Life Resource Planning

Life Resource & Retirement Planning System

Helping Two Generations Plan for Their Later Years

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Why Use a Planning Approach?

Video - Thomas Day, Director of the NCPC

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How to Use the Planning System

Video - Tour of the Life Resource Planning System

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(PDF) Instructions for Using the Planning System to Generate a Planning Report for your Client

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When to Use the Strategy of Charging a Fee for the Planning Approach

In Article #11, we discussed doing the planning approach for potential candidates at no cost to them. We also pointed out that doing a survey or in an analysis using our system takes time and costs money to put together a presentation. When you offer to do the planning for free, it may raise some suspicions as to why you are willing to do that. We also discussed various strategies that you can use to allay those suspicions that you have a hidden agenda when you do planning.

Another way to offer a planning approach is to charge a planning fee. There is no question as to how you are making income from the time and money that you put in. Planning fees could range from $500-$2000. The size of the fee depends on your background, your credibility and the type of advice that you provide. You might also consider to mix-and-match the type of planning you do with some of it at no cost to your potential clients and some of it resulting in a planning fee.

The more you focus on charging planning fees, the fewer planning clients you will assist every month. This fact of life is a simple byproduct of the reluctance most people exhibit in paying for advice or planning unless they have an underlying incentive to do so. For example, they will certainly pay an attorney for legal advice if they are under the burden of some sort of legal action. Likewise, they will pay for tax advice if the results produce significant tax savings. Sometimes they will pay for investment advice if they trust the credibility of the investment advisor and they are looking for better returns or long-term management of their funds. Another area where they will pay for planning is in obtaining veterans benefits. We will discuss in Article #13, how the survey questionnaire uncovers veterans benefits and what these benefits constitute. In Article #18 we provide information on how you can use a fee-based planning approach to help veterans get certain benefits that are specifically useful to aging seniors.

Anyone can charge a fee for advice or planning as there are no specific state or federal rules against this. However, there are rules about charging for particular types of advice. For example charging for legal advice and legal services requires someone to be licensed as an attorney. Charging for investment advice requires either licensing as an investment advisor or as a registered representative of a broker-dealer or as an attorney. Charging for tax advice requires registration with the IRS. And the list goes on.

Charging a Planning Fee when an Insurance Sale Results As Part of the Planning

Attorneys, Registered Investment Advisors and insurance agents who charge a fee for advice relating to legal issues, investments, financial planning, or other personal life-structuring issues sometimes sell insurance products as a result of that advice. These consultants might be using certain methodologies to sell the insurance and provide fee-based consulting at the same time. Some of these methodologies may not be legal under the insurance licensing rules of some states.

Individuals who charge a fee for financial planning often assume that if they are an attorney, a registered investment advisor or an individual with an appropriate designation, they can charge a fee for planning and receive a commission from the sale of an insurance product that is tied to the planning. This practice is generally not acceptable in any state. Certain procedures must be followed for this practice of combining planning fees and insurance commissions to be allowed.

Most states accommodate licensing for an individual or an agency to provide fee-based consulting regarding the value of retaining existing insurance products or which new insurance products should be purchased. There are no insurance commissions associated with this consulting activity. Typically, a person licensed for such a purpose is called an "insurance consultant." It should be noted that an insurance agent, or as most states define it, an "insurance producer," technically cannot act as a consultant for a client and at the same time represent his or her insurance company as an agent producer. Wearing both hats at once and acting in the interest of both client and company can represent a conflict of interest.

Some states do recognize that practitioners may desire to operate under both categories of representation. These states will allow an individual who is licensed as a consultant and at the same time licensed as a producer, to receive a consulting fee as a consultant and receive a commission from the sale of insurance as a licensed producer. These few states require a written agreement between both parties that discloses the conflict of interest to the client. Most states prohibit this practice and anyone receiving a consulting fee for insurance cannot directly or indirectly receive a commission. Some states, in addition, do not allow practitioners to be licensed as a consultant and a producer at the same time.

