It may be a little over-simplistic to state that every producer wants to work with clients who have a lot of money. I do know some terrific agents who excel in the middle market and who are happy right where they are. But there’s no doubt the high net worth market is very attractive to many producers. After all, if a prospect — and his family, business, or both — has a lot of money, it’s likely that he or she will have a lot of problems that insurance can solve as well as the wherewithal to pay for the products that will solve them.
But of course, as attractive as the market is, it’s even more challenging. With more money, there are more problems. With more problems and more at risk, there is more competition and, thus, many more pressures on the producer/client relationship.
To get a clear understanding of what it takes to succeed in this market, we sought feedback from three of the nation’s more experienced and successful producers in the high net worth market: R.J. Kelly, CLU, ChFC, MSFS; Christine Khemis, M.B.A., CLTC; and Walter F. Putnam, CLU, ChFC, CFP, AFP.
R. J. Kelly, CLU, ChFC, MSFS, is founder and president of the Wealth Legacy family of companies, headquartered in San Diego. Wealth Legacy Group Inc. specializes in helping closely held business and professional families with the growth, management, protection, distribution, and legacy issues of their wealth — their business succession and exit strategies — and creating intention and integration between their business and personal lives. Kelly is also the co-founder and chair of The Center for Wealth & Legacy, which presents the semi-annual “Leadership, Legacy & Inspiration Awards” in San Diego. He is a 32-year Million Dollar Round Table member, including three Top of the Table memberships.
Christine Khemis, M.B.A., CLTC, is one of the nation’s top long-term care specialists, licensed by the state of Washington to offer CE-accredited courses on the subject of long-term care. She is a nationally ranked life, health and disability agent, specializing in executive compensation and employee benefits. Khemis serves on the Annie Wright School board of trustees in Washington and regularly conducts group talks for attorneys, financial planners, organizations and businesses. Christine is also a seven-year member of the MDRT.
Walter F. Putnam, CLU, ChFC, CFP, AFP, is a wealth management advisor for Northwestern Mutual Wealth Management Company. He joined Northwestern Mutual in 1979 with a focus on wealth preservation, wealth management and business succession. Putnam helps clients clearly define their wealth while helping to reduce the impact of taxes through the use of wealth strategy tools, liquidity and custom insurance designs. He is a 31-year member of the MDRT with 22 Court of the Table and 13 Top of the Table qualifications.
Breaking into the high net-worth market
Charles K. Hirsch, CLU: Can you talk a little bit about how your practice has developed its focus on the high net worth market? Is this a market you’ve served consistently since entering the business, or did you make a professional transition at some point in time? And if you made a transition, when and how did you accomplish that?
R.J. Kelly, CLU, ChFC, MSFS: Some of the things that helped my practice develop in its focus on the high net worth market were being actively involved in organizations such as the Million Dollar Round Table; attending the MDRT Annual Meeting year after year and listening to or reading everything pertinent I could put my hands on; receiving my professional designations to help me gain further confidence; investing in advanced training programs; actively seeking out mentors to learn from and often doing joint work with those who were working in the high net worth markets; as well as coming to a place of personal commitment to create $500 million of philanthropy, directly or indirectly, through our personal nonprofits and my efforts in working with clients.
In the very early months and years, I spoke with anyone who would grant me an appointment. I called on school acquaintances, friends, others I would meet at church, in civic groups, at the gym — you name it! I began my financial practice right after graduation from my university, but in a city where I didn’t know many people. Working in the affluent and wealthy market definitely evolved over time. Although, fairly early in my career, I started to focus on the needs of business owners and professionals — specifically, physicians and attorneys.
Christine Khemis, M.B.A., CLTC: My focus has been the business market and executive compensation since the 1980s. The transition to the high net worth market was a natural one, as it was a client’s need that prompted my search for a solution. I received a referral from a wealth manager whose individual client was interested in long-term care insurance (LTCI). As discussions progressed, the question became how to prevent the family trust from being exhausted by one generation. The trust had been established by the elders to help pay for family members’ health care, as one member had a chronic disease. While [the trust was] sizable in assets, the potential for multimillion-dollar erosion due to liquidating assets to pay for care was substantial, and the trustees hoped to prolong the viability of the trust into the next generation and beyond. The trustees decided to have the trust pay the premiums for LTCI for each insurable family member, thereby adding millions in tax-free dollars to use for their care. This preserved the assets in the trust to pay for the uninsurable family member or members. LTCI made it possible to maintain the original intention and commitment of the founders, extending their protective reach for generations to come. I continue to do the satisfying work of assisting family trusts and offices in planning for the potentially astronomical long-term health care costs their families may face.
Walter Putnam, CLU, ChFC, CFP, AFP: My practice evolved after five years of working in the business marketplace. I started attending all of the meetings with my clients and their attorneys to understand how they develop their wills, trusts, business succession plans, estate plans and discretionary trustee powers. I learned to deal with the emotional side of planning versus the factual side. These transitions enabled me to process and integrate client’s personal, business and estate plans.
