuses
Loans Distributions or Bonuses
Loans Distributions or Bonuses
Loans Distributions or Bonuses
Loans Distributions or Bonuses
Tax free loans from life insurance

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, I inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Partners Advantage LLC does not provide legal or tax advice you are urged to seek advice from your personal legal or tax advisors.

For financial professional use only.  Not for use with consumers.


Thursday, July 7, 2016

How Asset-Care® IV helps you give clients what they want

Asset-Care IV can help clients protect their retirement from the financial risks of a long-term care (LTC) event while providing the guarantees of whole life insurance. Asset-Care IV allows for continuous-pay options similar to traditional LTC insurance, which is perfect for clients who do not have or are unwilling to pay a large lump sum for LTC protection.
Unlike traditional LTC insurance, with Asset-Care IV: 
  • Premiums are guaranteed to never increase
  • Clients can pass a death benefit to their loved ones if LTC is never needed 
  • If clients change their mind, they can get back their policy cash value after the first year
Do you have potential clients who are looking to protect their retirement from LTC risks with a continuous-pay option that provides valuable guarantees? Show them Asset-Care today, with valuable LTC protection and guarantees.

Asset-Care IV campaign flyer »
How asset-based LTC works flyer »
Two simple questions to ask flyer »

Contact Partners Advantage for more information on OneAmerica:
888-251-5525, Ext. 700

For use with financial professionals only. Not for public distribution. 

Notes Products are issued and underwritten by The State Life Insurance Company® (State Life), Indianapolis, IN, a OneAmerica company that offers the Care Solutions product suite. Asset-Care form number series: L301 and R501 may not be available in all states and may vary by state. All guarantees are subject to the claims-paying ability of State Life. Asset-Care® is whole life insurance (in MD and PA, universal life) that allows access to 100 percent of the life policy death benefit for qualifying LTC expenses (paid monthly).
Not a deposit • Not FDIC or NCUSIF insured • Not guaranteed by the institution • Not insured by any federal government agency • May go down in value • 


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