EDITOR'S NOTE: This is a longer version of the Perspectives feature in InsuranceNewsNet Magazine, February 2012.
Robert Miller is midway through his tenure as president of the National Association of Insurance and Financial Advisors (NAIFA) and has developed a reputation of being an outspoken, straight-shooting representative for the advisor community.
He brings a different perspective to his position because his practice, Miller-Pomerantz and Associates, is in lower Manhattan, where he advises Wall Street workers and other high-net-worth clients. But he is far from elitist in understanding and acting on the concerns of NAIFA’s members. Miller covered so much ground – and did it so well -- that we made this longer version available online.
INN: Is your practice mostly financial services?
MILLER: In my particular business, we are all licensed to sell securities. But we made a decision, I’d say a good 15 years ago, to stick to the insurance end of the business and not become asset managers.
We did it for any number of reasons, but mostly we felt that even though we were all licensed, our expertise was in the basic insurance products, life and disability. We really didn't want the day-to-day managing of money to start consuming what we felt was our strong points. So we made a decision not to go into that.
That being said, the majority of our business is broken down in to two different aspects. We have a very large disability business, through a number of financial institutions and law firms. And with those disability clients, we found a niche market called the supplemental disability market. And as incomes grew there was a niche between what their long-term disability that the company offered would give them, and what they were eligible to get if they started buying individual disability products.
There were few other companies in the insurance world that did this. We were able to negotiate with the companies and get better guaranteed deals, because we were bringing in significant numbers. We have 1,300 clients who have supplemental disability insurance.
We also do your typical estate planning and just traditional insurance selling. The other day somebody asked me what it’s like to talk to somebody about estate planning when you have no idea what the actual numbers are going to be on the estate tax because Congress can’t make up its mind on this. I said – that’s a very interesting point. There’s nothing I can do about Congress, but the bottom line is that people are going to still face the same problems if the income earner dies. They still have to continue on, hopefully in their house and continue to educate their children. All the same things still exist. But it is a bit of a moving target trying to figure out what your estate tax liability will be if we don’t know what that’s going to end up being.
INN: What is your guess on what’s going to happen with the estate tax?
MILLER: I’m out of the guessing game when it comes to Congress. We hear anywhere from $3 million to $6 million will be able to pass through. As far as I’m concerned, we just want them to come up with the numbers so we know what we’re dealing with.
INN: Yes, that’s been the cry for many years. Are you hearing much about this from your members?
MILLER: Ultimately, very few of our members are going to be affected dramatically by it. I happen to be in a market, because I live and work in the Washington to New York corridor, we do deal with a lot of estates that are worth substantially more than $6 million.
But for the overwhelming majority of the country, it’s irrelevant. Most of our members at NAIFA are dealing with clients who earn less than $100,000 a year. Most of our members are dealing with the middle market, not in the high-end part of the market. They’re not dealing with the Wall Streeters, they’re dealing with the mainstreamers.
INN: Looking at this year, what do you see as the most significant issues for them?
MILLER: Everybody’s caught up in the debates over fiduciary responsibility. I tell people out in the field that the odds are we’re going to all become fiduciaries in a way that’s going to allow our model to continue, because we’ve been telling our story and we differentiate ourselves from the traditional investment advisors.
But in terms of the future, obviously tax reform is lurking. And while nobody thinks Congress will get around to it until the fiscal end of 2012, 2013, if we don’t set the groundwork for making them understand who we are and what our products do; we’re going to be in trouble. If all of a sudden you’re taxing the inside buildup and the death benefit, that’s going to significantly damage I think a lot of people who the Congress has no intention of damaging.
INN: Certainly, a tax on the inside buildup and death benefit would be bad for the industry and the public. It is an alarm that has been rung each year, particularly by the Association for Advanced Life Underwriting (AALU). Why is it different now?
MILLER: I am also a member of AALU, by the way. I think you’re making a good point. When you go out to the hinterlands around the country, they do have a bit of a sense that we’re crying wolf. AALU’s main focus has been on tax reform, and will always be on tax reform. Their organization is set up to be very narrowly defined. They don’t do regulatory issues the way NAIFA does, and they’re not involved in a lot of the broad spectrum issues that we’re involved in. But they’re definitely involved in tax reform.
When I go into the field, I don’t act hysterical and I don’t say this is doomsday. I paint the picture that this is not a Republican or a Democratic issue; it’s a national issue. No matter what your philosophical way of looking at the country is, even Democrats will have to realize that you can only have so much debt before something is going to have to be done about it.
