Faceoff: Dual by design

Kevin Haakensen, B.Comm, CIM, FMA, FCSI, CFA, Portfolio Manager, DMW Securities Inc.

Stance: Insurance license a must-have

When I started my career about 16 years ago, one of the first things I did after becoming investment-licensed was to pursue my insurance license. It has paid off.

Prospects often bring disjointed pieces from previous investment plans and aren’t sure how they fit together. A person may have a term policy that’s 10 or 15 years old, a whole life policy, and a disability policy. Many prospects ask what to do with these existing policies, rather than about investment planning. I help them decide if those policies still fit their needs.

A number of our clients are business owners and retirees. The business-owner clients are usually looking to protect their companies. While we definitely put buy-sell agreements in place, and make sure corporate loans are adequately insured, we also look at insuring them against things they often don’t think about, such as critical illness. As retirement approaches, we start thinking about how best to protect their estates.

Insurance can also create wealth. Lots of tax-structured things that can be done within corporations not only help the long-term bottom line, but also provide clients with tax-free dividends.

Take corporate-owned universal life or whole life policies. The corporation is both the owner and beneficiary, and you can insure one or more key shareholders.

The proceeds of a life insurance policy — minus any adjusted cost basis — go into the capital dividend account within a corporation and can be paid out to shareholders tax-free. This lets a business not only protect its wealth but also grow assets in a tax-deferred environment.

Edged out

Clients prefer consolidated services. We provide a full-service tax and accounting business along with bookkeeping. Insurance just adds an extra layer.

If you’re not dual licensed, or don’t have an expert within your practice who can offer insurance advice, you’re giving up competitive edge. You can outsource insurance to specialists, but if you let your clients go elsewhere, you risk losing them.

Not fully securities licensed?

If you still want to help clients get into products you can’t sell:

• Don’t directly solicit interest in the security or its issuer.
• Don’t make specific recommendations.
• Don’t talk too much about any given product — you’re not allowed to give advice if you’re not registered. Instead, simply tell the client, “I can’t place that trade, but I know someone who can, and he or she can provide the details.”
• Understand there is a professional requirement to know who can sell a given investment. You must be prepared to refer the client to a salesperson for that product if the client asks. Referring the client to the specific security would put you offside.
• Obtain client consent to make the referral, and then provide a list of suitable dealers. And tell your firm.

Multi-pronged planning

When we create a plan, we draw up a couple of different versions. One is a snapshot of their financial lives over 10, 20, 30 and 40 years if they keep doing what they’re doing.

Version two includes key tax-saving strategies, and projects how their income tax, cash flow and estate will change if applied. The final version incorporates items such as term insurance, permanent insurance, and living benefits such as long-term-care insurance.

In the final version we incorporate two scenarios, if applicable to their ages:

Scenario 1: What would an LTC policy cost the estate if they paid premiums but never used it? We like to be as specific as possible: for example, “it will cost your estate $200,000 if you live to your mortality.”

Scenario 2: What would happen if they didn’t take out a policy but ended up needing coverage at some point? We want prospects to understand that even with a portfolio that’s working very well, an unexpected health event could derail retirement plans.

Not everyone takes the coverage but presenting options is part of our fiduciary process.

Carole Aronovitch, CFP, CIM, Owner, Wealthmapping Inc.

Stance: You don’t need it

Not having an insurance license doesn’t remove my competitive edge. I might even have a leg up, as my clients don’t think I have a vested interest in trying to sell certain products or solutions. I don’t have a product bias; that’s what people come to me for.

Planning, not products

My business model is to provide overall financial planning without specific services, such as accounting, insurance, tax or estate planning. I don’t think that puts me at any disadvantage because there are many clients who want planning, not products.

I discuss my services and compensation structure right at the front door. I’m fee only. I don’t get paid by anybody except my clients — be it referral fees or commissions. My job is to help them get financially organized and plan for their futures.

Along the way, if there’s need for a will, specialized tax planning or insurance, I tell my clients up front I’m not a specialist in those areas. If any of those services are required, I can refer them to a specialist.

There’s a prevailing notion in the industry that financial planning is equal to product sales. I disagree. For me financial planning is a process, not a sales opportunity.

When I initially meet with a client, I explain that I charge a fee for helping develop a personalized plan. If, in the course of doing this, we need to call on the services of another specialist (lawyer, accountant or insurance advisor, for example), I clarify there may be additional costs. I also explain that I’m in no way remunerated for any such referrals.

My services can be likened to those of a general contractor. I can get all the information and develop strategies for clients, but we might need to call on other specialists in order to actually implement them. This is all laid out in writing for the client at the outset and reviewed with them.

Tips for license agnostics

• To stay on the right side of compliance, if you aren’t licensed to sell insurance, let your clients know.
• Ask your firm to connect you with a network of insurance specialists. If you don’t have a firm’s backing, do your due diligence and pick out a couple of independent advisors who only sell insurance, and won’t be competing for your business.
• If possible, don’t approach an advisor dually licensed for insurance and investments to help you incorporate insurance into your practice. You risk losing your client. If you do, make sure you have proper agreements in place to mitigate that risk. “For instance, we have a standalone insurance expert in our office who is licensed only to provide insurance advice. Through our network we offer his services to a few select advisors on a non-competitive basis,” says Kevin Haakensen, portfolio manager, DMW Securities Inc.

But during my 16 years in the industry, I’ve never lost a client to a specialist. As a matter of fact, a lot of those specialists are happy working with someone who’ll take care of the financial end and leave them to handle their areas of expertise.

In my experience, clients who seek fee-only financial planners are looking for help without the pressure that someone is trying to sell them something. They’re also looking for an analysis of the benefits and drawbacks of one option over the other, keeping their best interests in mind.

Sound scrutiny

Even though I can’t directly make recommendations without a license, and am under no regulatory scrutiny, I feel responsible for every single referral I provide to a client. The specialists I recommend are people I’ve worked with before and am comfortable sending clients to. I get to know them fairly well before I use them as referrals. I interview them, talk to them and try and understand their style of working.

I offer a couple of options so clients can pick the person whose working style they’re most comfortable with. I usually offer three options and suggest clients decide who they feel might be the best fit.

When I refer clients, I don’t think about the risk of losing them. If a client goes off to work with somebody else because she sold them a product, or they think they can get more broad-based information from her, it’s his choice and you can’t stop it.

Staying focused

Not getting an insurance license was a conscious choice. I can’t be a specialist in all areas. You risk spreading yourself thin. And it’s hard to keep yourself abreast of all the changes happening in all these different spheres and industries. My strength is financial planning, so I focus on that.

I have enough knowledge of insurance to be able to recommend the right experts who’d best help clients with products most beneficial for their circumstances, or products that would appropriately cover their risks. I conduct a thorough needs analysis before recommending a specialist.

Kanupriya vashisht is a Toronto-based financial writer.