$340K Tax Savings: Integrating Insurance Review into Onboarding

$340K Tax Savings: Integrating Insurance Review into Onboarding

Executive Summary

Summit Capital Partners, a leading RIA, recognized that their onboarding process was missing a crucial opportunity: optimizing clients' insurance strategies for tax efficiency. By integrating a comprehensive insurance policy review workflow powered by Golden Door Asset, they identified an average of $340,000 in potential tax savings per client. This not only enhanced client value but also strengthened the firm's fiduciary standing and deepened client relationships from day one.

The Challenge

Summit Capital Partners prides itself on providing holistic financial planning to high-net-worth individuals and families. However, their initial client onboarding process, while comprehensive in areas like investment allocation and retirement planning, lacked a deep dive into existing insurance policies. This oversight meant that opportunities to optimize insurance strategies for tax benefits were being missed.

Consider this scenario: A new client, Mr. and Mrs. Thompson, transferred $2 million in assets to Summit Capital Partners. Their previous advisor had focused primarily on investment management, leaving their life insurance policies largely untouched. Mr. Thompson held a $1 million whole life policy purchased 15 years prior, with a cash value of $300,000. While the policy provided a death benefit, it was generating a taxable gain of approximately $15,000 annually within the policy. Furthermore, the policy's internal costs, including mortality and expense charges, were eroding its long-term growth potential by an estimated 0.75% per year.

Without a dedicated insurance review process during onboarding, Summit Capital Partners was at risk of perpetuating suboptimal strategies inherited from previous advisors. Clients could unknowingly continue paying unnecessary taxes or holding policies that didn't align with their overall financial goals. The estimated missed tax savings per client, based on internal analysis, could range from $50,000 to over $500,000 over the lifespan of existing policies. This represented a significant value gap in their onboarding experience and a potential source of client dissatisfaction down the line. They realized that leaving these legacy policies unchecked could cost the client money in the long run, and weaken their own reputation as holistic financial planners. Specifically, this could include missed opportunities to exchange policies under Section 1035 of the Internal Revenue Code, sheltering capital gains, or to utilize gifting strategies to reduce estate taxes.

The Approach

To address this challenge, Summit Capital Partners partnered with Golden Door Asset to integrate a structured insurance policy review workflow into their onboarding process. The new workflow involved three key steps:

1. Dedicated Client Questionnaire: A custom-designed questionnaire, accessible through Summit's client portal, was created to gather detailed information about each client's existing insurance policies. This questionnaire included questions about policy type (life, disability, long-term care, etc.), death benefit amount, cash value, premiums, policy owner, and beneficiaries. It also probed for client objectives, such as income replacement, estate planning, or business succession.
2. Insurance Policy Analysis: Leveraging Golden Door Asset's AI-powered platform and integration with RightCapital, Summit advisors could quickly and efficiently analyze the client's insurance policies. The platform automatically extracted key policy data from uploaded documents and compared it against benchmarks, identifying potential areas for optimization. This analysis included evaluating policy costs, comparing policy features to alternative options, and assessing the policy's impact on the client's overall financial plan. RightCapital's advanced modeling capabilities were used to project future cash values and tax implications under different scenarios, such as policy surrenders, loans, or exchanges.
3. Strategic Recommendations: Based on the analysis, Summit advisors developed tailored recommendations for each client. These recommendations might include replacing existing policies with more cost-effective or tax-efficient alternatives, adjusting death benefit amounts to better align with client needs, or incorporating insurance policies into estate planning strategies. Advisors would then present these recommendations to the client, clearly outlining the potential benefits and trade-offs of each option. For instance, the advisor could propose a 1035 exchange of the whole life policy for a variable annuity, providing tax-deferred growth and potentially higher returns. Or, depending on the client's liquidity, a single-premium immediate annuity (SPIA) could be used to cover long-term care insurance premiums.

The strategic thinking underpinning this approach was to proactively identify and address potential insurance-related issues during the onboarding phase, setting the stage for long-term financial success and a stronger client relationship. This proactive approach also allowed Summit to fulfill its fiduciary duty by ensuring that clients' insurance strategies were aligned with their best interests.

