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The Enrollment Challenge

Retirement readiness decisions are a daunting task for most employees. According to a 2012 Participant Engagement Study conducted by Lincoln Financial:

  • 41 percent of employees are only somewhat engaged or fully disengaged from any retirement plan
  •  7 percent of employees only are fully engaged and interact with their retirement plan on a regular basis.

Plan communication and education can provide people with the financial knowledge needed to better understand their employee benefits and make better enrollment decisions to achieve better outcomes.

Communication Is Key

The U.S. Employee Benefits Security Administration’s ERISA Advisory Council published a key report in 2010 on how plan communication practices and design options impact participation and contribution rates. They researched strategies for tailoring communications to different subgroups of employees through direct communication, and their effectiveness in influencing participants of diverse demographic market segments, including segments categorized by income level, household status, generation, gender, and ethnicity.

The report then provided recommendations of best practices for enrollment that are statistically proven to be effective, including education to plan sponsors on specific proven techniques and communication practices. In evaluating what communication methods are most effective in encouraging participants to save for retirement, the following considerations were made:

  • Cost: an effort was made to balance the need for comprehensive plan communications against cost.
  • Delivery: A variety of methods were explored including the use of current and emerging social media.
  • Plan Design: The study reviewed how plan designs relate to increasing participant enrollment and savings. In particular, the Council studied the use of automatic features. Automatic enrollment plans automatically choose the employees’ contribution percentage and enroll the participant in an investment vehicle. This raises participation rates to close to 90 percent. However employees enrolled at low contribution rates of 3% or less tend not to deeply consider or increase their contributions.

bestpractices

9 Recommendations and Best Practices

The Council found that effective plan communication and education can provide people with the financial knowledge needed to understand their employee benefits, make better financial decisions, and achieve better outcomes.

Given that the most successful plan communications make use of many channels from print to external websites, online tools, social media, and creative marketing, the Council highlighted best practices that balance personalized, targeted content to help employees evaluate benefit offerings with cost efficiency. They highlighted specific techniques and communication practices that have been statistically proven to be effective in increasing the involvement of employees in saving for retirement. The following are 9 recommendations:

  1. Communications tailored to particular segments drive results
  2. One-on-one or small group meetings increase participation
  3. Immediate “on the spot” communication is most effective
  4. Short, simple and focused communication drives participant response
  5. Multiple “touches” with various creative formats increase participation
  6. Increased technology use is effective and cost efficient
  7. Behavioral economics and “social norming” can increase participant involvement and savings
  8. Incentives given by sponsors and “gamification” help trigger participant involvement
  9. Responsive marketing principles may assist plan sponsors in improving communications

Here is a brief synopsis of these 9 practical recommendations and some best practices:

1. Communications Tailored to Particular Segments 

tailored-skill-development-imageThe Council found that communications that target participants based on their interests, background, and/or economic status were more successful than the “one size fits all” approach.

Understanding the culture and background of the workforce being targeted is key. For instance, since Hispanics will soon constitute one-third of the US population, Council member Donna MacFarland of Lincoln Financial Group stated that in her experience education materials typically are translated from English to Spanish, whereas she recommended that sponsors design the material using the reverse approach, developing  materials first in Spanish to address specific cultural needs and language differences.

Human Resource professionals also have found that allowing employees to map out an action plan rooted in realistic scenarios is an extremely effective tool. Some plan sponsors have successfully used a “three-pronged” approach to reach out to their participants by combining simple income replacement projections, behavioral finance strategies and a personalized message. For example, JP Morgan developed 36 different personas based on three age groups (younger than age 30, age 30-50 and older than 50). The firm also targeted participants based upon their regional median income (e.g., Kansas’ median income is $30,000 while in New York City it is $70,000). The basis for this approach was to enable these groups to compare themselves against their peers and take the appropriate action toward saving for retirement.

By narrowly tailoring their target audience on behalf of the plan sponsors that retained them, JP Morgan subsequently monitored whether employees opened their email communications and took action toward saving for retirement. If the individual took action, that person was considered “active,” while someone who opened the email but did not take action was considered “interested.” Based upon the action taken by the individual, the participant received specifically targeted information. This technique resulted in three to four times the response rate of participants who were not targeted.

