When I first entered the life insurance brokerage business, I was privileged to be taught by and to work with the two most revered life insurance salesmen this business has ever produced. The first was universally revered for unbendingly ethical conduct, and the second for becoming and remaining the greatest life insurance salesman in history. I worked daily with Marshall Wolper for over a decade, and with Ben Feldman monthly for the same duration. Both men would have recognized the perils of the non -recourse, non legitimate sales environment that we just experienced, and both would now recognize the unique opportunity to create an instant client base of wealthy families that has developed. When Ben Feldman and I did our first film together for the Equitable Life Assurance Society entitled, "It's Not Magic, Its Hard Work", he taught me the value and difficulty of accumulating trusting clients. It was these clients who cemented his permanent reputation as Poet Laureate for the entire life sales industry. At a Miami Bar Association gathering in 1982, my good friend, the now deceased tax lawyer Shepherd King of Steel, Hector & Davis approached Feldman (the keynote speaker) and attempted to embarrass him and show that he was just another lowly salesman. "Mr. Feldman, sir, with all respect, when all is said and done, you are really nothing but a life insurance salesman, aren't you?" Ben trained those soulful and ever penetrating eyes upon his new respectful challenger and landed his knockout blow, "But, Mr. King, with all respect, what's more important than your life?"
The prospecting and sales skills of these two individuals, close friends, and my early mentors are beyond renown and are essential at this very moment in time. Both Marshall and Ben would have recognized the once in a lifetime marketing opportunity accruing at this moment to build a world class portfolio of clients, centers of influence, and general personal reputational capital in your communities by immediately and intensely bringing to the attention of each family that became innocently caught up in the non-recourse premium loan schemes that were underwritten by unlawful stealth rebates, that they must bring their involvement to the attention of the IRS immediately to eliminate the almost assured imposition of ghastly new tax penalties that will assuredly be following in the weeks and months ahead. Arrange and execute strategies to help these clients avoid the gargantuan tax storm that is brewing, and the makings of a huge client base will be underway. It is not unknown in the industry that Marshall and I developed thousands of wealthy individual family clients through our promotions of proprietary pension and wealth transfer concepts. What might appear to most sales operatives as a looming disaster for the business would appear to both Ben and Marshall as a once in a lifetime sales opportunity.
For those who missed the previous article entitled "Crackdown: Stealth Rebates", or who wish a quick refresher course in the causative factor, almost every premium financed transaction that was concluded during the "Non Recourse" era involved the payment of unlawful rebates back to the lender which, after a proper tax analysis, yields a tax equivalency of the rebate finding its way back to the original borrower as a loan offered at a discount. In term of recently issued New York State Insurance Department Circular No. 9, it is the same as offering and providing any recipient of a policy a discount service by referral to induce a policy purchase, except that in this case the service was a loan.
The internal architecture of most every non-recourse loan program affected in the United States over the past 5 years included a growing cancerous unlawful rebate of insurance commissions to the promoter and to the loan underwriter. A transfer of a portion of an insurance commission to the underwriter of the loan utilized to finance the policy would not have been transferred from the first recipient unless (1) he was getting something of comparable value for it and (2) he had to. This transfer is described in virtually every state's anti-rebating statutes as an indirect rebate. It is economically the equivalent of paying the funds directly to the purchaser/insured/borrower but with the clear attempt to hide the unlawful transfer. Certainly no one would pay a banker a substantial set of financing fees for the privilege of borrowing money from them at the same rate that they could borrow it anywhere else.
As readers of the past article analyzing the rebate-supported stealth non-recourse phenomena are aware, there is no way for the victimized senior borrower to be cognizant that there is a hidden tax explosion waiting explode in their faces. Promoters of transactions that had imbedded rebates built into them (whether they themselves were misled, foolish or, most likely, fully aware of the crime they were committing and too greedy to pass up an opportunity of their lifetime) were almost universally not life insurance experts, but were rather converted structured finance specialists, real estate developers, or venture capitalists. Hardly any of them intended to remain in the life business for any real length of time, and this is why so many of these transactions were constructed by attorneys charging flat fees for several opinions and documents. In fact, the vast majority of this scheme's perpetrators assure me that they themselves did not engage in any stealth rebating. This is because they found a "magic bullet" to avoid sharing commissions, and instead termed their arrangements "profit sharing", an activity that, in its intended and real form, is perfectly legal. Unfortunately, the resulting deals were most certainly not profit sharing deals. Invariably, every single objective of them were gross commission sharing arrangements dressed up to look and sound like net profit sharing arrangements but such an analysis will fail every time to pass any simple test of logic. In effect, one cannot sell or offer to sell a policy by offering to provide or providing a service at a discounted price. The Circular Letter is intentionally ambiguous and does not focus on lending services which constitute the most controversial service provided during the past five years - not discounted profit sharing administration plan services or employee form completion services saving a few dollars to the employing units. The discounted loan (financial services) constituted far and away the greatest fraudulent disregard of state anti-rebate laws in the history of my three decade career.
Finally, our carriers share a responsibility in this enterprise, due to their failure to protect us - their agents - and their policyholders from being victimized by predatory lenders. In fact, the carriers only took an active interest in the loans when they realized that they themselves were potentially at risk. intentionally or otherwise, the carrier community, as has happened so many times before, decided to draw its own, artificial line in the sand. All policy/financing transactions sold after the appearance of this line were to be accorded the new, more rigorous treatment and the old policies were to be with the same careless indifference. The carriers will need to strongly consider taking a leading edge position on stealth rebating instead of being dragged into a hopelessly losing position by government authorities.
Because of the non-recourse market, most agents lost their sales arts and began to simply offer up front money or guarantees for signing forms. If you can reacquaint yourself with your sales basics, you have the opportunity to tap into the huge pool of people victimized by stealth rebating and abandoned by their professional consultants. To paraphrase an overused metaphor, Ben Feldman and Marshall Wolper must be turning in their graves at the realization that that art of insurance selling has all but died. Selling is no longer an honored profession, bribery is!
There is a growing concern among purchasers of life insurance policies who were promised quick and easy money just a few years ago that is no such thing, and their day of reckoning with the IRS is fast approaching. This anxiety attack is well founded. It is a basic rule of tax law that values do not migrate without recognition for tax purposes. There are exceptions, of course, but they generally must have social utility or be grounded in clear statutory or regulatory intent and expression. No such articulation appears here.
These people are at great risk, as is his/her tax return preparer/accountant who typically does not follow life insurance news with keen day to day interest. If the IRS audits these returns before someone assists our taxpayer with an amended tax return or a special filing with the Service or Treasury Department or perhaps wants to join a larger movement a write to the Joint Tax Committee to seek a legislative resolution (although this a is a very long shot - it is also not mutually exclusive to the other alternatives).
It is essential that you become the prime advocates for these clients. The septuagenarian and octogenarian lives that are at primary risk in this enterprise are not your most likely long term business prize. Most of these elderly family patriarchs are lead a family and have children who are now running their businesses, and in a host of ways have made themselves ideal candidates to add to add to the client list of an aggressive, experienced and properly staffed agent.
