Sequestration, A Broken Congress and What It Has to Do with Fraternals
February 26, 2013Once again we’ve allowed our elected leaders to drive the nation to the financial brink. If there is anything good about the most recent version of this debate, it’s that our politicos and the opinion leaders in the media who serve as their mouthpieces seem to have tired of the “fiscal cliff” language and the “Thelma and Louise” references. Nonetheless, the threats of airport shutdowns, Head Start closings, and other dire predictions of fiscal calamity make it quite clear that in Washington, D.C., the level of hyperbole is never wanting. Speaking solely as a disgruntled citizen – not a representative of the American Fraternal Alliance – I’ve just got to say that I’m sick of this “Groundhog Day” story. I’m a fan of Bob Dylan, but if you played “The Times They Are A-Changing” on an endless loop, I’d get tired of it pretty quickly. Likewise, our government careening from one manufactured crisis to the next has become all too predictable. And my sense is that there are millions of other ”average Joes” like me feeling the same way. Not that anyone’s asking, but let me share my recommendation to President Obama and Congress. Do nothing. Let’s take the plunge and realize we can no longer afford the entitlement system we’ve built before it’s too late. We are not able to fulfill all the promises we’ve made; but if we act decisively now, we may be able to decide which of those promises are most important for the long-term health of our nation and society. We’ve become a nation addicted to living beyond our means. It’s time for a 12-step program to restore our financial health and sense of purpose. And the first step may just be the shock treatment of paying for only what we can afford. If that means a little collective sacrifice – living with a little less, helping each other a little more (like the sacrifices my parents described during World War II), then so be it. That may sound harsh, especially coming from a relatively well-paid and incredibly fortunate individual like me. But I want you to know I have some skin in this game, too. Our elder son is one of the government employees who is preparing to be furloughed. Our younger son is a chef whose restaurant depends on people electing to dine out rather than cook at home. Both would suffer in the short term – as would lots of us. But in the long run I’ve just got to believe that learning to live within our means and reducing our reliance on government safety nets will be good for us. Hey, Joe, is there a connection to fraternals here? I am glad you asked. There are more than a few societies out there who have become heavily reliant on a business strategy that emphasizes rapid growth in assets through the sale of high guaranteed return (and high commission) annuities. That’s a very combustible formula that comes with a strong likelihood of ending badly – for the society and, more importantly, for the members who purchased these products. We may need a little shock treatment of our own to break this vicious cycle by getting back to the basics of selling life insurance to middle America – young families looking for value and values. Annuities certainly have a place in our product mix, but in words of one society CEO who is in the process of making this transition, “We’ve got to think of ourselves as life insurance providers who also sell annuities; not the other way around.” Moreover, annuities are attractive to older consumers – not exactly a key ingredient in fraternals’ effort to “grow younger” over the next decade. And the “connective tissue” of members who own only an annuity to the society is mighty thin. Will dramatically changing this business strategy by lowering guaranteed rates of return and downsizing agent compensation affect your society? You bet. Agents who are using your organization to move their clients’ funds from one annuity to the next will likely take your society out of the mix. You will see a rapid reduction in the growth rate of your assets; in fact, your overall assets may actually shrink as the annuity money that flowed in with the high interest rate promise tide flows right back out again. There will definitely be some short-term pain. But righting the financial ship – and restoring your society to modest, sustainable, and profitable growth – will give you and your leadership team a much clearer perspective on what your next strategic step should be. Bottom line: just because our elected leaders don’t have the will to make the tough decisions about our nation’s financial future, doesn’t mean you and your board have to share the same characteristics. Comments? Here is the place to share them. Or send me a personal email at email@example.com.