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Dan Smith

“SELL THE SIZZLE, BOYS.” With those words from the sales manager at a big insurance company, the 2003 class of newly minted registered representatives were off to the races, extolling the virtues of the firm’s products to family, friends and anyone else who would listen.

I still vividly remember that moment. Yes, I was there.

To become registered reps, the 2003 class had to pass the necessary exams to get a Series 6 securities license and a license to sell life and health insurance. These licenses are the bare minimum required to be in the business. While there are suitability tests to be met before selling anything to a client, registered reps are not fiduciaries, which would legally bind them to act in a client’s best interest.

Clients need life insurance. Clients need retirement savings. Why not combine the two? Meet the variable universal life insurance policy, or VUL. The VUL coupled life insurance with mutual fund investments.

“Listen, you’re probably not going to die before your time, but you might. So, here’s a product that’ll protect your loved ones just in case. You do love your family, don’t you? If you live, it’ll provide you with tax-free money when you retire via loans from the policy’s cash value that don’t ever have to be repaid.” That’s sizzle, and that’s what you talk about.

“Just look at the illustration I’ve prepared for you.” The illustration is a multi-page document that shows the life insurance benefit, the premiums you’ll pay, and the accumulated cash value when you retire. “Look here at the fortune you’ll have with this policy when you retire.” More sizzle.

The illustration depicted several scenarios based on market performance. The best case usually projected 10% or 12% average annual growth. That’s more sizzle—and that’s what you talk about. Keep in mind that this was happening around the turn of the century, so folks were still taking for granted the irrationally exuberant double-digit market performance of the late 1990s.

The new agents selling these things were mostly kids recently out of college. Most had degrees that had nothing to do with finance. I was a new agent as well. I had left the beer delivery and sales business, but hadn’t yet started my career as a tax preparer. Still, at age 50, I was older than the other rookie salesmen—and I knew enough to be skeptical. I was the guy sitting in training with my little HP business calculator driving the sales manager nuts.

I think all but one of the class of 2003 flunked out of the business. Many were snapped up by banks eager for new hires who already had the required licenses. Others left the financial world. It was as if this was all part of the company’s business plan: Hire folks to sell to their friends and family. When the newbie salesmen wash out, the company gets to keep all the policies they sold.

The clients left behind were known as orphan clients. The kids that sold to these clients often didn’t even understand what they were peddling. There was one orphan client who was led to believe her VUL was an IRA. Another time, a new agent stuck his head in the office of the I-Spec—that’s what we called the investment specialist—and asked, “What are IRAs paying these days?” He was apparently clueless as to what IRAs were or how they worked. I also heard an agent describe the VUL as a “legal tax dodge.”

But we weren’t trained just to sell VULs. Meet the variable annuity, or VA for short.

Several years after I flunked out of the business—I lasted just over a year—a friend told me his financial guy proposed he buy a variable annuity. My friend asked for my thoughts.

The VA can be a fairly straightforward insurance product. In its most basic form, it’s an investment in mutual funds with a guarantee that, if you die, your beneficiaries will get the greater of the current market value or, if the investment is underwater, the amount you invested. In its not-so-basic form, the VA can get really complex, with plenty of sizzle and very high fees.

My friend was a professional with an MBA and a founding partner in a successful business. I knew he was a millionaire several times over, and I knew he was debt-free with a nice but modest lifestyle. I didn’t know his advisor’s rationale for proposing a VA, but I didn’t imagine that my friend needed such a product. I suggested he seek other opinions.

In the early days of my tax-preparation business, I shared office space with a non-fiduciary advisor. Every time I heard him utter the words “downside protection,” I knew someone was about to get pitched a VA with lots of sizzle. I once overheard another advisor talking to a prospective client. He said of the advisor with whom I shared office space, “He’s a great guy to play golf with, but what you really need is someone qualified to handle your money.”

In fairness to the insurance industry, there’s a place for its products. I know lots of people who got injured and wished they had disability insurance, but by then it was too late. Tax-deferred fixed annuities can provide higher interest rates than bank certificates of deposit. Single premium immediate annuities, or SPIAs, can deliver guaranteed income to help retirees pay their bills and not outlive their assets. Term life insurance is cost-effective protection and paramount for young families. Whole life insurance can help with estate planning and with buy-sell agreements for business owners.

But whatever the virtues of these various products, I’m happy to leave the selling to others.

For 30 years, Dan Smith was a driver-salesman and local union representative, before building a successful income-tax practice in Toledo, Ohio. He retired in 2022. Dan has two beautiful daughters, two loving sons-in-law and seven grandchildren. He and Chris, the love of his life, have been together for two great decades and counting. Check out Dan’s earlier articles.

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