insurance

thoughts on the CLU: underwriting the financial risks attached to a client’s “life"

Advocis — Fri, 04 Sep 2009 13:20:56 GMT

I had the occasion to revisit a December ’08 posting of Greg Pollock’s in the message board and came across a question about the CLU designation’s importance, relevance and name brand. A challenge was presented about the name and its apparent reference to insurance to the exclusion of other contemporary values and expertise that a professional financial services designation should stand for. The perception is that it’s one-dimensional, outdated, antiquated and irrelevant.

Some would argue that the term Chartered Life Underwriter is misleading. The term isn’t misleading. It is in fact quite accurate. The challenge is that the words within it are also ambiguous. And those whose agenda is to downplay the CLU for their own interests (i.e. competing designations) are intentionally exploiting this ambiguity to the uninformed. The uninformed, because they don’t know any better, are buying into it. We don’t need to change the name; we just need to explain the words beyond their current understanding.

Here’s my slant on it for consideration. What do the letters in the CLU designation stand for?

Chartered Life Underwriter is NOT the same as Chartered “Life Insurance” Underwriter. There is a perception that because Life Underwriter is part of the term, it automatically refers to the field level underwriting process behind life insurance. This perception is pervasive in the market and understandably so. Because of this ambiguity, inappropriate assumptions are made to the meaning of the words. Clear up the inappropriate assumptions by changing the slant and you change its perception. Change its perception and you change its value. There’s a reason why it’s called “Life” Underwriter and not “Life Insurance” Underwriter.

A CLU professional underwrites the financial risks attached to a person’s “life”, not the financial risks and obligations attached to that person’s life insurance. This includes the risks attached to an individual’s savings habits, investment strategies, pension programs, retirement income needs, human behaviour influenced through the emotions of greed and fear, investment risk profile, approaches to income protection, long-term care planning, challenges that come with a critical illness, estate wants & needs, lifestyle security, business dependencies, family obligations, wealth transfer, taxpayer responsibility, hopes & dreams.

A CLU professional’s value does not revolve around the sophisticated understanding of insurance products. A well constructed insurance program obviously plays an important role in a person’s security but it is not the whole meal deal. The professional CLU has the competency to handle the whole meal deal – which is a consumer’s entire financial “life” – hence the term Chartered Life Underwriter.

—Rick Johnson, CFP, CLU, CH.F.C., CSA, CFSB

How do you want the future of the CLU to look?

Advocis — Fri, 23 Jan 2009 20:49:09 GMT

A Mack truck is closing in on you quickly and you can now count the number of bugs on the grill.

Here’s the question you have a split-second to ask yourself: Is it too soon to get out of the way, or should I stand fast?

Now let’s freeze that Mack truck for a moment.

Stephen Covey, author of The Seven Habits of Highly Effective People, offers the following insight: “Don’t engage the research if you are not prepared to go where it leads.”

The CLU Institute has a Mack truck closing in on the CLU designation. The marketing research we’ve conducted within Advocis’ demographic data tells us that—as of June 2008—there were 761 members who are eligible to register for CLU program courses.

Now some will argue “That is not possible?” (They may be some of the same folks who may argue that the earth is flat).

As we all know, Advocis membership is a necessary condition for obtaining and maintaining the CLU designation.

When Advocis membership was a condition of employment in the agency system, there was no membership problem. But Advocis has not had a similar source of membership growth for the last decade. Within Advocis the number of CLU members and CLU designees holding the CLU has remained strong, constant and consistent.

The average age of the CLU designate is 61. This means no new market opportunities have emerged, which leaves the current market niche disabled, retired, successioned or dying.

What does this mean? Well, there is a possibility of 10 or so years of life left in the CLU brand. But there also exists the possibility that the brand as we know could eventually be vapourized.

What if the Institute could market the CLU designation to non-members of Advocis?

Doing so would require changing the pricing, licensing and membership rules—to name just a few of the speed bumps.

Right now in this country there are some 14,500 CFP designates who are not members of Advocis. This represents a lucrative niche market that would immediately be eligible for the CLU Designation.

That’s why, throughout 2009, the CLU Institute will conduct research which will include analysis, price modeling, legal requirements and further investigate the members/non-member issue.

This is your blog. The CLU Institute would love to hear your thoughts, pros and cons.

Ask yourself this: How do you want the future of the CLU to unfold? What should it stand for?

That Mack truck is bearing down on us.

I welcome your feedback.

