Life insurance biz spawns 'superadvisers'

Aug 14, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - The life insurance discipline is spawning a new breed of "superadviser" for the rich, according to the head of an adviser consulting firm.

"People look at me like I'm from Mars when I tell them that the best advisers are those with insurance backgrounds," said Edmond Walters, chief executive of eMoney Advisor Inc. in Conshohocken, Pa.

Many in the financial advice field think that the investment side of the business produces the best advisers, but he said that he hasn't found that to be the case.

"The day of the life insurance guy selling policies to customers at the kitchen table are over," Mr. Walters said. "There are about 50 to 100 superstars out there - a cult that few people know about."

Intensive training

One "cult" member is Neal Slafsky, president of Capital Planning Group in Fort Lauderdale, Fla., which manages $225 million in assets. His clients typically have at least $10 million in net worth.

"The fact-finding and interviewing background that comes from insurance training is why the industry is producing the top-flight advisers," Mr. Slafsky said. "You can't make a life insurance recommendation without knowing everything about the clients and what they're trying to accomplish in their lives."

Intensive training in the tax code, trusts, foundations and esoteric estate-planning methods included in most insurance curricula comes in handy when developing financial plans for the wealthy, Mr. Slafsky said.

Among his strategies are private-placement life insurance (which invests in hedge funds) combined with limited partnerships, "frozen" family partnerships used to reduce estate taxes, selling partnership interests to the partners' children in exchange for promissory notes and using annuities to protect assets of physicians who don't have malpractice insurance.

The rich can be very lonely, and advisers with life insurance backgrounds are often best at discerning that, said Michael Piotrowicz, president of Legacy Advisors LLC, a Plymouth Meeting, Pa., firm with $100 million under management. He advises clients with at least $25 million in net worth, mainly business owners and corporate executives.

"Life insurance trains you to ask the right questions," Mr. Piotrowicz said.

Some advisers try to sell strategies - such as tax savings or certain investment strategies - before they fully understand the client, he added.

"First, you have to have empathy for the emotional and family issues, such as divorce, business succession and philanthropy objectives," Mr. Piotrowicz said.

He uses life insurance to fund buyouts of family business interests and in connection with charitable trusts that permit tax savings on inheritances and fulfillment of philanthropic impulses.

"Life insurance is very conducive to planning and discussion," said David Carroll, chief executive of Financial Architects Partners in Boston.

"It has both financial and emotional components," he said. "Other assets - such as bonds - don't generate the raw emotion that life insurance does."

That emotional aspect is why life insurance advisers often excel in the high-net-worth market, according to Mr. Carroll. His clients have an average net worth of $80 million, and some carry life insurance limits of $200 million spread among as many as 10 insurers.

"Cutting-edge advisers are looking at life insurance as an asset class," Mr. Carroll said. "A 6% return on a tax-free asset class such as life insurance is equivalent to an 8% to 9% return on bonds that are taxable."

Less risky

Actually, life insurance is less risky than bonds if the program is spread among several insurers, Mr. Carroll added. Many of those companies have been around for more than 150 years and figure to be around much longer, he noted.

"As a promise to pay, the insurance is like having a triple-A-rated-bond portfolio," Mr. Carroll said. "And life insurance is not correlated to any of the other asset classes."

Business continuity and cash flow are central to these plans, and insurance is the byproduct, Mr. Walters said.

"These advisers become trusted family counselors," he said.


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