The Life
Settlement Broker
An
Integral Player in the
Life Settlement Supply Chain
According
to the Viatical and Life Settlement Association of America
(VLSAA), the life settlement industry has more than doubled
during the past five years. As the life settlement marketplace
demonstrates exponential growth rates characterized by strong
investment demand and supply chain expansion, the role of the “established life settlement broker” takes on added value.
Many of
those involved in the life settlement supply chain - policyholders,
insurance agents, financial advisors, CPAs, attorneys, providers/funders
and investors – recognize that the life settlement “broker
model” is integral to sustaining industry growth and to protecting
the best interests of those at both ends of the supply chain
spectrum.
At Advanced
Settlements, Inc., we are proud of our track record for returning
some of the most competitive offers seen in the industry today.
We encourage our agents and financial producers to understand
the funding
process in order to serve the best interests of
their high net worth senior clients. We can work with you in
pursuing the most competitive offer due to our longevity in
the industry and our knowledge of the secondary marketplace.
The Life
Settlement Broker: A Value-Added Intermediary (VAI)
Borrowing
a term used in the technology industry known as “value-added
reseller” (VAR), the role of a life settlement broker might
be characterized as a “value-added intermediary” (VAI). In
the computer industry, a VAR is a company that takes an existing
product, adds its own “value” - such
as in the form of a specific application for the product -
and resells it as a new product or package. In addition to
reselling the product, VARs also offer strategic planning,
training, technical support and so forth.
In the simplest
of terms, the life settlement broker functions as a funding
intermediary between agents/clients seeking to sell a policy,
and a provider looking to purchase it. However, a more sophisticated
description of a life settlement broker that clearly demonstrates “value-added” is an organization characterized as follows:
- A
turnkey, value-added service provided to agents/financial
professionals who are seeking to sell their clients’ policies
on the secondary market, but who do not have the resources
or expertise to provide case underwriting; to perform due
diligence on potential providers/funders; or to effectively
broker the policies to multiple funding institutions in
pursuit of the highest offer.
- A value-added
supplier of policies to providers/funders/investors that
have undergone an intensive underwriting and screening process
involving policy analysis, life expectancy evaluations, the
gathering of all pertinent documentation such as medical
release authorization forms, attending physician statements,
physician letters of competency, obtaining of trust documents
and so on.
The
Bottom Line: Leverage
Agents
seeking to obtain the highest possible offer for their clients’ policies
will want to work with an established life settlement broker
rather than risk being presented with a lower than market offer
without recognizing it. Life settlement brokers are able to
leverage a number of variables during the negotiating process
and bring unique assets to the table including:
- Industry experience brokering many offers on the secondary market
- Institutional knowledge and professional working relations with multiple funders
- Resources and critical mass to conduct due diligence on new funders entering the marketplace
- Familiarity with each funder’s pricing models and unique parameters such as type of policy, life expectancy, size of policy, amount of premiums, states in which the funder is licensed to transact business, and similar compliance issues
- Negotiating skills and volume pricing opportunities
- Understanding of each individual funder’s
investment sources, portfolio profile, and security factors
In addition,
an established life settlement broker with longevity
in the industry will likely provide other services to
the agent/financial professional beyond those required in simply
brokering the policy to multiple funders in pursuit of
the policy’s fair market value on the secondary market. Such
services may include strategic planning, seminars to educate
financial professionals about the life settlement marketplace,
sales training, marketing support, compliance assistance and
errors and omissions coverage. Such “ancillary” services, for
a seasoned life settlement broker operating at the national
level, would generally require a staff of approximately 35
to 50 people. At Advanced Settlements, Inc., we are actively
engaged in R&D activities to understand the needs of producers
and financial professionals and developing tools, such as our
new e-Power
Toolkit™, to assist them in serving their senior
clients.
Although
marketplace barriers to entry are minimal, and new life settlement
brokerage companies are emerging with this rapidly expanding
industry, there remains only a few life settlement brokerage
companies that have been operating since inception of the industry
who also provide the turnkey and ancillary services described
in this article. It is for this reason, that as the industry
approaches the threshold of a maturing product life cycle,
the “established life settlement broker” will become even more
critical as a value-added intermediary (VAI), and an important
link in the chain.