Technical Implementation

The integration involved several key technical components:

• Custom Client Questionnaire: Developed using Summit Capital Partners' existing client portal platform, the questionnaire was designed with a user-friendly interface and included conditional logic to tailor questions based on the client's responses. The data collected was securely stored and accessible to Summit advisors through their CRM system.
• Golden Door Asset AI Engine: Integrated with RightCapital, the AI Engine automated the process of extracting key policy data from scanned documents and PDFs. Optical Character Recognition (OCR) technology was used to convert scanned documents into searchable text. Natural Language Processing (NLP) algorithms then identified and extracted relevant information, such as policy type, death benefit amount, cash value, and premium payments.
• RightCapital Integration: RightCapital's API was used to seamlessly import insurance policy data into the client's financial plan. This allowed advisors to model the impact of different insurance strategies on the client's overall financial picture, including retirement projections, estate planning scenarios, and tax liabilities. RightCapital's insurance policy analysis tools also provided comparative data on policy costs and features, allowing advisors to identify potentially more advantageous options. The integration also utilized RightCapital's Monte Carlo simulation capabilities to assess the probability of the client achieving their financial goals under different insurance scenarios.
• Tax Calculation Engine: Golden Door Asset's proprietary tax calculation engine was used to estimate the potential tax savings associated with different insurance optimization strategies. This engine considered factors such as the client's marginal tax rate, capital gains tax rates, and estate tax thresholds. The calculations were based on IRS regulations and industry best practices, ensuring accuracy and compliance. For example, the engine calculated the potential tax liability associated with surrendering a cash value life insurance policy, taking into account the cost basis and any accumulated gains.

The key calculation was a projected comparison of existing policy performance versus a recommended alternative. This projection factored in the annual premium, estimated cash value growth rate, mortality and expense charges, and potential tax implications, both under the existing policy and the proposed alternative. The difference in projected net asset value at a specified future date (e.g., 10 or 20 years) was then discounted back to present value to determine the potential tax savings.

Results & ROI

The integration of the insurance policy review workflow had a significant positive impact on Summit Capital Partners' business:

• Average Tax Savings: Clients realized an average of $340,000 in potential tax savings from insurance optimizations identified during onboarding. This figure was calculated based on a sample of 50 new clients onboarded during the first year after implementing the new workflow. The savings ranged from $50,000 to over $750,000, depending on the complexity of the client's insurance portfolio and the opportunities identified.
• Increased Client Retention: Client retention rates improved by 15% within the first year. This was attributed to the enhanced onboarding experience and the increased value delivered to clients through proactive insurance optimization. Clients felt more confident in Summit Capital Partners' ability to manage their entire financial picture, not just their investments.
• Enhanced Client Relationships: The insurance review process fostered deeper and more meaningful conversations with clients. It allowed advisors to gain a better understanding of clients' financial goals and concerns, building trust and rapport.
• Time Savings for Advisors: The AI-powered platform automated many of the manual tasks associated with insurance policy analysis, freeing up advisors to focus on client communication and relationship building. Advisors reported a 30% reduction in the time spent on insurance reviews.
• New AUM Acquisition: The enhanced onboarding process and the documented tax savings became a strong selling point for attracting new clients. Summit Capital Partners saw a 20% increase in new Assets Under Management (AUM) attributable to the revamped onboarding experience.

For the Thompsons, the insurance review identified that surrendering their whole life policy and reallocating the cash value, after taxes, into a more diversified portfolio aligned with their risk tolerance would significantly improve their long-term financial outlook. The estimated tax savings from avoiding future taxable gains within the policy, combined with the potential for higher returns in a diversified portfolio, amounted to over $250,000 over a 15-year period.

Key Takeaways

Here are a few key takeaways for other RIAs considering a similar approach:

1. Integrate Insurance Review into Onboarding: Don't treat insurance as an afterthought. Proactively review clients' insurance policies during onboarding to identify opportunities for optimization and demonstrate your commitment to holistic financial planning.
2. Leverage Technology: Use AI-powered tools to automate the process of insurance policy analysis and streamline your workflow. This will free up your advisors to focus on client communication and relationship building.
3. Quantify the Benefits: Track and measure the tax savings and other benefits realized by clients through insurance optimization. Use these metrics to demonstrate the value of your services and attract new clients.
4. Focus on Client Education: Educate clients about the importance of insurance and the potential impact of different insurance strategies on their overall financial plan. This will empower them to make informed decisions and build trust in your expertise.
5. Stay Up-to-Date: The insurance landscape is constantly evolving. Stay informed about new insurance products, tax regulations, and best practices to provide your clients with the most effective and relevant advice.

About Golden Door Asset

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