Needs of today’s HNW clients
Hirsch: At this economically challenging time in our nation’s history, what do you find to be the biggest issues facing your HNW clients, and what steps are you taking to address those issues?
Khemis: Our high net worth clients face a number of issues. They often misunderstand the true economic impact of extended care for their family, estate and legacy. Many are being told by their financial advisors they can self-fund for their long-term care liabilities when that option is most costly of all. Chronic care, the missing piece of our health care system, is the largest unfunded risk our society faces. Data shows extended care has a negative impact on family wealth. Mitigating those potentially devastating consequences with smart planning is becoming an integral part of retirement and estate planning.
Our HNW clients often express concern about their family members being unable to make decisions about the type and quality of care because of the possible effects on inheritance. In all economic categories, we should be concerned about protecting the most fragile among us from the potential for financial, emotional and physical abuse. A high-quality, comprehensive, tax-qualified LTC policy creates the oversight, advocacy and liquidity an individual or family will need to keep their relationships and finances in order. These plans, when put in place prior to being needed, provide ballast and peace of mind to a family as its members age.
Our HNW clients are mainly concerned about minimizing taxes. The tax impact of using assets to pay for LTC expenses is onerous and may be avoided. The seminal work of Ralph Leisle — “Financial Rationale for Long-Term Care Planning” — is essential reading for advisors interested in helping their clients plan for what comes next.
With regard to the HNW executive, LTCI tax benefits are most compelling. In his recent presentation given at the 12th annual ALTCI Conference, Frank Fimmano, CLU, CLTC, Senior Vice-President of Aon Hewitt's Elective Benefits Practice, noted that employer dollars are being spent to provide LTCI as an executive benefit, confirming a trend toward LTCI as an attractive benefit for the highly compensated executive.
Putnam: Today’s economic environment challenges clients in a number of areas:
• The volatility of the stock market
• The uncertainty of the federal estate tax code after Dec. 31, 2012
• The additional regulations added to the marketplace
However, we must look at what we can control: an unprecedented opportunity to transition wealth through Dec. 31, 2012, under the current tax law. We are in the unique position to help clients think through their options as a member of the planning team.
Kelly: Everyone’s estate plan needs a review, thanks to the introduction of the portability clause at the end of 2010. I find this leads to much less of the A-B trust needs we are used to seeing, although there is often still the need for a QTIP — Qualified Terminable Interest Property — trust and a discussion of the pros and cons. In addition, with the larger federal death tax credit — this year of $5,120,000 per person — and the likely relatively large credit beginning next year — even if reduced to the $3.5 million that President Obama has said he would accept — there is great opportunity to comment on the lack of creative planning in most client’s trusts.
Importance of being a team player
Hirsch: Many HNW clients rely on a team of advisors, consisting of accountants, attorneys and others. Does that fact pose a challenge to you in your own efforts? More specifically, how do you ensure that you continue to play a key role among this team of financial and legal professionals, and can you talk about some effective ways you ensure that the team addresses the issues that fall under your area of expertise?
Putnam: A team that does not work together in the client’s best interest usually cannot produce the desired and intended results of the client, their family and/or business. We serve our clients by focusing on what they want and why, the results of planning and making a difference one client at a time. We make sure we are clear on what they want to see done and facilitate that process. My favorite question to ask clients is, “Would you please share with me the tax strategies and techniques from last year’s annual proactive planning meeting with all of your advisors?”
Kelly: The reality is that CPAs rarely are interested in being “up front” in the estate planning process. They are looking at the tax issues and filing forms that might come out of the planning. I would welcome them on the team if they wished to be there, but they seldom do. The attorneys are seldom looking outside of the usual strategies. They don’t typically bring up using creditor-protected states for the creation of LLCs and the living trusts for high net worth clients. Even then, they draft documents as they have done historically and without looking at the new realities of the portability rules and creating a “discretionary trust” for advanced creditor protection and divorce-proofing of inheritances. As well, the attorneys are not asking questions like we do — questions like “How much is enough?”
Khemis: Make sure your clients know you are there to help them achieve their objectives. Take the time to be the expert in your field, pursue continuing education and develop credentials that will inspire confidence in those seeking your advice. There is nothing that builds confidence and resonates more with your clients and partners than knowing your subject, coupled with experience in your field. This holds true for the entire advisor team. You are there to help make the joint effort a success, which reflects on everyone. It is all about the client, so focus on your part of the work at hand. Communicate efficiently, follow established protocol and make yourself indispensable.
If the client asks, “What if I don’t need it?” they are asking the wrong question. The question should be, “What are the potential consequences for my family and the commitments if I need LTCI and don’t have it?”
Challenges facing HNW producers
Hirsch: What problems are you facing in your practice itself these days that weigh most heavily on your mind? Can you talk about the steps you’re taking to address those issues?
Kelly: Bandwidth. Because I can get paid from six different for-profit entities that each have their own focus and have my hands in three different nonprofits that I have created and help to run, there is never enough time in the day. I need more help running down leads that we generate or are referred to. I need more help generating our proprietary Wealth Legacy Assessments, which generate, in turn, more business for my various profit centers. This is limiting our revenue because there are only so many hours in the day and only so much of me.