However, some witnesses advised that there is a general concern regarding the use of targeted communications because complex data collection may provide gender or ethnic identification. Thus, there is concern over whether specific segments identified based upon race or gender could raise discrimination or deferential treatment issues. The Council heard testimony from Donna MacFarland of Lincoln Financial and Thomas Ryan of Fidelity that the use of particularly sensitive demographic information causes concern among plan sponsors. There are also practical concerns about housing information technology. Nevertheless, the overwhelming opinion received during testimony was that targeted communications work.

Branding helps targeting through the use of communications that include a unique positive image that is the group can relate to.

Here are some best practices of participant-centric communication methods:

  • Best Practice 1 – The Power of Example: Trustees of the Elevator Constructors 401(k) Plan used materials featuring the story of three employees who made different savings decisions during their careers. The narrative of the three employees was used throughout one-on-one sessions with printed materials to demonstrate how a 401(k) contribution would benefit participants in a variety of circumstances including temporary layoffs, hardships and early retirement. As a result, plan participation rates increased from 26.56 percent to 29.82 percent in 2011. The plan also experienced an 85 percent increase in plan activity from meeting attendees.
  • Best Practice 2 – Employer/Employee-Centric Content: M.A. Mortenson Company, an international construction firm, employed construction-related themes in its financial education to engage participants and foster pride in the company. Financial education was made mandatory and workshops were divided by career stage, age, and gender. The plan sponsor focused on participants’ preferences by surveying them after the workshop and making recommendations based on their feedback to yield desired results.
  • Best Practice 3 – Bilingual: Consolidated Citrus Limited Partners wanted to 1) increase attendance at plan educational meetings, 2) increase plan participation, 3) increase deferral rates and 4 encourage participants to maximize their match. Ninety percent of the workers spoke only Spanish, and the majority of their day was spent in the orange groves. An in-language campaign was initiated. The company’s Spanish speaking leaders met with small groups in the orange groves. Straightforward collateral in both Spanish and English Collateral were available on site, including announcement posters. By bringing the meetings to the employees, 95 percent of the targeted group attended the meetings. Plan participation increased from 40 percent to 75 percent and deferrals expanded from 4 percent to 8 percent.
  • Best Practice 4 – Branding: The Animation Guild 401(k) Plan was implemented for artists working at Southern California animation studios. The sponsors worked with the Guild’s representatives to obtain insights and develop a branded communication urging participants to remember to enroll. The response rate increased over eight percent from the previous year, with 135 new enrollees. Another employer cited in the research increased participation by 30 percent by keeping the message fun, simple and “cool” to target younger workers.
  • Best Practice 5 – Multicultural: The Four Seasons 401(k) Plan needed to convey an important plan change to an employer profit sharing employer matching contribution. The sponsor obtained feedback from bilingual meeting presenters in designing the campaign, and provided materials tailored to Hispanics and presentations also were created in Spanish designed to be culturally and linguistically accurate. As a result, the average deferral rate of the targeted group rose from 2.9 percent to 5 percent, and significantly increased beneficiary designations.

2. One-on-One or Small Group Meetings 

OneonOneAfter a study by Lincoln Financial found that 66% of participants prefer one-on-one guidance, Lincoln made it a component of its financial education model. They found that the need for individualized information is particularly acute for groups with low participation rates, including women and minorities.  Various studies have shown good enrollment and contribution results when employees request in-person group workshops facilitated by financial experts.

  • Best Practice for One-on-One Meetings:In 2012, MassMutual representatives spoke with 150,000 employees in face-to-face meetings. Forty-six percent of these individuals took action to improve their retirement readiness and, in one-on-one meetings, 75 percent of employees took action.
  • Best Practice for Small Group Meetings: Costs and timing may prevent plan sponsors from providing one-on-one meetings, but small group meetings and audience segmentation have also been successful. The FINRA funded Nurses Investor Education Project had small group meetings for well-educated nurses interested in taking action toward their retirement. They found that generally, the nurses’ lack of basic knowledge, or their perception that they did not know enough to attend these sessions, prevented them from attending their plan sponsor’s meetings. As a result of using small group meetings as a forum, the nurses perceptions changed and attendance at their employer’s retirement plan sessions improved.

3. Immediate “on the spot” Communication 

onthespotThe ability for participants to take action at the time they are thinking about retirement savings is more effective in increasing enrollment. For example, having computers in the room at the time employees are learning about the plan would allow them to sign up and take immediate action.

  • Best Practice: A US Army mandatory financial management course found that providing the enrollment forms for the Thrift Savings Plan during the financial management course resulted in a sizeable increase in participation, with soldiers signing up for the Plan before leaving the classroom.