When you start looking at ways you can address the debt, there are many different ways to do it. But the insurance industry comprises more than a billion and a half dollars of what they call “tax expenditures,” which is essentially money that is passing through without any tax revenue going to good old Uncle Sam.
No Congress person that we’re talking to is saying that they’re definitively going to tax the insurance industry products. But on the other hand, when you have a bull’s eye that big on your back, you’d have to be foolish to think that they’re not going to take a hard look at you. To a degree I’m oversimplifying, but it works.
So our job when we lobby is not to scream hysterically and say, “Oh my God, you can’t tax insurance products!” Our job is to build up a story, and it’s a completely real story about who insurance agents are, what we do out in the country and what the benefit of our products is to America. And I think that is a very significant story that they have to hear again and again and again.
INN: What is that message?
MILLER: What we are is we’re relationship builders. We’re not a transactional business. I think if we ever became a transactional business, that would be the death knell of us, and that would come from something other than Congress. But we are not a transactional business. We are a business that develops relationships, and it happens again and again in big cities and small towns across this country.
We sit down with families and small businesses and discuss issues with them that nobody else wants to discuss. Those issues are if anything happens to a significant partner in this business – let’s say it’s the partner who holds the key to getting bank loans – how are you going to stay in business or if anything happens to the breadwinner in a household, how are you going to be able to educate your children, stay in your house or continue on in a life that you expect to have?
We bring in those dollars when the going is its toughest. We can’t replace the love of a lost family member, and we can’t replace a significant partner in a small closely held business, but what we can do is bring in money that buys their future.
Once legislators understand the significance of what we do and they realize that insurance products represent 20 percent of all savings in this country, Congress is set up to make intelligent choices and to understand what potential unintended consequences would be if the rules were changed and families had to buy twice as much insurance in order to get the same kind of protection because they’re taxing the death benefit.
INN: Isn’t the industry a little vulnerable on the point of who they’re insuring? Middle America is not by and large getting insured. But the rich are, at least that is according to LIMRA’s data that show life insurance ownership is at a 50-year low while the total coverage amount is growing.
MILLER: That’s a good point. There is also talk about it in the field – that if we don’t insure more of America, somehow they’re going to figure out how to insure without us. So I think that is a point well-taken. On the other hand, you’re still insuring more than 75 million families, and an overwhelming majority of those families are falling into the under-$100,000 breadwinner category.
When I go out and I talk to my clients, I’m dealing in one segment of the marketplace. But I’ve spoken across this country for the past six years, and I’ve gone from towns like Ogallala, Neb., to Cody, Wyo., and the only significant financial advice that people are getting is through their insurance agents, and they’re getting it mostly on a non-fee-based basis. And these people are buying $25-, $40-, $50,000 dollar policies, and the industry still consists of an overwhelming majority of those.
So when you talk about 75 million families, maybe you cherry pick 100,000 out of that, but the overwhelming majority is still dependent on those individual insurance policies they buy from their insurance agents.
INN: When you talk to members on the road, what do they say concerns them? What are you hearing from them?
MILLER: Well, they’re all concerned about regulators and legislators eventually dictating what they can and cannot do, or whether they’ll have a job or not.
INN: Is it related to fiduciary?
MILLER: Yes, it’s related to fiduciary. They all have an idea that there are two different definitions of fiduciary going out there. We do make them aware of some of the political things, but for most of our members they should really be worrying about their business. NAIFA is in Washington in order to protect that, but the members are still worried about it. My job is to present them more with the subtleties of what goes on, and it’s not all black and white, and not all legislators and regulators are out to ruin a business.
NAIFA doesn’t stand against regulation; we’re for intelligent regulation. We understand we’re going to be regulated, and no industry should not be regulated. I tell people that the government is not some monolithic force sitting there in Washington. These are people you elect, and if you want to start small, start with your state legislators, speak to your own state insurance department people.
But if you want to talk to your federal politicians, it’s very easy. Call up and make an appointment in your office. They want to hear from constituents. Our job is to bring the government from this media thing that they hate, and make it more human and personal. So I’m trying to personalize the government to our members as much as I’m trying to personalize our members to the government.
INN: I guess another part of it is that some of the problems that you have that the various branches of the government don’t really understand what insurance does is because insurance doesn’t have a seat at the federal table, or at least not until the FIO came around.