Call us
if you have a case you would like to discuss.
If you
have a client that you believe may qualify for a life settlement,
call us at 1-800-561-4148. Or, feel free to use the Quick
Quote ™ service on our new Web site.
New!
Life Settlement
e-Power Toolkit ™
Become
empowered with our
New CD-ROM and Web site !
Our multimedia
Web-interactive toolkit on CD-ROM harnesses the power of digital
and Internet technology to bring resources and training to
financial and insurance professionals.
The toolkit,
which contains an interface to a newly developed Web site,
was engineered to support insurance and financial professionals
with instructive aides and resources that will enhance their
life settlement practice.
“Our e-Power
Toolkit™ - designed to empower financial
professionals - is the industry’s first training product
that features a Web-based resource center and two instructional
videos that operate from either the CD-ROM or from the Web
site,” said
Scott Kirby, Co-President of Advanced Settlements, Inc.
Kirby explained
that Advanced Settlements, Inc. began developing the toolkit
following the company’s on-line survey of insurance and financial professionals conducted in the first quarter of 2004. The majority of survey respondents indicated that sales training and seminar coaching were at the top of the list in terms of resources needed to enhance their life settlement practice.
This CD,
which plays on PC or MAC, contains a graphic interface with
five navigation tabs:
(1) The
Life Settlement Video - a great tool for helping senior
clients understand how Life Settlements can be an effective
wealth management solution.
(2)
Quick
Quote ™ - a Web-interactive tool that speeds
up the process and gets you a quick ball park quote to share
with your client.
(3) Resource
Center - a fully-stocked tool shed containing
items to download, such as: slide shows, sample letters, FAQ,
industry articles, newsletters, and sample flyers and brochures
that can be customized to assist you in branding your Life
Settlement practice.
(4) Seminar
Training Video - a video of Scott Kirby, Co-President
of Advanced Settlements, Inc., conducting a live, one-hour
C.E. presentation. Use it to hone your seminar and presentation
skills, or to learn more about Life Settlements.
(5)
Case Study Exchange - Share a case example or read other case
examples. A great way to trigger ideas on how Life Settlements
can provide the “ultimate solution” in achieving your clients’ financial
objectives.
“As leaders in the life settlement industry, we believe in cultivating and elevating
the skill sets of our strategic partners and producers,” Kirby added. “The release
of our e-Power Toolkit™ is one of the most effective ways to empower producers
who serve the financial objectives of high net worth senior clients.”
Understanding
Business
Uses for Life Settlements
Key
man policies in an era of
mergers and acquisitions
During
the past year, we have heard from a number of producers who
are seeking to build their Life Settlement practice by expanding
their referral networks. Specifically, many insurance professionals
and financial advisors are recognizing that CPAs and attorneys
are an excellent source for Life Settlement referral cases.
The most recurring question is: “How can I convince CPAs and
attorneys that a Life Settlement could be a viable
option for their clients under the right circumstances?”
To answer
that question, it is important to first determine whether the
CPA or attorney has a corporate practice, or one geared toward
individuals. For CPAs or attorneys who serve high net worth
seniors, the connection or application between their practice
and Life Settlements could be considered a direct one. However,
for CPAs or attorneys who have large corporate clients, the
application of Life Settlements in the normal course of business
may not be readily apparent – but
there are business uses for Life Settlements of which they may not be aware.
Offer to take the CPA or attorney to lunch in order to get a better understanding
of their practice. Then, be prepared to introduce them to the ways in which Life
Settlements could be applicable and how it would be in the best interest of their
clients to be aware of the option.
One of the
most common business applications for life settlements relates
to key-man policies being held by a company and insuring the
life of a retiring or departing older executive. As opposed
to the traditional option of simply surrendering a policy for
CSV, a life settlement can be used to obtain additional proceeds
for the company which can be used in a variety of ways (for
example, to eliminate company debt, to free up funds for capital
investment, or even to create a severance package for the departing
key-man). This outstanding new option is an excellent way of
creating "found money" from a resource which might otherwise
go untapped.