4. Short, Simple, Focused Communication 

focusedBehavioral studies show that the most effective communications use simple, straightforward language specific to a participant’s personal situation.

  • Best Practice: Time constraints mean that any impediments to action should be identified and mitigated. For example, on a website, any extra step, such as the need to retrieve a PIN, may prevent employees from taking action. Solutions include sending the PIN directly to their email account or a mobile number, or mailing a postcard with the website’s uniform resource locator (URL).

5. Multiple Touches With Various Creative Formats 

profileConsistent, continuous and on-going meaningful communication can be achieved by repeatedly sending out simplified mailings. Social media can help alleviate the cost of additional touch points, and yet, few companies use social media channels for retirement information.

  • Best Practice: The Council’s Professor Madrian cites a company in which the third mailing of a simplified reply form requiring the checking of a box to enroll doubled enrollment from 22 percent to 45 percent of non-participating employees.

6. Cost Effective Technology 

advancement-of-technologyEvery demographic group is now using the Internet as a preferred source of information, via home computer or mobile devices. In addition, electronic media provides the ability to track responses, which is unavailable when the communication is sent through printed materials and regular mail. Another cost effective technological advance is Dynamic Page Publishing,  reviewed at the conclusion of this article.

A Deloitte study in 2012 that found:

  • 93 percent of Americans place Internet access as the most valued household subscription;
  • 54 percent of Americans own smartphones, and the rate is increasing 29 percent annually.
  • One of three Americans over age 50 has downloaded an application to a smartphone, and 28 percent access their bank accounts via smartphone.

Engaging Millennials: Electronic media is the most effective method of communication to engage younger generations in retirement planning, including Generation X (born between 1965 and 1979).  In order to combat inertia caused by competing financial priorities, such as student loan debt, it is important for this group to be engaged through “YouTube” videos, Facebook forums, Twitter, email and mobile delivery, including providing “one click” transactions and incorporating elements of “gamification.”   Millennials also demand simple, personalized, and action-oriented communications, and prefer human contact for complex tasks.

  • Best Practice – Email: Thomas Ryan of Fidelity Investments testified to the Council that Fidelity makes all channels of communication accessible, and finds that email communications have generated higher response rates than direct mail.
  • Best Practices for Engaging Millennials – Fidelity: Fidelity has studied the preferences of Generation Y, or “Millennials”  for using electronic communication, and found that this group tends to rely heavily on the Internet to interact with representatives from Fidelity, although they appear to be the least engaged when it comes to the frequency of contact. Millennials serviced by Fidelity have the lowest 401(k) participation rate, at 58 percent, compared to 67 percent for all other populations. Design changes made to simplify online interaction with Millennials resulted in a 40 percent increase in web utilization by this group.
  • Best Practices for Engaging Millennials – Putnam: Lori Lucas of Callan Associates discussed Putnam’s roll out of a plan primarily for Millennials that encouraged participants to bring their tablets to an nteractive meeting to log on to the benefits website. As a result, 40 percent of attendees increased their deferrals within 90 days after attending the meeting.
  • Best Practices for Engaging Millennials – MassMutual:: Offering enrollment and savings increases using iPod Touch devices in group meetings resulted in action rates of 85 – 90 percent among those attending. The use of targeted and tested mail and email campaigns resulted in $150 million in new deposits over three years and a 3.9 percent increase in action rates.

7. Behavioral Economics and “Social Norming” 

choiceThe way certain information is presented can have a resounding impact, including the way choices are presented to the participant, a method referred to as “anchoring”

Presenting options in a different order or with a higher default percentage has increased deferral rates. While communications traditionally list contribution percentages in ascending order from one to five percent, studies have shown that reversing this order so that the first option shown is five percent markedly increases enrollment in the five percent option. This method is referred to as “placement.”

 “Social Norming” reflects the fact that people tend to benchmark themselves against their peers. Statistics from the Bureau of Labor Statistics show that participants tacitly compete against peers in similar socioeconomic conditions.

8. Incentives and “Gamification” 

carrotThe use of games (gamification) is an effective tool in reaching  individuals who may not be easily engaged in retirement decisions (“non-savers”). Gamification can be used to reward people if they engage in the correct behaviors. Plan sponsors may also use incentives to provide rewards to participants with who exceed a certain benchmark contribution amount. Other techniques include raffles.