MILLER: If we have an intelligent spokesperson on the national scene, I don’t think that hurts us. One of the issues that we talk about all the time is regulatory change and there has been a bit of a war between the state regulators and the federal regulators. And I think that if the NAIC was ever able to get its stuff together, we probably wouldn't be having this discussion. But I think the states have opened themselves up for it. Plus, the multinational insurance companies, owned by European companies, want federal regulation because it makes their job easier as a multinational company. The big mutuals are kind of ambiguous about it.
INN: How do you think states expose themselves to this?
MILLER: For the last umpteen years we’ve been trying to get the states on board with uniformity. I have clients in all 50 states and I have to employ people just to figure out how to keep my licenses straight, how to make sure I’m in compliance with continuing education around the country. My parents now live in Florida, so we’ve been doing some business there. And did you know that it is not good enough to have a Florida license; you have to be licensed in the county you were doing business in? So a degree of uniformity would help.
There’s the Interstate Compact that the NAIC has been trying to get unanimity among the states on for at least a decade or more. It’s an ongoing thing, because states like New York and California have never joined it. So you can’t even get the meaningful states to develop uniformity among themselves.
So when you’re a highly regulated industry and you’re trying to meet all your regulatory obligations – in New York, we now have Reg. 194, which is the commission disclosure – we have all of these things and it’s an Excedrin headache to be sure.
INN: Do you think the commission disclosure will spread to other states?
MILLER: I don't know. I was deeply involved in that in New York – I was the first person to testify on it. The funny thing about commission disclosures, it was promulgated mostly as a result of the bid-rigging scandal when Spitzer was still a mainstream muckraking attorney general. Under Eric Dinallo, he decided we needed something called principle-based regulation. Well, forget the ambiguity of the term principle because it’s bizarre beyond belief, but he thought one of the principles that would help clients significantly was complete commission disclosure. Dinallo, by the way, is now in the private sector thinking that we’re over-regulated in New York State.
On a personal basis, I don’t really have a problem with commission disclosure. But from an industry-wide basis, a commission is a very variable kind of a thing. It is hard to pin down in many instances. There are a lot of things that go into it. We negotiated a regulation that became Reg. 194, and it had commission disclosure. We have it, but I don’t think it’s a significant thing. It doesn’t appear that any states have picked up on it yet. But it could be part of the fiduciary discussion on a national basis.
INN: Getting back to fiduciary, what is your expectation when they finally get around to establishing what that standard is, the standard of care? What do you expect is going to happen there?
MILLER: When NAIFA had its national convention in September, a thousand of us went to Capitol Hill. The overwhelming majority of remarks I was hearing from both Republicans and Democrats was that the Department of Labor was grotesquely overstepping their bounds and hundreds of them had been writing to the DOL to back down on bringing a fiduciary standard to the marketing of 401Ks and IRAs and individually purchased products. They said the DOL was completely overstepping their ERISA guideline by doing that. It was the only thing I ever saw this partisan Congress agree on, ever.
Two days after we were there, the DOL decided to repurpose its definition of fiduciary. So we’ll take the credit, but of course that is the effort of a lot of people. But we are starting to hear sneaky things. Their repurposing doesn’t sound like they’re repurposing at all. In fact, they’re digging in their heels, and they’re going to repurpose us with the same kind of bizarre overreach that they had. Congress is already looking at them and getting annoyed. But we don’t have any friends in the Department of Labor for sure.
INN: Would it have any effect on the pure insurance producer?
MILLER: Right now the whole fiduciary setup in the insurance industry is strange. You have your basic agents for your old line mutual companies, who are technically fiduciaries for their company. And that goes for the broker/dealer side as well as the insurance side, right? So when you go out and you’re an insurance agent for one of your basic mutual companies, you’re in a situation where you’re actually contractually a fiduciary, whether you’re selling them an IRA, a mutual fund that’s part of their family of funds or anything like that or a variable product. You’re technically a fiduciary for the company.
Ultimately we are going to be fiduciaries. SEC Chairwoman Mary Schapiro said the broker/dealer industry did not lobby as hard for suitability as the regular investment community did for fiduciary. Hence that has become in their minds the gold standard.
Our point to them is that we have operated very well under suitability and there’s no need to change it. But if we’re going to become fiduciaries, then you have to understand again the way that we do business and the unintended consequences that are at stake here are interpreting a fiduciary in a way that’s going to inhibit the way we do business.
Let’s say all of a sudden we have to all become fee-based in order to comply with acting as a fiduciary. Well, if you go back to the income of most of our clients – one, they may not be able to afford to pay the fees; and two, if they can’t afford to pay the fees, why would an advisor stay in that market? There could be an increase in liability insurance coverage and other things that might make it just economically unfeasible to deal with some of this stuff, particularly since most of our members are not making the most part of their living through selling it.
