Retained-asset accounts don’t deserve criticism: Letters

The sudden outcry over a claims payment method that has been in operation since the 1980s and is…

The sudden outcry over a claims payment method that has been in operation since the 1980s and is subject to state insurance regulatory oversight is unfounded (Opinion Online column “Insurers’ self-inflicted scandal,” Aug. 4).

Retained-asset accounts were established with significant input from consumers to give beneficiaries time, if they want and need it, to decide how to manage their death benefit payment so that they don’t have to make difficult financial decisions while still in mourning.

If a beneficiary wants immediate access to his or her full benefits, he or she can simply write a draft for the full amount and deposit it, just as would happen with a lump-sum check. Beneficiaries start earning interest immediately at rates comparable to those paid by other similar on-demand accounts.

Insurers follow the 1994 National Association of Insurance Commissioners model bulletin on retained-asset accounts to disclose all relevant information to beneficiaries, including the interest rate, tax implications and the fact that beneficiaries have access to 100% of the proceeds at any time. Reflecting the value of the service offered, according to the NAIC, there have been few, if any, consumer complaints.

The implication that insurers are holding on to beneficiaries’ money in their own interest is plain wrong. Through good times and bad, retained-asset accounts have ensured that beneficiaries have received all their money plus interest.

Frank Keating

President and chief executive

American Council of Life Insurers

Washington

Just my two cents on the premise of setting up a “schedule of fees” for service to replace the 12(b)-1 fee: Placing a mutual fund purchase with a broker entitles the broker to charge a sales charge for the transaction.

This transaction doesn’t in and of itself entitle the client to a lifetime of “free” service for the account. Therefore, the concept of a “fee schedule” itemized in the mutual fund prospectus is an idea whose time has come.

The fee for service concept correlates directly into Securities and Exchange Commission and Financial Industry Regulatory Authority Inc. policy: open transparency to mutual fund clients of costs for service.

Currently, 12(b)-1 fees are paid quarterly and used to service mutual fund accounts, and fees are similar to the annual lifetime fees paid to life insurance agents for their life insurance clients. The life insurance industry, after 150-plus years, found that the trailing lifetime service fee is one of the best investments for client satisfaction and service.

If we end 12(b)-1 fees, mutual fund brokers don’t need the liability, suitability and Finra legal responsibilities per client after the sale. Mutual fund brokers won’t serve the client in later years without a small annual service fee.

Similar to banks, brokers will have to set up a fee for service. In fact, ending 12(b)-1 fees should allow the brokerage industry to set up a fee-for-service schedule at the same time if the 12(b)-1 fee is terminated.

The scheduled fees should be included in the mutual fund prospectus in similar fashion to scheduled bank fees.

Herb Abelow

President

First Mutual Planning Corp.

Delray Beach, Fla.

In the article “LTC insurance a hard sell to boomers” (July 21), there are two important additional ways to combat the excuse: “If I don’t use long-term-care insurance, I’ll lose it.”

Many LTC companies are offering a shared-benefit rider. If one party doesn’t need care before his or her death, the second spouse can use the other’s along with his or her own.

A second option is the return-of-premium-on-death rider. If a client dies prior to using the benefit or just uses a portion of the benefit, the balance of the total of all premiums is given to the heirs.

Stan Israel

Principal

Stan Israel Insurance Services Inc.

Agoura Hills, Calif.

I enjoyed the Investment Insights column “Dividend investing is too good to pass up” (Aug. 9).

A bird (dividend) in the hand is always preferable to two in the bush. This is especially true for tax-deferred portfolios and retirement portfolios.

Another very important aspect that influences a company’s dividend policy is the need to retain cash flow within the business. When a company is growing rapidly, it is more efficient to retain all or most of the cash flow to operate and reinvest back into the business.

After a certain scale, a corporation’s cash flow reaches a cross-over point where the cash flow is more than is needed to operate and/or build the business. At this point, it is more efficient to distribute some or most of the excess cash flow to the shareholders.

John Danz

President

Wealth Asset Management Inc.

Towson, Md.