By Stephen Terrell
Even for financial advisors who don’t earn a commission on a life settlement, it is undeniable that the transactions put money in motion. Agents and advisors meet fiduciary responsibility requirements and build client loyalty. If a client performs a life settlement, the financial professional will have an opportunity to invest the proceeds. Throw in the ability to offer annual policy evaluations as another reason to get in front of clients regularly, and life settlements become even more attractive. Despite the benefits, life settlements still get considerable pushback from broker/dealers.
For the life settlement industry, the broker/dealer excuses are nothing new. Since the industry began, advisors have told us that their employer (insurance company) or broker/dealer won’t allow them to recommend life settlements to their clients. And then reasons and excuses start to fly: Investing in them is a bad deal, we can’t accept a commission or, simply, we steer clear.
Let’s take the objections one by one.
We don’t want your clients’ money.
The life settlement industry has changed dramatically since the early days. Yes, there was a time when companies sought investment capital from individuals, but those days are gone. It is likely that 99 percent of capital that funds the industry today comes from institutional sources such as pension funds, endowments, large financial institutions, insurance companies, family offices, hedge funds and groups of sophisticated, “accredited” investors. For advisors or broker/dealers who still believe that the industry wants your clients’ investment dollars, you are missing the mark. We want your clients to know about the life settlement option and then we ask for a fair hearing.
Help your client but skip the commission.
A life settlement should be viewed as a means to an end, not just a way to earn a commission.
We constantly hear that financial advisors of all shapes and sizes are looking for “money in motion.” Every financial services professional wants the client who is a) selling a business, b) paring back real estate holdings, or c) taking money from the stock market. Everyone dreams of the client with the liquidity event that boosts assets under management. A life settlement is just such an event – in many instances generating hundreds of thousands of dollars in cash that needs to be properly invested for a client’s retirement. A captive agent could forgo a commission but still end up with a sizable increase in assets under management.
Financial professionals might be shirking their responsibilities.
A recent California lawsuit suggests that agents and advisors who fail to educate their clients about life settlements might be on the hook for damages. A closely watched class-action lawsuit filed in California federal court alleges that Lincoln National Life failed to disclose the life settlement option to clients. A California couple said that they lost money because the insurer didn’t tell them they may have been able to sell their policy (rather than reduce their coverage) had their agent told them about the life settlement market. The lesson: Ignore life settlements at your own professional peril.
How to do it? First, try an evaluation.
Policy evaluations offer the easiest way to quickly assess a policy for a possible life settlement. While the complete process for a life settlement generally takes several weeks and requires in-depth input from the policy seller, an evaluation can be generated in a few days. Some life settlement companies can now provide a non-binding illustration and a summary in a few days. This is an effective tool that financial advisors have never had in the past. For life insurance agents and financial advisors, annual evaluations offer a new way to prequalify clients before committing to a life settlement and clearly illustrate the value prospective clients have hidden in their life insurance policy.
Broker/dealers and insurance companies that discourage life settlements put themselves at risk but also deny their agents and advisors an opportunity to increase assets under management by putting money in motion.
Stephen E. Terrell is senior vice president of market development and branding of The Lifeline Program, a life settlement provider based in Atlanta, Ga. He may be contacted at [email protected].