So there are unintended consequences. You don’t want to necessarily disenfranchise somebody in Cody, Wyo., who’s a hundred miles away from any significant financial advisor or investment broker, when you’re right in their town, you grew up with these people, and they’re asking you for financial advice, and if you’re licensed to give it, why not? Why not participate in this discussion and help them?
INN: Without charging them?
MILLER: Right, without charging them. So all this goes back to the story of who we are and what we do, and that is the answer for tax reform, it’s the answer for fiduciary, as far as I’m concerned. Again, it’s a business model that’s worked tremendously well over a long period of time, and there’s no reason to mess with it.
INN: I wanted to ask you about NAIFA itself. Every association is struggling with maintaining and growing. How does it look for NAIFA on that?
MILLER: Well, NAIFA’s membership numbers have shrunk for sure, but they’ve actually shrunk less than the diminution in terms of insurance agents. When we were at our strongest in terms of members, there were more than a million insurance agents. Now there are about 250,000 insurance agents and the NAIFA numbers are just under 50,000. We still have a significant chunk of the insurance-selling industry, though obviously I would like to have more than we have.
I think one of the challenges for NAIFA in terms of membership has been the spread of the independent agent. They’re harder to reach and harder to market to. They’re out there in towns across the country but you can’t reach them as a bloc like you can with the old-line, contracted agents.
It is a frustration because when I’m representing the insurance industry on the Hill, I’m representing realistically both our members and our non-members, because what I’m fighting for is going to help the non-members as well as help the members. It would be nice to get them in the race. In order to get your voice heard these days you have to work hard at it.
INN: One of the challenges for producers these days seems to be that, although there is a lot of opportunity on the Internet, the aging sales force might not be comfortable operating there.
MILLER: The aging of our industry is a big, big problem. I think it’s a two-prong process that has to happen. One, the insurance companies have to be able to recruit younger members, and they may have to change the way they recruit. Sometimes it’s like throwing spaghetti against the refrigerator and seeing what sticks. I think that it would be helpful if they’d set up a lot of mentoring as they bring in younger agents. It would help the younger agents with some of the really hard parts of starting up a business.
Companies have to keep recruiting, and recruiting younger people, but NAIFA also has to do a good job of promoting ethics and promoting the business.
I think we could do a better job at attending career conferences around the country and selling the idea of an insurance career. Most people think of insurance agents as being – well, I don’t want to get into the specifics, but thankfully politicians have superseded us in terms of public perception of what we do and don’t do. But, in actuality, I think the insurance industry is a great opportunity for many people. You can set your own career path. You can have the freedom to work your own hours. Of course, freedom is a double-edged sword; you also have the freedom to fail. But, for an entrepreneurial person…
And frankly, I used to look at this. My office in New York is directly across the street from Zuccotti Park. During the height of Occupy Wall Street, we used to joke around about how we’d put a Miller Pomerantz tent there and see if we could get any business. But when I’d go across the street and get my Starbucks hot chocolate, I walked around the park and checked out the scene, being a good product of the ’60s myself. And I’d say to myself, some of these people should try an insurance career.
It’s an entrepreneurial career. You can build a business and tailor it to anything you want. There are many different marketplaces within the industry you can do. It’s just a matter of not having enough high capital cost to start up. So there is a great career to market. We’ve done a crappy job of doing it, and sometimes we’ve let the consumer groups market us, which is never good. Not that I’m against consumer groups, because I’m not, but we have to market ourselves and bring out the positives of an insurance career. If you have an entrepreneurial spirit, it’s a really nice business to be in. So we don’t do as good a job as we should in marketing it.
INN: You certainly have described the best parts of an insurance career – being independent, growing your own business and it is lucrative if you’re doing it right. It’s that beginning phase where people are left to build their business somehow. You’re not going to get paid very much. And you’re going to have to wait a couple years before you know whether you’re going to be a success. How do you sell that to young professionals?
MILLER: What’s the difference between that and being in law school or being an intern in a hospital like Maimonides, which is in one of the worst neighborhoods in New York City, and you’re a sleepless slave. It’s like going through Hell’s Week at Navy Seal training. You sleep like 10 hours a week, you’re constantly on call.
I tell people around the country that this is your graduate school. You’ve got to learn through hard knocks. There’s no free lunch. I had the same problems that they had. I have to tell you, I still can tell you war stories about my beginnings of all the failures and all the rejections. But that happens in any business. A lot of these people didn't go to graduate school.
