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The Tale of Two Policy Owners

It was the best of times, it was the worst of times,
It was the age of wisdom, it was the age of foolishness,
It was the epoch of belief, it was the epoch of incredulity,
It was the season of Light, it was the season of Darkness,
It was the spring of hope, it was the winter of despair,
We had everything before us, we had nothing before us…

These words came to me as I was reading the enthralling piece by Michael Lewis. Michael Lewis, as you may know, is the author of Flash Boys: A Wall Street Revolt and the New York Times article on March 31 titled “The Wolf Hunters of Wall Street.” If you haven’t read the article, I would recommend doing so as I found it absolutely fascinating. You likely heard about it in the news rotation earlier this year but the story is about a guy named Brad Katsuyama with the Royal Bank of Canada. The bottom line is that he came to the conclusion Wall Street is rigged in favor of those who understand very high end technology and how to take advantage of it. High frequency traders with access to ultra high speed networks and proximity to exchanges can effectively jump into the middle of transactions and game the system to make money off the process rather than making money by bringing value to the market.

Mr. Katsuyama figured it out and, more importantly, did something about it. Something intriguing to me is that very large, well known and respected players in the market, the big dogs, sensed something was wrong but couldn’t put a finger on it and said and did nothing. Ultimately, Brad discovered what was going on and came to the realization “The deep problem with the system was a kind of moral inertia. So long as it served the narrow self-interests of everyone inside it, no one on the inside would ever seek to change it…” Even after it was discovered and disclosed and there was a system set up to protect consumers from it, he discovered “just how badly the market wanted to remain in the shadows.” The point was, it is exceedingly difficult to do the right thing when it will cost a given party money and effort.

This following quote encompasses a point I want to make and how it relates to life insurance; “The US stock market was now a class system of haves and have-nots, only what was had was not money but speed (which led to money). The haves paid for nanoseconds; the have-nots had no idea that a nanosecond had value. The haves enjoyed a perfect view of the market; the have-nots never saw the market at all.”

How dead on analogous this is to life insurance is shocking. I suppose the same could be said about a number of industries but for those who have even a marginal understanding of the market, reading the previous and following quotes from the article with life insurance in mind may be somewhat epiphanic. Every day in the market I see the ultimate effects on life insurance policies resulting from the information the haves thoroughly understand and apply which the have-nots don’t even know exist. Information is power. That’s not a new concept. In the world of life insurance, the haves have this information and the have-nots don’t. There is a reason that the tagline of my life insurance consulting practice is Objective Information Drives Informed Decisions. Information is the end all and be all. Access to actionable information at the time is matter is critical. “Do-overs” in life insurance don’t exist like they do in other markets. The problem? Few have it to the extent they need it to make the best acquisition, management and divestiture decisions and deploy their capital as effectively and efficiently as possible. Almost no consumers have it. Most advisors don’t realize it exists or know how to attain it. Frankly, a shocking percentage of life insurance agents don’t understand it. Consider this quote from the article; “it occurred to (him) that the stock market had become a black box whose inner workings eluded ordinary human understanding…” Seem familiar?

Life insurance can be exceptionally beneficial for those with power. But power comes from information. Knowledge and comprehension is garnered through resources from and relationships with truly objective and independent subject matter experts. The haves gain power and effectiveness by knowing the questions to pose, who to pose them to and how to apply the attained cognizance (conscious competents). The have-nots don’t even know there are questions to ask (unconscious incompetents) and suffer the inevitable consequences.

We’ve all heard “The House Always Wins” axiom. It is the same with insurance companies… as it should be. All commercial enterprises have to win in the big picture or they will be out of business. But they should win while delivering benefit, or at least a fair shot at it; a win/win as we understand it. But the individual who understands the mechanics and odds behind a casino game has a better chance of winning than the tourist who doesn’t know what he is doing who is making a bet for the fun of it. The same goes for a horse racing insider making bets based on meticulously gathered information and observation rather than my daughter choosing the winner of the Kentucky Derby based on the horse’s name or the jockey’s jersey color. It’s the same with life insurance.

The insurance contract may offer the opportunity for benefit but that doesn’t mean it will automatically materialize. Another quote from the article is “…where money was made from its incomprehensibility.” This undoubtedly rings true with many of you. Insurance contracts are inherently, amazingly and intentionally complex and are shrouded in unintelligible legalese which no consumer could ever be reasonably expected to comprehend on their own. Beyond that, there is the ever present but unspoken intimidation factor that as a consumer you will never be able to proffer a fair fight when there is an understanding that your opponent has no fear of digging deep to skin you alive if you ever have the gumption to posit a challenge when something goes wrong.

Every product is built to be a winner… for the marketer, but despite the euphuistic ring of today’s marketing, not every product is built to offer a meaningful opportunity to be a winner for the marketee. However, there are many products available which can be intelligently managed into winners if one is girded with the power of information. Don’t think it will be easy and don’t believe the “house” will help you win. They don’t make money by assisting you in your efforts to increase your chances of success and that obfuscating contract language which creates the dreaded “black box” is not unintentional.

So? Someone loses and someone wins as a result of this imbalance of power/information. That shouldn’t be a surprise; that’s the way the world works. Don’t focus on the product creator/provider/marketer; you have limited power there. Focus on gathering and intimately understanding the information which will give you the power to be firmly entrenched among the haves. If you don’t know the questions to ask, call me or find someone who does. The house is counting on consumers and advisors to be among the have-nots which increases their winning percentage. The traditional process will get you where you want to be only by chance. That’s not good enough. You have to be willing to go outside the traditional process to make it happen and you have to remember that it won’t be easy because those who understand and benefit from the system as it is don’t have a vested interest in changing the game.

The Tale of Two Policy Owners. The haves and the have-nots. Truly understanding the system, gathering objective information and deploying it intelligently can almost magically shift the balance of power. As a consumer, you deserve it. As an advisor, you owe it and will benefit deservedly.

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