  • Best Practice 1: The NFL’s “Play 60” campaign  incorporates the use of the NFL brand to incentivize children to play a game for at least 60 minutes a day.
  • Best Practice 2: A rug manufacturer in northern Georgia had a series of meetings for people working multiple shifts, giving away lottery tickets to encourage attendance, and experienced standing room only for the meetings.

9. Six Marketing Principles Improve Communications

Communications that are uninspiring and difficult to undmarketing-300x200erstand leave employees confused, bored and unmotivated. The communicator’s “curse of knowledge” is a bias in which the communicator’s knowledgeability makes it difficult to demonstrate it from the perspective of lesser-informed people. The Council highlighted six principles of communication that plan sponsors should consider when drafting documents or presenting to their participants that will inspire action:

1. Show Empathy

empathyTo  determine the relevance of a message to an audience, it is necessary to engage them and ask questions that the content of the presentation or the communication should then be tailored to answer. For example, an energy company developed a program to help consumers understand and lower their energy bills, using this computerized question:

Can I help you with your bill?

  1. Yes, help me understand my bill.
  2. Help me save money.
  3. Both of the Above.
  4. I’m Here for Something Else.

By showing empathy to what the consumer cared about and giving information and tips to help them feel more in control, these questions presented helped raise consumer satisfaction.

2. Use Metaphors and Analogies

analogCommunications also reference a metaphor or visual picture to help the recipient relate to the message. For example, when Ridley Scott presented the screenplay for Alien to his producers he used the popular movie Jaws as a reference, and the metaphor “it’s like Jaws in space,” to frame a concept that the producers easily understood

3. Use Storytelling

icon-storytellingPeople tend to forget facts that are presented but usually remember a story. Stories are easy to absorb when people are overwhelmed with information. They also eliminate extraneous facts to capture the recipient’s interest and relate to him on an emotional level.

4. Use a Conversational Voice

conversationalUsing overly technical information, compliance or legal jargon can loose an audience. For example, it is difficult to convey the benefit of voluntary life insurance individual and spouse buy-up options in which election of coverage for a spouse can equal up to half an individual’s buy-up,  depending on the desired level of coverage. An effective way of communicating this is as follows:

“The company is going to buy life insurance for you. If you want, you can buy extra life insurance. Whatever extra life insurance you buy for yourself, you can also buy up to half that amount for your spouse. Now, depending on how much additional insurance you’d like, one or both of you may need to answer some questions about your health to see if you qualify for it.”

5. Surprise the Recipient

boxing-glove-surpriseUnexpected methods of engaging the recipient get the individual’s attention when a subject is ordinarily challenging and abstract. The use of humor, as shown below, can be considered an example.

6. Use Humor

humorUsing a little humor in the message will keep the audience engaged and make the message easier for audiences to relate to.

 

Plan Design Considerationsicon-design

Automatic Enrollment

A study by Brigitte Madrian and Dennis Shea shows that automatic enrollment increases average participation rates from 65 percent to 85 percent. It is particularly helpful for low-income workers with annual wages under $20,000, where participation increased from 27 percent to 82 percent. Average participation for employees under age 30 doubled from 41 percent to 82 percent, and the best improvements have been among the segments that had the lowest participation rates.  This was corroborated in as presented in the testimony of Lori Lucas.

Mandatory Contributions and Automatic Escalation

Defaults that are too low can  impact workers who would otherwise have contributed more. Since studies have shown higher default contribution rates have not increased opt-out rates, employers should consider recommending higher default contribution rates.

One solution is a stretch match (increasing the maximum amount of pay that can be matched and decreasing the percent matched, to keep the employer’s costs flat.

Another way to increase savings is automatic escalation in which sponsors automatically increase a worker’s contribution rate by one to two percent  of salary at each pay anniversary until a cap, such as 12 percent of pay.

Best Practice – TIAA-CREF: David Richardson of TIAA-CREF found that 403(b) plans typically have much higher contribution rates, ranging from 10 percent to 15 percent of pay compared to 5 percent to 7percent for all 401(k) plans, due to mandatory contributions from both employers and employees as a requirement of employment.  The 403(b) plans TIAA-CREF administers experience much higher annuitization rates — 40 percent compared to 4 percent for all 401(k) plans.

 Conclusions and Implications

red pencilThe Council found that continuous, simplified, personalized communication using multiple channels, connected with humor and empathy, are effective ways to communicate with plan participants to encourage participant engagement.

