Articles About TIA
Steve Leimberg's Estate Planning Email Newsletter #1486 & #1499
"This case is a must-read for any individual or corporate trustee of an ILIT."
While many trustees are facing increased scrutiny of their investment performance in these difficult economic times, trustees of trusts holding life insurance (often referred to as irrevocable life insurance trusts, or "ILITs")[1] face additional challenges in their management of this "special asset". Acknowledging the potentially serious trustee liability, a few states have passed legislation that reduces the trustee's fiduciary responsibility for life insurance as an investment.[2]
However, such protective statutes do not help a trustee to determine how to manage life insurance to maximize the benefit for the trust beneficiaries.
Outside of the few states with protective statutes, the Uniform Prudent Investor Act ("UPIA") and similar statutes require as rigorous a management model for life insurance as for other types of assets.[3] However, until now trustees have had no court guidance regarding the application of the UPIA to life insurance.
A recent Indiana Court of Appeals case appears to provide some comfort to ILIT trustees (and perhaps some consternation to ILIT beneficiaries) in UPIA states by setting a low bar for investment due diligence with respect to life insurance.
However, this case is the first such case involving a claim of breach of fiduciary duty for ILIT trustees, at least the first such case known to these authors. As such, it can hardly be considered evolved case law.
This case is nonetheless instructive as to the various claims dissatisfied beneficiaries may make.
It is also instructive to examine the appropriate steps taken by the trustees and the possible additional actions they could have taken so as to provide a road map for trustee’s intent on avoiding future lawsuits.
Click Here to read Part 1 of 2
Click Here to read Part 2 of 2
InvestmentNews Reports Lawsuits Against Brokers May Be Easier With New CFP Standards
According to InvestmentNews, June 23, 2008 issue, investors might find it easier to sue insurance agents and carriers, thanks to new standards from the Certified Financial Planner Board.
The Certified Financial Planner Board of Standards Inc. has updated the Standards of Professional Conduct with two main provisions: CFP holders are required to place the CLIENT'S interests ahead of their own at ALL times (or disclose limitations when they cannot), and certificants must...act as FIDUCIARIES to clients.
According to some attorneys, these rules may also hold insurers and agent/brokers responsible for sales deemed questionable in hindsight. "Registered reps, agents and insurance companies haven't had to measure up to the fiduciary standard previously", says Michael Shaw, managing director of legal and public policy at the CFP Board.
"CFP holders must ensure that they are selecting the best product for the client, but those choices become limited if the agent only has access to proprietary [or some limited number of] products." The agents need to disclose this to clients or demonstrate through third-party research that the product they are recommending is most suitable to each client situation.
Of course use of THEInsuranceAdvisor.COM (TIA) Confidential Policy Evaluator (CPE) can certainly help to determine and document the suitability of any given permanent life insurance product based on the 5 factors of overall suitability as they relate to both industry benchmarks and peer-group products. TIA provides the information needed to make more informed purchase decisions, better document such decisions, and better manage portfolios of life insurance policies.
While the new standards were planned to become effective July 1, 2008, the CFP Board recognizes the significance of these changes and has granted certificants six months to adapt to these changes. Act now! Try THEInsuranceAdvisor.COM (TIA) No-Risk Trial Subscription to see and learn how TIA can help satisfy new regulations and better serve the client as a fiduciary. Also, look for future e-newsletters on this topic.
*This article is not intended as a complete interpretation of the CFP Standards. Click Here for the updated Standards of Professional Conduct.
$3 Trillion in Neglected Wealth: Wealth Management Business
 The wealth management business is poised to add another component of wealth to the management process - the $3 trillion in life insurance policy cash values. To put the magnitude of this opportunity into perspective, the amount of money in life insurance policy accounts is more than that in Hedge funds, Separately-Managed Accounts, and Exchange-Traded Funds combined and equates to almost 1/3rd of the massive $11 Trillion Mutual Fund Industry.
The life insurance portfolio management opportunity is featured in the May 2008 issue of Wealth Management Business magazine where you will learn...
- How we have been in similar circumstances before, and seen the same 3 trends now influencing the life insurance business, and are going "back to the future".
- How this $3 trillion asset market is in desperate need of management and ripe for life insurance portfolio management services.
- How the Uniform Prudent Investor Act (UPIA) serves as an "instruction manual" for providing such life insurance portfolio management services.
- How anything that is to be managed must first be measured, and how to go about measuring pricing, performance and suitability of life insurance policy holdings.
- How if you don't know where you are going in this market, you'll probably end up somewhere else (and miss out on this opportunity).
- How ideas are a dime a dozen, but practitioners who put the proven management principals from UPIA into practice will be priceless in this market.
To read entire article Click Here.