Key-man
insurance has been around since the 1960s and
has been used in a variety of ways, since that time. Venture
capitalists, for example, might require key-man insurance on
the intellectual capital behind a high-tech startup, where
one individual's creative or engineering skills are paramount
to the venture's success. Many large corporations insure the
bulk of their management staff in order to protect themselves
from the rough transitional phases associated with the loss
of a key employee.
Corporations
involved in mergers and acquisitions (M&A) can often benefit from
the secondary life insurance market by pursuing the highest possible value
for key-man policies on departing senior executives. As the economy continues
to pick up speed, the time is ripe for corporate expansion. In their quest
for scale economies, to seek an increase in market share in core lines of business,
or even to diversify into new product markets and regions, corporate M&A activity
is expected to increase. According to a recent report from Mergerstat, deal
flow and aggregate deal value for mergers and acquisitions soared to $530 billion
in 2004, up from $312 billion during the same period last year. CPAs who work
with financial advisors in merger and acquisition activities may find opportunities
to address key-man life insurance policies on departing executives during the
due-diligence phase of M&A activities.
When a company
that owns key-man insurance on older executives is sold or
goes into bankruptcy, CPAs should assess whether these policies
might qualify for a life settlement. The proceeds from liquidating
those policies on the secondary market can be leveraged as
a corporate asset during settlement negotiations or can be
used to pay off creditors during bankruptcy procedures.
Case Example
Advanced Settlements recently transacted a life settlement
that involved a buy-sell agreement for a family owned business.
The case involved two elderly sisters who were major company
shareholders. The company needed an infusion of cash to pay
down debt and increase shareholder dividends. The elderly
owners held a combined total of $3 million in life insurance
that was purchased to fund a buy-sell agreement.
The older
sister, age 87, carried a $1 million life insurance policy
with a cash surrender value of $7,297. The younger sister,
age 82, had a $2 million policy with a cash surrender value
of $141,262. Their life insurance agent recommended a life
settlement on each policy as the solution to addressing the
company's financial objectives. Advanced Settlements was brought
in to broker the policies on the secondary market in pursuit
of the highest possible settlement. The life settlement on
the older sister's $1 million policy was $394,262 (or $386,965
more than the cash surrender value), and the life settlement
on the younger sister's $2 million policy was $300,000
(or $158,738 beyond the cash surrender value.) At the end
of the day, the company garnered an additional $545,703 in "found
money" from liquidating the buy-sell agreement that could
be used to address the company's immediate financial
needs. (Note: Some or all of the proceeds of a life settlement
may be taxable under federal or state income tax laws. Advice
from a professional tax advisor is recommended. Actual results
will vary. The average purchase price obtained by viators
is approximately sixteen (16) percent of the face amount
of a qualified life insurance policy).
Life settlements
are gaining momentum in all areas of the financial services
profession. As reported in the June 2004 issue of
California Broker Magazine in an article entitled "Life
Settlements: A Cottage Industry No More," the
life settlement industry has entered most areas of the financial services marketplace
and is expected to continue to grow rapidly. Favorable regulatory action, investment
banking activities, and an Ivy League study extolling the benefits of the secondary
market for life insurance policies were all cited as reasons that this emerging
marketplace is now being embraced by most wealth management professionals.
As "centers of influence" for qualified seniors who may be candidates for
life settlements, CPAs and attorneys play an important and strategic role
in the decision-making process. As such, they should take time to become
familiar with Life Settlements and how they can be used as an effective wealth
management tool for their individual senior clients and their business clients
as well.
Note: Some or all of the proceeds of a life settlement may be taxable under
federal or state income tax laws. Advice from a professional tax advisor
is recommended.
Building
Effective Referral Networks
Using the AEC Approach
to network With
CPAs and attorneys
For those with exposure to the architecture, engineering and
construction industry, the acronym “AEC” may be familiar. Financial and insurance professionals
seeking to build a referral-based business may find the AEC acronym useful
in their approach to designing and building win-win relationships with “centers
of influence” such as attorneys, CPAs and other interdisciplinary professionals.
Architecture:
Become the architect of your own good fortune
Market
segmentation is the architectural platform for your referral-based
business, and one of the most powerful strategies you can employ
as you develop your marketing plan. Market segmentation involves
a narrowing or filtering process that helps you target and
focus your time, resources, and key messages.
