Insurance vehicles can be powerful way for advisers to reach younger investors

For advisers who want to expand their firms by reaching out to the next generation of investors – those in their 20s, 30s or 40s – long-term and cross-generational financial vehicles such as fee-only life insurance and no-load annuities offered to clients of RIAs through Ameritas Advisor Services should be considered as a central part of the effort.

For advisers who want to expand their firms by reaching out to the next generation of investors – those in their 20s, 30s or 40s – long-term and cross-generational financial vehicles such as fee-only life insurance and no-load annuities offered to clients of RIAs through Ameritas Advisor Services should be considered as a central part of the effort.

Life insurance often is what first brings younger people to talk to an adviser, after they have married or had a child. It remains a need throughout a client’s life and, as a means of passing along wealth, it can present an opportunity for intergenerational discussions that can connect advisers with the children and grandchildren of their existing clients.

Joseph W. Maczuga, LIC, CFIS, executive director of the Fee Advisors Network in Troy, Mich., says that ultra-high-net-worth clients and their advisers often use life insurance and other wealth-transfer vehicles as a way not just to protect their heirs, but also to include them in the financial discussion.

For example, he worked with advisers whose clients had net worth of $28 million and who had two daughters in their 20s. The advisers realized that when the daughters eventually inherited, they would have the same kinds of asset protection and estate tax concerns their parents had. For each daughter, they set up a $1 million no-load variable universal life insurance policy and added a $7 million other-insured rider on the other sister.

“We were able to protect insurability to address future risk while gaining the current advantages of the asset accumulation in the base policy,” Mr. Maczuga says.

Then the parents brought in the girls and, with the adviser, explained the insurance approach as part of the larger estate plan. “Then we had a story to tell, we had a picture to look at,” he says.

Mr. Maczuga believes that all advisers, not just those who serve ultra-high-net-worth clients, should think about using insurance products both as a way of providing protection and wealth accumulation for the next generation and of opening a discussion with younger people who might become clients themselves.

“A lot of times an adviser will suggest getting life insurance on younger children, 10 or below, to protect their insurability,” he says. “A permanent, cash value life policy is also a way of getting them coverage while at the same time building up some funds for a college education, etc.” Later, at the point where the child is informed about the policy, the adviser can be part of that discussion.

It is important for advisers to realize and respect that the financial situation of younger investors is likely to be much different from that of older clients who are nearing or in retirement. Many have not thought much about financial planning before.

“People in their 20s and 30s tend to spring into action when they experience major life events that come with new responsibilities, such as marriage, buying a home or starting a family,” says C. Angus Schaal, CFP, senior managing director of Tandem Wealth Advisors in Phoenix, Ariz..

“Most do not know about the cost benefit of signing up for life insurance at a younger age, or the need to insure quality of life against death or disability,” he says, adding that advisers can help them understand these issues.

Mr. Maczuga notes that it is necessary to tailor the message to the specific realities of a younger client. For example, if an adviser wants to recommend an Ameritas no-load variable universal life policy to a young client without dependents, the adviser can emphasize the cash-accumulation and tax-deferred benefits of the policy. Then, if the client later has dependents, he or she will appreciate the fact that the policy provides protection for those dependents if something happens to the client.

Mr. Schaal and Daniel McConlogue, AIF, PPC, founder of Eleven O’Clock Associates LLC in Fort Myers, Fla., both say that they often suggest term insurance to young clients who recently married or had a child but have very little money. They note that, for clients like these, it is the most cost-efficient way to protect dependents.

When the client gets a little older and is more financially secure, they can suggest other options. For example, Mr. McConlogue says that with clients in their 40s, he often recommends a combination of term life insurance that lasts until the youngest child is out of the house and an Ameritas no-load variable universal life policy that provides wealth-accumulation potential and tax benefits that last throughout their lives.

“I have folks who have done that, who have made premium payments for years, the investment returns have been consistent with what you would expect over that time frame, and there are 30 years’ worth of premium payments in the investment accounts,” he says. “They can take the foot off the gas pedal if they want to. It’s been very, very successful for our clients.”

These advisers agree that younger investors are more technologically advanced than their parents and grandparents, and that they are more likely to want to communicate digitally and be able to conduct financial business online.

But they say that younger clients – just as older ones – want to be able to talk to someone who understands their needs and concerns.

“We don’t speak to Gen Y or Gen X generations differently than we do to others. The time-worn tradition of establishing trust and talking with our clients remains the key to creating solutions in their best interest. Whether someone is 26 or 68, it’s still the same,” says Mr. Schaal.

“That doesn’t mean we don’t have to spot the emerging needs and wants of any generation and understand how economic or other factors are influencing their circumstances,” he adds. “But I honestly don’t think people are going to get their finances in order by following a financial planner on Twitter.”

Mr. McConlough says that his message to his younger clients is much the same as the message he has delivered to clients throughout his career: They should start as early as possible to prepare for their financial future, and then they should try to stick to their plan while understanding that there are likely to be unexpected events along the way. And, he says, Ameritas life insurance and annuity products can be an important tool in helping deal with these unexpected events.

“We say, if you left Nova Scotia in a sailboat and headed for Miami, the wind is going to blow you a little this way and a little that way,” he says. “But as long as your general direction is south, you’re OK.”

To learn more, contact Ameritas Advisor Services at 800-255-9678 option 3 or visit ameritasdirect.com.

Policies issued by Ameritas Life Insurance Corp. Variable products are underwritten by Ameritas affiliate Ameritas Investment Corp. (AIC) and have investment risk, including the possible loss of principal. Before investing, carefully consider the investment objectives, risks, charges and expenses plus other important information about the policy issuer and underlying investment options. This information can be found in the policy and investment option prospectuses, which are available on this web site. Please read the prospectuses carefully before investing or sending money. May not be available in all states.

The Fee Advisors Network, Eleven O’Clock Associates LLC and Tandem Wealth Advisors are not affiliates of Ameritas Life or AIC.

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