Many states do not address the separate issue of whether a licensed producer can provide any advice not related to an analysis of current insurance products or the advisability of purchasing new insurance products and then transact a separate insurance sale that will produce a commission. In those states that do not address this issue, insurance code would probably prohibit this practice if the fee-based advice were directed towards an eventual insurance sale and the combination of a fee and a commission constituted a "double commission" as defined by these states. Or in other states, the fee-based advice combined with commissions could be prohibited under other codified rules governing insurance solicitation and sales.

The key issue here is whether the fee-based advice could be construed as a solicitation for the sale of insurance even if insurance were not discussed, but an insurance sale resulted from the consultation. If this is true, this activity could be prohibited in a number of states. It is probably true in all states that fee-based advice that avoids any recommendation or solicitation for insurance sales – disguised or overt – is allowable, even if a subsequent insurance sale occurs – but the sale results only as a separate activity not related to the planning consultation.

It should be noted, that some states specifically address in their insurance rules the issue of fee-based planning and commissions derived from the sale of insurance products from further contact with the client. In these states, these pursuits are allowed if there is a written agreement with the client, spelling out the exact nature of the fee-based planning and disclosing the receipt of commissions from the sale of insurance products, as an activity separate from the planning. This agreement must disclose that the fee-based advice is for a purpose other than the sale of insurance.

Life Resource Planning Attempts to Avoid the Issues Addressed above

In designing our Life Resource Planning System, we made a determined effort to sidestep the issues discussed above. Life resource planning does not recommend the sale of any specific insurance products. Existing insurance coverage is addressed incidentally, if at all, and any advice for new coverage or changes is referred to a licensed agent (who is not the planner) experienced in that type of insurance. With our planning process, there is generally no expectation of receiving commissions unless the planner is experienced in that type of insurance and the planner would conduct insurance sales outside of the planning consultation through further contact with the client.

Certain recommendations deriving from Life Resource Planning may result in the sale of a single premium immediate annuity or setting up a Medicaid funeral trust which often involves a guaranteed issue life insurance policy. However, specific types of insurance policies are not identified in the planning recommendation process. For example, the planning report might include a recommendation for converting assets into a guaranteed income flow. Perhaps a SPIA is one way to accomplish this or perhaps there is another way to do it. A recommendation for a Medicaid funeral trust is just that. There is no mention of insurance products because there other ways to do this without involving insurance. The use of any specific insurance products to provide solutions is done as a separate activity by the planner who after completion of the planning puts on an "insurance hat" different from that of his or her "planner hat."

What to Do If a Planning Fee Is Involved

If a planning fee is involved, a Life Resource Survey or a Life Resource Analysis should always involve a letter of agreement between the planner and the client. This agreement should spell out what the planner is allowed to recommend and what the planner is not allowed to recommend. For example, if the planner is not an attorney and not licensed for investment advice, the agreement spells out that no legal or investment advice will be given. In addition the agreement specifies that no products or services will be solicited when presenting the planning report. The agreement should allow that there is the possibility for the purchase of services or products as part of a separate activity that is not part of the planning process.

The agreement should also point out out that any such discussions for products or services are not part of the fee for the plan or the presentation of the plan and would occur as separate activities. If any solicitation occurs after the planning is complete, all issues as to fees or commissions and practices associated with these services should be disclosed. The client should also be notified that he or she has no obligation to purchase the services or products from the planner.

Even though there is careful attention to disclosure and avoiding conflicts of interest – which could turn the client away – seldom do clients seek out anyone else to help them with product or service solutions to the problems uncovered in the plan. The planner is always involved in structuring solutions if the planner wants to be involved.

Disclaimer for Legal Advice

Information in this article pertaining to the charging of fees is not intended as legal advice. We have pointed out some issues relating to the legality of charging fees and receiving a commission from the sale of insurance products. Our interpretations are our own. Do not use this information as authority on which to base your practice. You should find out for yourself whether your practice using Life Resource Planning meets the insurance rules in your state. We take no responsibility if you should encounter any pushback from your state by combining fee-based planning and making insurance sales for commissions.