Richard McKenster, CFP, CLU, CH.F.C., RHU

The multi-generational advisor

Advocis — Fri, 27 Jun 2008 17:29:11 GMT

Legacy planning helps transfer values and wealth

Our last post raised the topic of advisor specialization. Following up on that topic, a recent piece in Investment Executive caught our eye, when Neil Acharya reported the comments of Michael Babikian, Vice-President of Transamerica Insurance and Investments Group, at this month’s Million Dollar Round Table annual meeting in Toronto.

Babikian’s subject was on ways financial planners can turn themselves into multi-generational advisors by successfully transferring the wealth of their high net worth clients from one generation to another. While most advisors are quite familiar with the methods employed by traditional estate planning, legacy planning is also a useful tool which more advisors should be comfortable using.

Of course, Babikian noted that a significant difference exists between legacy planning and good old-fashioned estate planning: “Estate planning is transferring wealth in the most tax efficient manner, legacy planning incorporates family values… as planners we make sure wealth transfers efficiently and effectively from generation one to two, but we don’t prepare the family for the money,” according to Babikian. As a result, legacy planning is driven by something more a concern about tax avoidance: “Tax is not the major cause of money loss. A planner for a high-net worth client is in risk mitigation.”

All of which suggests to us that, from the point of view of this blog, legacy planning nicely illustrates the point Rick McKenster made several posts ago about the true value of the CLU designation residing in what it enables the advisor to do for the client, especially on a level that goes deeper than just assets and planning, and that provides answers to the plethora of “what if” questions that major life events always bring with them.

As an example, consider the something that all seasoned advisors are familiar with—the delicate issue of estate planning, which is all too often shot through with sibling rivalries and resentments. Most clients are reluctant to raise the matter at all, at least until it is almost too late. But legacy planning gives advisors a way to transform estate planning into a process that is as much about the family’s own values and history—and how to preserve those intangibles—as it is about preserving the family’s tangible wealth. As Babikian asked, “how many people out there know their great-grandparents names? Not many. How many people out there would, if they got a cheque every month from them?”

Babikian further observed that many high net worth clients often express a two-fold anxiety about their inheritors: “Clients fear their children are not going to live as well as they do, but they also fear that they will spoil them.”

One remedy for this problem that advisors can offer to their clients is the “incentive trust,” which can function as a means to keep alive the client’s own sense of family values and vision, to extend their own personal philosophy of life well beyond their own life. Babikian’s example was a client who placed great value on education. The legacy plan ensured that any benefactors who pursued an academic career would have their salaries matched dollar for dollar. One can be sure the children of those academics will grow up infused with the grandparent’s veneration of higher learning.

On a more prosaic level, the incentive trust can provide a useful means to breaking the cycle of one of estate planning’s most dire problems, that of assets disappearing before they can be transferred from “generation one” to “generation three.” Babikian offered the eye-opening U.S. statistic that only 6% of wealth is transferred from grandparents to their grandchildren. The rest? Gone in a generation.

What are your thoughts about legacy planning? Are there any readers out there who have been doing it?

To read Neil Acharya’s article in its entirety, please click here.

Becoming the advisor of choice

Advocis — Wed, 25 Jun 2008 19:44:59 GMT

A narrow niche can be the best path to success

A recent National Post column by Jonathan Chevreau profiles the path to success taken by one CFP holder, BMO Nesbitt Burns managing director and senior vice-president Michael Dorfman, who opened the Top Advisor Summit in Toronto earlier this month. According to the article, the secret of Dorfman’s rise to riches is his ability to find the niche opportunity no one else has yet discovered, and then mine it so “the strategy [becomes] a self-fulfilling prophecy.”

Of interest to CLUs is the basic premise of the article: while the vast majority of financial advisors continue to operate as generalists, by choosing a niche compatible with your personality and interests you can position yourself to become the proverbial—and sought-after—“advisor of choice.”

To harness the power of niche positioning, Dorfman suggests choosing a group whose values you share and that is "relatively under-served" …. which can mean "looking beyond the obvious."

According to Dorfman, a good starting point is to review your existing book of business, determine who your favourite clients are, and from their commonalities come up with your niche category, one that reflects your own personality, values and interests. Then "no matter what the niche, network like mad.... niche marketing works.”

Chevreau’s profile offers this final bit of advice, which should be of interest to CLUs past and future: “you need to take a commitment to the profession seriously and work industriously to acquire multiple professional designations.”

One wonders how many new advisors are currently exploring or at least contemplating the possibilities of niche marketing, as well as how many plan to forge ahead as generalists.