Benefit Program Marketers seeking to increase employee plan participation need to be more flexible, customizable and responsive than ever to introduce, present, promote and clarify the particular offerings and choices the employer has agreed to sponsor. Dynamic Publishing platforms are becoming a key tool in executing this strategy DPP is a way of designing publications in which layout templates are created which can contain different content in different publications. In cases where the same content is being used in multiple layouts, the same layout is being used for several different sets of content, or both, dynamic page publishing can offer significant advantages of efficiency over a traditional system of page-by-page design. Future articles will explore Dynamic Publishing in greater depth.

Related Blog Article:

Q&A: Maximize Your Legacy for Your Grandchildren

hands-note

You’re a financially successful grandparent who wants to leave a big legacy for your grandchildren. You would like to maximize the legacy you leave them while minimizing taxes. Here are some questions you’ll need to consider:

Q. Will the Generation Skipping Transfer Tax (GSTT) limit what I can give to my children?

The IRS imposes a transfer tax at each family generation:

  • If an asset passes from a parent to a child, and then from the child to a grandchild, estate tax is imposed in both the parent’s and the child’s estates.
  • If a parent passes the asset to the grandchild to try to bypass the child’s estate and avoid estate tax,  it may be subject to another transfer tax, the generation-skipping transfer tax.
  • This tax is particularly onerous because it is imposed in addition to the estate tax incurred in the parent’s estate and is assessed at a flat 45% rate.

As a result, when the GSTT applies, it may result in more than 75% of the assets passing to the grandchild being consumed in estate taxes and generation-skipping taxes.

Q. At what amount does the tax kick in?

The IRS provides each individual with a “GST exemption” of $5.25 million. In other words, each individual may engage in generation-skipping transfers of up to that amount without subjecting those assets to the GSTT.

Q. Can I leave even more without losing much to taxes?

Many individuals who might otherwise leave their entire estates to their children allocate their generation-skipping exemption – currently $5.25 million – to generation skipping trusts for the benefit of their children and grandchildren.

Q. Would a trust help if I don’t have that many assets?

The trust advantages go beyond tax savings. Using the generation-skipping tax exemption offers two important advantages:

  • The trust will escape all transfer taxes when the children die and will pass to the grandchildren tax-free.
  • The trust may be protected from the claims of creditors and, to some degree ex-spouses. (some states protect inheritance in divorce proceedings.)
  • Gift, estate and generation skipping tax laws are constantly changing. The exemption amount has been as low as $1 million and the tax, as high as 55%.

Historical Generation Skipping Transfer Tax Exemptions and Rates

Year GST Exemption GST Tax Rate
1997 $1,000,000 55%
1998 $1,000,000 55%
1999 $1,010,000 55%
2000 $1,030,000 55%
2001 $1,060,000 55%
2002 $1,100,000 50%
2003 $1,120,000 49%
2004 $1,500,000 48%
2005 $1,500,000 47%
2006 $2,000,000 46%
2007 $2,000,000 45%
2008 $2,000,000 45%
2009 $3,500,000 45%
2010 No generation skipping transfer tax N/A
2011 $5,000,000 35%
2012 $5,120,000 35%
2013 $5,250,000 40%

In view of the uncertainty in tax laws and of the erratic nature of lawmakers in the United States, any grandparent with assets totaling more than $1 million should consider funding an irrevocable dynasty trust to take advantage of the current $5.25 million gift and GST tax exemptions. Even individuals with $1 million or less should consider placing high-growth assets in a dynasty trust, where they can grow insulated against creditors and against future estate taxes.

Q. How Do I Set Up a GSTT Trust?

1. Establish a trust. Appoint a trustee

2. Fund it up to the GSTT exemption.

3. Leverage the trust assets through life insurance.

The example below provides a brief summary of what a Dynasty trust can do for you. Please note that states may limit the term of the trust:

dynasty_trust_l

Leverage Your Legacy

If you and your spouse are healthy and qualify for life insurance, the trustee can also purchase life insurance on you. The advantages:

  • The death proceeds go to your children and grandchildren, exactly according to your wishes.
  • The proceeds are generally received by the trust both income and estate tax free.
  • You can provide for multiple generations – including both children and grandchildren.