As you
build your marketing plan, begin by (1) defining the goal;
(2) listing the objectives that will assist you in reaching
the goal; (3) crafting a strategy that will achieve the objectives;
and (4) utilizing marketing and communication tactics that
convey compelling messages tailored to each audience. Avoid
the Alice in Wonderland approach, e.g. if you don’t know where you
want to go, you don’t much care which path you take to get there.
Engineering:
Engineer your professional reputation
Elevate
your exposure to centers of influence by volunteering to serve
on boards of non-profits or community organizations. Reputation
management is critical to professional success, and the goal
is to establish yourself as an individual of competence and
integrity – someone that other professionals
would be comfortable entrusting their friends and clients. Start by looking
for opportunities to send your own clients to CPAs and attorneys that you
have identified as viable prospects of your target market.
Financial
planners might consider the “loss leader” strategy -- offering
a service at a considerable discount and loss of profit in order to attract
future business. For example, you might offer to provide an attorney with
a free consultation or portfolio analysis and recommendations for investments
that would not benefit you immediately, but could pay off with dividends
in the future.
Construction:
Construct win-win referral relationships
Many have
heard the expression, “if you want a friend, be a friend.” Likewise,
if you want a referral, make a referral. Establishing a referral network
is all about relationship building where both parties benefit – a strategy
that often takes many years to develop before interdisciplinary professionals
begin to sense a growing trust factor.
Consider
investing in “WIFM” -- this is not a radio station, but a
strategy
that communicates a specific value proposition by answering
the
question: “what’s in it for me?” But first, you must reach
your prospects through a variety of communication tactics
in order to persuade them that establishing a referral relationship
with you can bring value to them. As you scour your local
business news, send handwritten notes to those mentioned
offering congratulations on their recent achievement and
communicating your interest in discussing a value proposition
that would enhance their client base. Once you have opened
the door to new contacts in the targeted professions, offer
to give a presentation at their monthly meetings, or submit
an article for their chapter’s
monthly
newsletter so you can educate their network on the topic
of Life Settlements.
Again,
you are the architect of your own professional destiny. Engineer
a referral-based business plan, and begin constructing it
today.
Webinars:
An effective training & sales tool
A service we provide to our
national and key accounts
Earlier
this year, we conducted an on-line survey, and over 80% of
respondents indicated they needed sales training, seminar coaching,
and marketing tools to sell Life Settlements. Click
here to
view a summary of the survey.
As a result
of the feedback from the survey, we began developing
a number of programs and tools to assist producers in building
their life settlement practice. In November 2004, we launched
our Life
Settlement e-Power Toolkit™ , rebuilt our Web
site to include an extensive
Resource
Center,
and began offering
Web conferencing
to our large, key
accounts.
We believe
Web conferencing will be an effective tool to keep our strategic
partners and producers on the leading edge of Life Settlement's
best practices. According to Sales & Marketing
Magazine, it is every
sales manager’s dream to cast a wide net and capture more
customers for less money. Web or electronic conferencing
technology has been growing globally by nearly 40 percent
for the past five years and evolved into a $2 billion market.
One Web conferencing vendor from Mountain View, California,
saw a 40 percent increase in demand for Webinars immediately
following September 11, but since then they have taken on
new meaning as businesses seek to reach broader audiences
while saving on travel costs.
Studies
show that Web conferencing is cost effective because it:
- Saves
individual and organization time in accomplishing an objective.
- Enhances
productivity due to less time spent away from the office.
- Decreases
travel costs for sales executives.
- Lowers
training costs and provides access to training more personnel.
When
planning and delivering Web conferences, marketing
experts suggest the following:
- Keep
the number of words on each slide to a minimum - the rule
cited by most consultants is six words to a line, six bullets
to a slide.
- Include
case studies or case histories to make your point.
- Aggressively promote your event through pre-event e-mail advertising.
If your
organization is interested in participating in one of our
WebEx conferences,
please contact your Advanced Settlements, Inc. account executive, or if you
do not know the name of the account executive handling your
organization, call Marlene Frith, Marketing Director, at
1-800-561-4148.
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