Also of interest is the possibility for transition from niche to mainstream, when the demand driving the niche market grows beyond its confines to become a more mainstream demand. Typically the demand for this transition product or service continues to expand until its owners or dealers recognize it as worthy of marketing to a broader population.

In this regard, the demographic projections of Canada’s aging population suggest that the area of living benefits—and the concomitant Registered Health Underwriter designation offered by Advocis—will soon become a potentially lucrative niche, and one with the definite promise to eventually become a bigger marketing opportunity with a wider appeal to the fast-aging population at large.

Now I’d like to find out what’s worked for the blog’s readers in marketing their advisor services.

Has anyone positioned their practice as a niche specialist—for example, specializing in the senior marketplace by dealing with annuities and health care insurance?

All successful niche marketing secrets and experiences—successful or otherwise—are most welcome.

To read Jonathan Chevreau’s column on Michael Dorfman in its entirety, please click here.

On CLUs, CFPs, designations, and who does what

Advocis — Tue, 27 May 2008 17:11:32 GMT

Who governs what and where CLUs stand regarding the CFP designation

As most of you know, the Certified Financial Planner or CFP® course deals with the provision of financial advice and the CFP designation is governed by the Financial Planners Standards Council (FPSC).

Conversely, the Chartered Life Underwriter or CLU™ course deals with wealth transfer and estate planning, and the CLU designation itself is governed by the CLU Institute.

However, the CFP education program is integrated with the CLU program and students who complete the CFP component can challenge the FPSC’s CFP exam.

As noted, the CFP mark is owned by the FPSC, who have very stringent requirements for obtaining the CFP designation license. The fundamental requirement is to take and pass the CFP exam. Advocis does not have the permission or authority to waive that requirement.

This means that one of the commentators on our inaugural post, a CLU designate named Bob White, can in his capacity as a CLU challenge the CFP exam without taking a qualifying education program. Indeed, Mr. White may want to consider just that opportunity.

CLU™ is a trademark of The Financial Advisors Association of Canada. CFP™ is a certification mark owned outside the U.S. by Financial Planning Standards Board Ltd. (FPSB). Financial Planners Standards Council is the marks licensing authority for the CFP marks in Canada, through agreement with FPSB.

The CLU is not a life insurance designation

Advocis — Fri, 29 Feb 2008 14:58:44 GMT

This statement has created a great deal of controversy amongt existing CLU designates. And why is this controversial? It is controversial because we are trying to hold onto what we believe we know.

The CLU is an acronym for The Chartered Life Underwriter and as the name suggests the designation should be about life insurance. But this is where it becomes misleading and, as the saying goes, “What’s in a name? A rose by any other name would smell as sweet.”

However, the CLU, without changing its “name,” underwent various curriculum changes throughout its 80-year history. The most recent curriculum change happened in 2003 where the first four courses of the CFP program; Financial Planning Fundamentals, Contemporary Practices in Financial Planning, Comprehensive Practices in Risk & Retirement Planning and Wealth Management & Estate Planning, replaced the old economics, tax … and built the foundation for the next three courses; Advanced Taxation, Law, and Applied Estate Planning to obtain the CLU designation. There is nothing in these courses talking about insurance products other than how they apply to solving tax and legal issues around a client’s wealth and estate planning issues.

The knowledge a practitioner gains in taking the CLU program is transferable to other disciplines. Any professional dealing in advice giving around the areas of taxation of personal or small business assets, estate distribution of personal or small business assets gains important insight into effectively providing strategies on lowering personal and small business taxation and maximizing wealth transfer outside wills and estates. Yes, life insurance is one tool that can be used to solve some client’s personal and business needs; however it is only one of many tools and strategies available in solving clients’ estate and business needs.

Ron Foran, President and Founder of Foran Financial Institute and educator by profession recently completed his CLU designation. We asked Ron why he felt he needed the CLU designation. He responded by saying:

"I have taught financial courses for over 20 years and have been exposed to numerous individuals with impressive business and professional credentials. I am especially impressed with financial professionals who deal with high net worth individuals and have an appreciation of advanced issues in the areas of taxation, legal matters, insurance needs, investment management and overall estate creation and succession issues. While I have a good knowledge of investments, I wanted to broaden my knowledge base in respect to estate planning issues.”

Yes, we have caused some people discomfort in suggesting that the CLU is not a life insurance designation, however the curriculum is proof that the breadth and depth of knowledge one gains from obtaining the designation has elevated the designation into other practice disciplines and broaden the scope of the designation to a wider audience.

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