Speak With a Planner

Estate and GST taxes can be avoided using other useful techniques. For example, interests in a family limited partnership (FLP) or family limited liability company (FLLC) can be transferred to succeeding generations by simply gifting the assets to family members. Valuation discounting of family business interests can lower exposure to gift taxes. Under circumstances, a personal residence can be efficiently transferred using a qualified personal residence trust (QPRT). These other techniques, however, do not offer the asset protection and long-term wealth preservation and management possible with an irrevocable dynasty trust.

Takeaways

  • The uncertainty of tax laws means that any grandparent with assets over $1 million should consider funding an irrevocable dynasty trust to take advantage of the current $5.2 million gift and GST tax exemptions.
  • Grandparents with $1 million or less should consider placing high-growth assets in a dynasty trust, where they can grow insulated against creditors and against future estate taxes.
  • If you are healthy enough to qualify for life insurance, it can greatly multiply the amount that you leave to future generations.

Note: 2013 Changes to Estate Tax, Gift Tax, and Generation-Skipping Transfer Tax Laws

Under ATRA, the federal estate tax exemption has been indexed for inflation and  increased from $5.12 million in 2012 to $5.25 million in 2013, but the estate tax rate for estates valued over this amount has increased from 35% in 2012 to 40% in 2013. In addition, the lifetime gift tax exemption has also been indexed for inflation and increased from $5.12 million in 2012 to $5.25 million in 2013, and the maximum gift tax rate has increased from 35% in 2012 to 40% in 2013. The generation skipping transfer tax exemption has also been indexed for inflation and  increased from $5.12 million in 2012 to $5.25 million in 2013, and the maximum generation skipping transfer tax rate has increased from 35% in 2012 to 40% in 2013.

Warning & Disclaimer: This is not legal advice.

Is There a Ready Market for Your Business?

small businesses for sale

According to The Complete Guide To Business Brokerage By Tom West, the number of small to mid-sized, privately owned businesses for sale in the United States is estimated to be approximately 1 million – or 20% of them at any given time. But only a small number of them get sold:

  • 1 in 5 small businesses sell
  • 1 in 4 small to mid size businesses sell
  • 1 in 3.5 mid-size companies sell
  • 1 in 3 large companies sell

Shut Happens

There may be no ready buyers for your business, and you may lose your most hard earned asset. Consider this example.


out of businessExample:
 You and your partner  are 50/50 partners.  Your partner dies, and his wife or child inherits his share of the business.

  • Do you have the right or the obligation to buy them out? 
  • If so, for how much and on what terms?  
  • Can you strike out on your own, or are you stuck with the baggage of the old one? 

What if you die instead of your partner?

  • Will your partner pay your family a fair price for your share of the business?
  • Will he just walk away and start up a new business on his own?

The 3 Problems of Business Continuation


1. No buyers offering a fair price
 – There may not be a ready market for your business in even the best of economic times, and unforseen events like death or sickness can force a fire sale. You may work hard all your life to build a business, but have nothing to leave your family.

owner's son2. Forced Partnership with a spouse or child – If you don’t have the cash to buy out your partner’s interest,  you may find yourself in business with a spouse or child who may actually be a drag on the profits and viability of your business.

3. Can you leave a family legacy? – If you die before your partner, what assurance do you have that your surviving partner will pay your family a fair price for your share of the business?

Robert W. Wood, who writes about taxes and litigation issues for Forbes, sums up why a  buy-sell agreement is so important for anyone who owns any kind of business:

Without it, a closely held or family business faces a world of financial and tax problems on an owner’s death, incapacitation, divorce, bankruptcy, sale or retirement…A buy-sell agreement can ward off infighting by family members, co-owners and spouses, keep the business afloat so its goodwill and customer base remain intact, and avoid liquidity problems that often arise on these major events.

Creating a Market for Your Business

Business-succession specialists and financial planners often recommend an insured buy-sell agreement to ensure that your family can receive a fair value for the business you worked so hard to build, and allow you to buy out your partner’s share and continue the business as a going concern. It does two things:

  1. It creates an immediate market for your business (your partner or a successor employee.)
  2. It  can create immediate funds for a fairly valued buyout through insurance.

The 5 Guarantees of A Properly Structured Agreement

buysell.png

A properly-structured agreement will guarantee the following:

  1. guaranteed purchaser
  2. guaranteed sale
  3. guaranteed price
  4. guaranteed time
  5. guaranteed funding

1. Guaranteed Purchaser

Who will buy?

  • the surviving partners must buy

2. Guaranteed Sale

Who will sell?