Khemis: One of the biggest problems we are facing as advisors is ensuring our clients are getting the appropriate information to make high-quality planning decisions for themselves and their families. The only way to address this issue is to effectively communicate with clients on how to safeguard their futures by outlining their options and give them access to solutions to complete their financial planning needs.
Putnam: The biggest deterrent to planning is clarity. Helping clients gain clarity of what is possible and to know they can play offense and defense with the same dollars is a great place to start. We want to give every dollar they have a job description — whether for consumption, business growth, future perpetuation or preservation of capital. We have the task of helping clients realize they can use the strategies they have implemented or are implementing to leverage those dollars to an outcome that produces 2 to 10 times leverage. This is a big “A-ha” to a lot of clients — understanding the strategies they already have in place works well. However, they just happen to work better when life insurance is added to their plan. Why do all the work in planning and not get the leverage?
Advice for HNW newbies
Hirsch: If a young producer asked you whether he or she should start to focus on the high net worth market, what would you advise? Are there specific professional steps you feel are essential for the producer who is moving into this market, and likewise, any missteps he or she ought to be careful to avoid? In short, knowing what you know now, are there decisions along your professional path that you would make differently if given a do-over?
Khemis: The best advice I can give is to devote yourself to the work, increase your knowledge and expertise, and the opportunity will present itself. You’ve heard it said: the definition of luck is when opportunity and preparedness meet. Your part is the preparedness. Seek out strategic partners who need your expertise.
If I could be given a do-over, I would avoid being worried that I wasn’t an instant expert. Your knowledge and skills are developed through experience and education. It’s important to remember it all comes in time.
Putnam: I’d advise not to change what you are currently doing that made you successful. Take a half day per week to focus on face-to-face meetings with these individuals on a joint case. Take the time to learn about this tremendous marketplace from others. I’d also suggest these steps:
• Find an individual to do joint work with who can help you develop as an agent and utilize their expertise. Borrow the expertise while you learn.
• Call on larger net worth clients today. Do not wait.
• Acknowledge that bigger does not necessarily mean harder. Bigger sometimes just means bigger.
• Make a list of your top 50 relationships or people you know that can get you introduced to them.
• Take a half day per week for the next year — approximately 200 hours — to work on large estates.
Kelly: The best time to focus exclusively on the high net worth market would be about six months before intending to leave the business! You can’t stop doing what brought you to the dance. The first full year in business, I qualified for the MDRT. The next year, I didn’t. Why? Because I stopped doing what had worked so well for me in the first year. When I went back to what worked well for me and stopped just trying to land bigger deals and, instead, add them on top of getting the basics done, I qualified for MDRT and now have 32 years of membership, including three Top of the Table memberships.
To work in the HNW market, there are no shortcuts. You must acquire knowledge and hang out around those who have the highest ethics, along with the knowledge and credentials, while you are in the pursuit of acquiring your own experience and knowledge.
For the most part, I would not do over any part of my professional life. It has been a wild ride, as I have reinvented myself along the way numerous times to satisfy my thirst for growth and impatience with the status quo.
Hirsch: Any further thoughts?
Putnam: Keep in mind planning teams do not necessarily mean local teams. Planning teams can utilize specialists who are regional, national or both to solve some of the unique problems of HNW clients. Understand who those professionals are and who the attorneys and accountants go to for help. Research their favorite speakers, who is teaching the continuing education seminars they go to and who they know locally, regionally, and nationally as their go-to advisors for certain types of planning strategies. Talk with these advisors and ask them what their ideal client profile is and how you could work with them when you find a prospect who fits that criteria. This gives you the opportunity to add them as a member of your advisor center of influence.
Kelly: It is a lonely world. Wealthy people have few they can trust. And the greater the wealth, the fewer the people they can trust — the less they are understood by others. They feel like they walk around with targets on their chests for those who would selfishly exploit them — and their money, position, power, influence, etc. It is harder for them to have authentic relationships and be accepted for who they are apart from their money, last name, family position and so forth. As one high net worth client told me once, in expressing his frustration with being regularly approached by his alma mater — a school he is quite proud of — “I feel like I am just a ‘checkbook on legs’ to them.”
Khemis: There is urgency around planning now instead of waiting. Recent carrier exits from the LTC market only highlight the importance of LTC planning. Carriers are getting stricter in underwriting. Benefits, in many cases, are narrowing, and premiums are on the rise. If carriers are mitigating the risk, shouldn’t we all? Additionally, with the stress on budgets in every sector, my advice would be to take advantage of the tax advantages of LTCI planning while they are available.
Finally, as a footnote, I’d like to reference two sources related to points I made earlier. First, Ralph Leisle’s “Financial Rationale for Long-Term Care Planning” in the Journal of Financial Service Professionals, January 2008. Second, Senior Vice-President of Aon Hewitt's Elective Benefits Practice Frank J. Fimmano, CLU, CLTC’s presentation, "Group LTCi Distribution: W(hither) From Here?," given at the 12th annual Intercompany Long Term Care Insurance Conference in Las Vegas, March 2012.