Attracting affluent clients through the use of private placement insurance
By Jason Lampa MBA
College Savings Bank
This article explains how creative solutions can enhance financial professionals' ability to attract a greater number of affluent clients.
The majority of financial professionals with whom I meet ask me how they can enhance their ability to attract a greater number of affluent and ultra-affluent clients. Expecting a detailed answer, I notice they pull out their notebook or iPad to copy down what they think is going to be a detailed response.
You can imagine their surprise when my response is one word: creativity.
My advice to those advisers centers on putting aside two hours per week to sit in a quiet room and daydream. The first hour is focused on the challenges faced by those belonging to the affluent market segment, followed by an additional hour of drumming up solutions to meet those challenges.
Setting aside a specific time to find a solution to each challenge will provide the confidence to take this creativity to those who can benefit.
During my two-hour segment this week, I thought of the challenges faced by professional athletes and entertainment professionals throughout their career. In speaking with both the talent and their handlers, it is clear that the concept of capital preservation and asset protection are most often ignored. The lack of focus on these two areas is one of main reasons that 80 percent of those who play in the NFL go bankrupt less than five years after their playing career is finished.
If we can agree that capital preservation and asset protection are critical to maintaining wealth, then I venture to say that providing private placement insurance is a tremendous solution.
Private placement insurance is an investment wrapped inside an insurance policy. Basically it is a legal way to invest in alternative investments, without paying taxes on the gain. Generally, stocks and hedge funds would be taxed at the 15 percent capital gains rate; however, by placing hedge funds and alike inside a tax-free life insurance policy, investors benefit from tax-free accumulation. Moreover, for those affluent investors who understand the unfriendly tax treatment of short-term trading within hedge funds, they're ecstatic when provided a solution that allows them to keep an additional 35 percent each year.
According to a survey designed by Atlanta-based Nease, Lagana, Eden & Culley, only 12 percent of affluent families own private placement life insurance. That being said, I imagine that it's use by professional athletes and entertainment professionals is substantially less. This provides a tremendous opportunity for those looking to tap into this market.
For those insurance and financial professionals interested in learning more about private placement insurance, I suggest looking at the large insurance carriers such as New York Life, John Hancock and Hartford. All have robust platforms with an impressive line-up of hedge fund managers.
In conjunction with a robust platform utilizing a top insurance company, the asset protection process can be taken a step further by purchasing the private placement insurance contract in countries such as Lichtenstein or Switzerland whose insurance laws may protect an affluent individual or family to a greater extent than in the United States due to the strict laws associated with insurance.