  • the estate of the deceased partner must sell

3. Guaranteed Price

What is the price?

  • have a formula or outside valuation

4. Guaranteed Time

When to transact?

  • automatically at time of
    • disability
    • retirement
    • death

5. Guaranteed Funding

How to pay?

Implementing A Simple and Cost Effective Solution

Cross Purchase vs. Redemption:  One type of agreement is a cross-purchase:  If you or your partner/successor dies, becomes disabled, goes bankrupt, etc., the other can buy his share.  With a redemption style agreement, the business itself would make the purchase so the owners don’t individually go out of pocket.

With either type of buy-sell, there’s lots of flexibility.  The price might be fixed, determined by appraisal or formula.  The price might be paid in cash or installments over time.  There can be different terms for different events, one price and terms for retirement, one for disability, one for death.

Insurance:  Insurance features prominently in many buy-sell agreements.  You don’t have to use insurance, but it can ensure there’s cash available when the time comes.  For example, whether you or your partner/successor dies first, a life insurance policy on each of you can fund the buyout so your business stays afloat and the spouse/heirs are bought out as agreed.  A buy-sell agreement is funded with life insurance on the participating owners’ lives can guarantee that there will be money when the buy–sell event is triggered. Using insurance to fund the buy/sell agreement has these advantages

  • funds are available when needed
  • least expensive solution
  • new owner does not incur debt when buying the business

Reciprocal Planning:  While you may find it difficult to face these issues and to make some of the decisions, any buy-sell agreement is better than none.  The best thing about buy-sell agreements are that they are reciprocal.  No one knows for sure if you or your partner will be the first to go by death, disability, retirement, or for other reasons, and this reciprocal nature makes negotiating and agreeing on these issues easier to do.

How to Get Started

You’ll need a business or tax lawyer experienced in buy-sell agreements to draft it.  However, these agreements can be surprisingly simple and cost effective. Whatever you pay for it and the insurance premiums on an insured arrangement will be small in comparison to what it can save you. 

One of the best starting points is a financial planner or insurance specialist. They may have prototype documents to recommend to your attorney, but, more important, they may have invaluable experience and can give you guidance in thinking out the key decisions before you meet with an attorney to get it done, which will save you time and money.

Additional Resources:

 

losing_contact

NewLink Consulting, Toronto found: 29% of U.S. life policyholders lost contact with the agent/financial planner who had sold them the policy, and 41% if the policy was purchased from an agent/broker.

Guest blogger Mark Weishaar

An orphan can be defined as “One who lacks support, supervision or care”.
How many do you have in your CRM database? How many customers have simply become dormant and shuffled into an inactive or unassigned category?

In a recent conversation with my client from a major life insurance carrier, I was appalled to learn that her company had well over 100,000 orphaned policyholders. In insurance-speak, these are folks who originally purchased a policy from an agent, but were never re-assigned after that agent left the company.

Many industries have a similar category in their database. Inactive bank accounts, infrequent flyers, one-time visitors… the list goes on. It gets me thinking: how many organizations could use a shot in the bottom-line? This category represents a huge untapped asset:

  1. Orphans are never contacted. You have forgotten about them, and they have forgotten about you. How likely are they to ever upgrade or buy another product or service from you? 
  2. If your competition is effectively marketing – and you know they are – how many competing offers can your orphans resist? Retention rates suffer when customers are ignored. 

The ROI of Marketing to Orphaned Policyholders

Let’s put some dollars and sense behind a simple illustration exercise: 

With the potential for this scope of increased revenue, it makes no sense to me that so many insurance companies do not devote any attention to their orphaned policyholders. Political turf issues over account re-assignment? Possibly. “Don’t rock the boat” and “Let sleeping clients lie” mentality? Maybe. Inertia? Most likely. 

Case Study: A short while back, I worked with a major hotel chain to develop a multi-pronged marketing campaign. Our objective was to revitalize their “dormant” clients: those who had not booked a room within the previous 24 months. Of the many successful initiatives we launched, the highlight was going back to the dormant customers.

After modeling their data against the frequent guests and re-soliciting a predictive-modeled group with an offer, we generated an ROI of 1,090%!

Unheard of? Yes. But true. And I could predict similar successes in your own organization.

So take a look at your entire customer file. Find those pockets of orphaned customers who have been ignored for whatever reason. Develop a strategy to solicit them with a product offering using a predictive model-driven approach. The incremental revenue generation and low acquisition costs are likely to amaze you, and will demonstrate once again the truism that:

Your Best Customer is Your Current Customer.

