Do You Know Where the Squeeze Is?

By Tom Kestler

We seem to be endlessly bombarded by firms touting new and improved products. Sometimes the claims are justified but often they are mere window dressing on a tired old product – a new box for Wheaties or a new dispenser for Tide.

One piece of advice I’ve given to both clients and advisors over the years is, any time you see a “Pop” make sure you find and thoroughly understand the “Squeeze.” To make my point, I used to hand out these little guys. When you squeeze the head of the unicorn, the eyes pop out. Silly, but it worked.

Over the years, there seemed to be lots of “Pops” in the insurance industry. For example, several carriers offered annuity products with a 10% bonus (Pop). If you deposit $100,000, it’s worth$110,000 overnight. Not bad. On the other hand, the “Squeeze” was that you had to leave the money with the carrier for 10 years and then annuitize and take monthly payments for life. For a small percentage of people this would be an ideal safety net – they liked the “Pop” and were comfortable with the “Squeeze”.

However, for most clients, it may not have been appropriate.

I’ve also seen lots of “Pops” in the life insurance arena – mostly around misleading illustrations – projecting future values based on current or historical returns. Although cash value life insurance is one of the most tax-efficient vehicles available, you and your advisor need to pay close attention to those annual statements. Minor changes in fees or returns could make drastic changes down the road.

Finally, remember Bernie Madoff? He was the mastermind of the largest known Ponzi scheme in history. What was his “Pop”? His managed accounts consistently outperformed all his competitors. Wealthy clients were clamoring to open an account at his firm. The “Squeeze” was creative accounting and falsified statements. It was too good to be true but people’s greed outweighed their common sense.

The moral of the story is any time your eyes pop out at something almost too good to be true, be sure you identify the “Squeeze” and fully understand how it applies. If you can’t identify the “Squeeze,” move on.

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Tom Kestler has been involved in the financial planning field for over 45 years. He is a graduate of Millersville State University and the College for Financial Planning in Denver, Colorado (for which he has acted as an adjunct instructor) and carries the Certified Financial Planner (CFP) designation.

He has also been awarded the Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC) and Chartered Mutual Fund Counselor (CMFC) designations from the American College in Bryn Mawr, PA. He was the founder of Kestler Financial Group, Inc., a firm which specialized in the marketing of financial products and services to over 5,000 independent representatives throughout the United States. Kestler Financial Group was acquired by Highland Capital in 2018.

Mr. Kestler carries Life, Health and Variable Products licenses in several states and provides consulting services to insurance companies on product design and development. He also acts as an expert witness in securities and insurance litigation cases.

Prior to his retirement, Tom served as VP Advanced Sales at Highland Capital, and also CEO of Branch Development Partners, an Office of Supervisory Jurisdiction (OSJ) for Securities America, Inc. (now Osaic), an independent securities broker/dealer.

Tom is teaching our Financial Wellness Course— the first class is scheduled for tonight, Monday, December 8th. Sign up today!

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