"Where the Oceans of Knowledge Meet": Financial Advisor
 THEInsuranceAdvisor.COM (TIA) was featured in an article written by Mary Rowland in the January 2008 issue of Financial Advisor. Mary Rowland has written for Bloomberg Wealth Manager, The New York Times, and is an author of six books, including In Search of the Perfect Model. In this article she concludes that "what we need is an objective rating system that allows even someone who doesn't know how to tear apart a policy to compare life insurance, and that also allows an advisor to fulfill his fiduciary responsibility to clients". She goes on to say that while "I am not here to give a sales pitch for Barry Flagg and his company, The Insurance Advisor" and while "I can't say that it fulfills the fiduciary duties of an advisor ... what I've heard about it intrigues me." In the same way that Morningstar publishes ratings and research about mutual funds, THEInsuranceAdvisor.COM empowers practitioners to evaluate and compare policies from different companies and demonstrate which is best for a particular person. And "unlike other insurance services that simply provide safety ratings for companies, TIA compares two-or more-policies (either load or no-load), shows the cost of various elements of each policy and publishes ratings and research on the product." Mrs. Rowland and Financial Advisor magazine are now among a growing list of periodicals and thought leaders in the financial services industry who have covered THEInsuranceAdvisor.COM and who believe that practitioners need more information about the pricing and performance of life insurance products used in their practices.
Click here to read the balance of the article from this month's issue of Financial Advisor magazine.
The Prudent Investor and Trust-Owned Life Insurance: from American Bankers Association Trusts and Investments
The adoption by most states of the Uniform Prudent Investor Act (UPIA) has far-reaching effects on trust drafting and administration. One of the often overlooked consequences of the Prudent Investor Act is its effect on the administration of irrevocable life insurance trusts (ILITs). This article will address the unique (and often opaque) nature of life insurance as an investment and the effects the Prudent Investor Act can have on trustee ownership of life insurance.
Part 1 - The Prudent Investor Act, Modern Portfolio Theory & Trust-Owned Life Insurance (TOLI) reviews the theorical underpinnings of the Prudent Investors Act and discusses the way these theories can adversely effect how trustees invest for particular families. It then explores the Prudent Investor Act itself, and the types of drafting and administration issues it engenders.
Part 2 - Factors Determining TOLI Pricing, Performance & Suitability looks at the nature of life insurance as an investment, focusing on factors that go into pricing insurance products and the effects that those factors have on policy performance.
Part 3 - Establishing a Basis for ILIT Compliance (and Best-Practices) looks at investment performance and policy expenses. Under the Prudent Investor Act, irrevocable life insurance (ILIT) trustees must establish and follow a prudent process for determining the suitability of TOLI policy holdings and managing such TOLI holdings in response to changing market conditions. Compliance hinges on process, not performance.
Click Here for Part I, II and III.
@ Regulatory: From Deloitte
THEInsuranceAdvisor.COM (TIA) was featured in the February/March 2007 issue of @ Regulatory – a regular bimonthly publication by Deloitte & Touche. This particular issue included a briefing on the National Association of Insurance Commissioners (NIAC) Viatical Model Regulation. This Model Regulation was amended in 12/06 to make it applicable to both viatical settlements and life settlements. While Viatical settlements allow a terminally ill person (life expectancy two years or less) to sell his/her life insurance policy to collect cash while he/she is alive, life settlements allows the insured to sell his/her life insurance policy for more than cash surrender value but less than death benefit to a “viatical” or “life” settlement provider. In return, the settlement provider pays the future premiums to keep the policy inforce and receives the face amount of the life insurance policy when the insured dies. The life settlement market has been the subject of increased scrutiny as of late, due largely to the continuing increase in stranger-originated life insurance (STOLI - which is/was also known as stranger-owned life insurance or SOLI) transaction, and the market conduct surrounding these transactions. @ Regularly cites the TIA white paper “Stranger-Owned Life Insurance: Free insurance? Found money? A good investment? A scam? What is it anyway?” as a good resource for more information about STOLI and the secondary market for viatical and life settlements.
To read entire briefing Click Here.
Take Stock of Your Clients' Life Insurance Portfolio: From AICPA Wealth Management Insider
THEInsuranceAdvisor.COM (TIA) was featured in the February 15th, 2007 issue of the AICPA Wealth Management Insider – an electronic newsletter reaches a weekly readership exceeding 200,000 CPAs. This AICPA article talks more about the evolution of the life insurance industry from a “manufacturers-rep” business where insurance advisors generally represent some limited number of insurers into a portfolio management business where insurance advisors are truly independent from the insurers and genuinely represent the interest of their clients. Such an evolutionary shift stands to have a significant impact on marketing and sales practices while enhancing results for financial advisors and their clients. To maximize effectiveness within this new environment, advisors are adopting a fresh approach to their practices while tapping into new tools and resources, which are described in the AICPA article.
To read entire article Click Here.
|