Mark Weishaar is a veteran financial services direct marketer and senior executive delivering broad range of leadership responsibility, experience and accomplishment across brand strategy, marketing, loyalty programs, customer data analytics, distribution, CRM, and social media on a worldwide basis.  He has directed the sales & marketing of a wide variety of financial services products and programs and held senior level roles in start-ups and  Fortune 100 companies in direct marketing environments, and  traditional agent/advisor companies. He has a unique ability to analyze and develop actionable marketing and sales programs with measurable ROI improvements.
Want to chat with Mark? Reply to him here or leave a comment on the blog.

advisor-trust-chart2

Who Do You Trust?

 notes in HealthLifePro, that Americans’ trust in advisors has declined. A study by Hearts & Wallets, Hingham, Mass titled “Trust-Building Practices: Updated Empirical Analysis of What Drives Trust,” gauged trust on a scale of one to ten (one signifies very little trust and ten very high trust.) The study’s findings:

  • Just one in five Americans fully trusted their financial advisor in 2012 – a four-point decline since 2010.
  • Those awarding their advisors 9 points declined from 18% in 2010 to 13% in 2012.
  • Those awarding their advisors 8 points declined from 21% in 2010 to 17% in 2012.

The most trusted advisor practices are full-service brokerage and insurance practices versus self-service brokerages and banks:

  • 74% rate  insurance and full-service brokerages a 9 or a 10 (37% each.)
  • Only 60% rate self-brokerages and banks a 9 or a 10.

What Drives Advisor Trust?

The top trust drivers of trust were ranked as follows:

  • improving investor understanding of how the provider earns its money (by a wide margin)
  • the perception that an advisor is unbiased
  • clear and understandable fees
  • responsive
  • understands and shares the client’s values
  • has made money for the client
  • has produced a “positive experience” for friends and family members.

Takeaway:

Transparency, responsiveness, understanding the client’s values and putting the client’s interests above one’s own are all core to trust in an advisor.

Bri Bauer  of iMedia Connection provides some interesting tips on how to get customers to open emails and act on them.

Understanding the ROI

An effectively implemented email marketing program can drive significant traffic, According to the 2012 Channel Preference Survey, conducted by the digital marketing group ExactTarget, email is the preferred permission-based marketing and service channel:

  • 76% prefer email over all other channels for customer service messages.
  • 66% of teens (ages 15-17) prefer email over all other channels for permission-based marketing.
  • 96 percent of online consumers use email at least weekly.

It’s also highly effective:

  • 66 percent have made a purchase after receiving an email marketing message
  • Email marketing drives more consumers to make a purchase than Facebook and text messaging combined.

Once people have signed up to hear from your brand, they want to be kept informed. You want to provide them with communication that gets opened and drives them to take action. Here are 5 practices that drive results.

1. Refresh Your Address List

A recent Experian survey found that more than 90 percent of companies suspected that up to 25% of their data is inaccurate. Look at the number of bounce-backs or routinely un-opened emails.

2. Create An Engaging Title

To avoid getting preempted by a spam filter, avoid spam filter-friendly language such as “free,” “act now” and “limited time”.

3. Develop User-Friendly Design

Make the communication responsive and scalable to  multiple platforms, allowing users to take action, whether they are viewing it on their mobile device or desktop computer. “Avoid the sophistication trap – email marketers see the most success with layouts that have  little noise (graphics, photos, video and scrolling)  with a clearly visible call to action.

4. Understand Their Motives for Signing Up

Knowing what motivated people to sign up for your emails in the first place will help you understand them as a community and facilitate delivering what they want:

  • Are they looking for discounts?
  • Do they want something to do?

Based these insights, you can provide them with relevant content to inspire their curiosity.

5. Provide Value

Your emails should offer relevant substance and value to your readers, including news, brand insights, and customer survey information and spare body copy.

happiness

Outstanding FB Page

Proving that Marketing isn’t about creating messages, but embodying them, Sivana (meaning Oasis of Enlightenment) is based in the yoga beach culture of Encinitas Ca., rooted in Eastern spirituality, and providing support for yoga and higher living. Their products include such goods as Yoga Clothing, Active Wear, Yoga Equipment and Accessories, Bags, Incense, Statues, and Malas.  They have an amazing Facebook page.
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