I have a daughter right now in her first year of law school, and she’s dying. She feels like she’s a slave. But that’s OK, because you always have to work with the end in mind, and the end game is to build a business. You have to have a dream, a goal. Without a dream and without a goal, you’re rudderless, and you’re going nowhere no matter what job you go into.
INN: With the law, it’s a combination of a calling and a profession. You’re making a lifelong commitment, like with a lot of the graduate programs that you’re talking about. How do you get people to consider insurance in that league?
MILLER: Well, I think it’s all on the individual. I have to tell you. It’s something that I had a very hard problem with. I went to graduate school and when I pivoted into the insurance industry, people looked at me like I was absolutely out of my mind. All of a sudden, nobody wanted to talk to me anymore. It was very hard, and it hurt my confidence and it hurt my self-esteem. I got it back, and eventually I was able to go back and revisit with all those people.
So if you go after a client and you are showing more interest in making a sale than you are in them, you deserve the fail you’re going to get; it’s going to be ugly, nobody’s going to do business with you. A lot of my friends were lawyers and they pivoted to Wall Street. And I would say to them, “Look, this is a career I’m embarking on just like your career; here are the things I’m trying to do,” and I started asking them if they knew people that they could introduce me to more on a corporate level. Eventually, if you treat yourself as a professional, and you take yourself seriously, then you’re treated as such. I think for the people who are in it to make a commission, they’re treated accordingly in that respect. So I think a lot of it is the way you are as an individual.
But I’m not going to tell you it isn’t hard. I remember one sale particularly. In those days, I was walking around with holes in my sweater and paying rent on a month-by-month basis, never sure if I was going to have it or not. My commission, I still remember, would have been $3,000, which for me in 1982 was a lot of money. It certainly would have taken care of my rent for awhile.
And so I wanted the sale big-time. We went out to lunch and the guy told me all the stuff about his medical history, and then at the end, he said, “I don’t want you to put that down on the application.” I said, “Well, what do you mean?”
“I told you this, but I know it’s going to hurt my underwriting, so I don’t want you to put it down, it’ll make me pay more.” I said, “Well, I’m not going to do it. We can’t do business together if that’s what you want out of me. I’m sure you can find another insurance agent, but it’s not going to be me,” and I left, that was the end of the meeting. I paid for lunch. I didn't get my commission.
I guess what I’m saying is that if you’re willing to act like a professional and do the right things, I think people pick up on that, and I think you can hold your head high and you’ll be successful.
INN: Older agents are concerned about the perpetuation of their business, and then there is the broader issue of the industry’s perpetuation. Are they tied together? You kind of see a lot of agents out there who are not bringing new people in and not taking the time to train the next generation. Aren’t individual agents and agency owners partly responsible here?
MILLER: Yes, it’s a big problem. It’s a huge problem. But if you’re a young person and you’re coming out of Columbia in New York City, or even NYU or any of these schools, and you have dangling in front of you a $150,000 job offer from Goldman-Sachs, and you’ve got a job offer from an insurance company where you’re going to be paid a few thousand dollars a month, learn a profession, and maybe you’ll be successful, where are you going to make your choice?
INN: That’s true, but you mentioned that most of the members are in small towns. So they have an agency and they say there is nobody in my agency, nobody in my family who wants this. I don’t know if I’m going to be able to sell it in this market, and what’s my future here? I’m 65, 70 years old and I want to retire, but I can’t. What about those guys?
MILLER: It’s a major, major problem. We face it ourselves in my own business, but we brought in younger partners. Here’s one secret that is not such a secret: insurance agents tend to be very poor business people. They spend most of their careers running to get the next sale, the next sale, the next sale. They’re almost like the cobbler’s son walking around barefoot, and they’re not taking the time or the inclination to set up continuation, even though they talk about it. But from a business modeling standpoint, we’d have 200,000 members at NAIFA if everybody did what they try to get clients to do in the field, which is think about the future.
If we can’t replenish ourselves, obviously it’s going to hurt the industry tremendously. But it’s got to come from three different perspectives. It’s got to come from recruiting. And for the old line companies, they have to do a better job of recruiting new people into the industry. For the independent agents who have their own shops, they have to set up more continuation and they have to do a better job educating people as to what a career should be. And NAIFA, frankly, should play a major role in that. We have to do a better job of just promoting insurance, promoting insurance as a career. We’re all guilty of this.
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