Kenneth Knox from Tenzing Advisors: Insights into Life Insurance for the Wealthy

Tenzing Advisors is a boutique firm that specializes in the design, analysis, implementation and administration of life insurance plans for affluent families and businesses.  Ken Knox founded Tenzing Advisors a decade ago, after working in life insurance brokerage for 16 years.  Headquartered in Needham Massachusetts, the company works with both US-based and international clients. Ken […]

Tenzing Advisors is a boutique firm that specializes in the design, analysis, implementation and administration of life insurance plans for affluent families and businesses.  Ken Knox founded Tenzing Advisors a decade ago, after working in life insurance brokerage for 16 years.  Headquartered in Needham Massachusetts, the company works with both US-based and international clients.

Ken got his start in the life insurance industry in New York City in 1992, as an agent with Connecticut Mutual, which was acquired by Mass Mutual in 1996.  He spent the next ten years at two leading independent life insurance brokerage firms in New York and Boston, and has worked with some of the most innovative people in the life insurance industry.  Ken and his firm serve as resources to some of the top legal, tax and financial advisors in the US in all life insurance-related matters.  Here Ken tells us more about establishing the company, its relationship with M Financial Group and the impact of technological advances on insurance.



What’s the history behind Tenzing Advisors?  What are the factors that led you to setting up the company?

I had worked with some of the top people in the industry in each of my prior three stops in New York and Boston.  After the Boston firm was acquired by a public company, I decided to start my own firm.  Both of my prior firms had been M Member Firms, giving me the opportunity to learn from other top industry professionals in my office and around the country.  I was also fortunate to have experience in all aspects of my business; in fact, I had developed comprehensive processes and procedures for staff members to follow.  I was determined to combine industry best practices with thorough, objective advice and excellent service.  Starting my own firm allowed me have a longer-term focus and the flexibility to base more decisions on building and supporting advisor and client relationships.

Tenzing Advisors takes its inspiration from Tenzing Norgay, the Sherpa who guided Sir Edmund Hillary and his team on the first ascent of Mount Everest.  We are also experienced guides who help people reach long-term goals with planning, teamwork and great execution.


Please tell us a little about Tenzing Advisors’ business focus.

Our business is primarily focused on evaluating and providing solutions for affluent and super-affluent individuals and families in estate planning situations. Our clients are often individuals who do not have traditional needs for life insurance, as their wealth allows them to self-insure against a potential loss of income for their families. They are typically represented by sophisticated tax, financial and wealth advisors, and many have family offices who are charged with the responsibility of managing their affairs. We provide objective analysis, showing how life insurance can be an effective tool in transferring wealth to the next generation.

Life insurance provides liquidity that can be used to pay taxes, avoiding the disadvantageous liquidation of other assets and additional tax burdens. Life insurance strategies can be quite straightforward and simple, but for families of significant means, they often require an integrated approach, utilizing and complimenting many other strategies, such as GRATs, QPRTs, charitable giving plans, discounted sales of interests in LLCs and partnerships, inter-family loans and third-party funding, to name just a handful. To be effective, we rely on our skills in communicating complex financial and tax concepts to highly analytical advisors and the end clients, who may not have the same level of financial sophistication, despite their wealth and success.

Many of our clients are business owners or senior executives of valuable businesses, so our work often involves business uses of life insurance. This includes succession planning, risk management, and executive compensation and retention. Insuring buy-sell agreements and key-person coverage are common uses of life and disability insurance.

Many of our engagements begin with a review of existing life insurance plans, and when this is the client’s sole objective, we are pleased to provide a report concluding that no changes are recommended. The client advisors who routinely engage us know that we’re not simply trying to sell life insurance to everyone we encounter. We frequently are able to recommend changes or enhancements to plans, so our credibility is enhanced each time we tell clients that they needn’t change course or buy something new.


Please explain your relationship with M Financial Group and why that is an important aspect of your business.

M Financial Group is a consortium of more than 150 independent life insurance and wealth management firms in the US and abroad that was founded nearly four decades ago. M Financial, which is based in Portland, Oregon, now has over 200 employees that provide support to Member Firms in the areas of client advocacy, industry and marketing intelligence, product innovation and design, underwriting support, and practice management and development.

While the resources and information sharing are vital to my firm’s growth and ability to stay at the leading edge of our industry, M’s proprietary products are perhaps the most visible and compelling point of differentiation. M Financial’s Partner Carriers, including Pacific Life, John Hancock, Prudential, TIAA, Symetra and Nationwide, offer insurance policies that are available only to M Member Firms and our clients. These products, developed jointly with M’s reinsurance company, are priced using our clients’ actuarial experience, resulting in lower costs and better features than most products that are available outside of M Financial. Because we are an independent firm, we also regularly sell non-proprietary policies from M carriers and non-M carriers in order to best meet our clients’ needs in every situation, but our membership brings us unmatched product choices and resources.


What would you say are the specific challenges of assisting clients with life insurance in estate planning and wealth management situations? What are the different challenges you face with your domestic clients vs. your international clients when it comes to estate planning?

Despite the proliferation of wealth managers and financial advisors, there is a profound lack of understanding of life insurance among consumers and financial advisors. A significant portion of US families do not own life insurance, or they are inadequately covered. Some of this can be blamed on the insurance industry itself, which has relied largely on an outmoded distribution system, as well as opaque and confusing products.

Among affluent and super-affluent consumers, this lack of understanding persists. It is often too easy for advisors to dismiss life insurance by telling their clients that they “don’t need it,” which is of course, true. However, those same clients probably don’t need ETF’s, hedge funds, laddered bond portfolios, GRATs, family LLCs, or a variety of other strategies, but their clients often use many of these financial and legal tools in helping them obtain objectives. I disabuse people of the notion that they can’t benefit by using life insurance simply because they don’t have an income replacement need. If a patriarch dies without life insurance or other effective estate planning strategies, resulting in a loss of 50% of the family’s assets, it’s easy to see how even a simple life insurance plan might have provided an effective solution.

Educating clients and advisors on the financial and tax benefits of utilizing life insurance in estate planning is not a challenge with a willing audience, but other challenges may affect any individual, including health issues. Not everyone is insurable, but many people are surprised to learn that we can obtain competitively priced policies for many people who have experienced serious health problems in the past. A high percentage of our clients are in their 60s, 70s and even 80s, so most of our clients have some health issues to be underwritten. Survivorship life insurance, which is issued on two lives, pays a death benefit at the death of the surviving insured (typically a spouse). In many cases, survivorship policies issued with one uninsurable spouse have significantly lower premiums than single life coverage on the healthy spouse.

Occasionally, we face challenges involving limitations or restrictions for foreign nationals who wish to purchase US life insurance products. Fortunately, M Financial has built a very effective resource in this area, assisting us in providing US domestic policies, international corporate benefits, Bermuda-based products and offshore private placement life insurance products when appropriate. It is easier than ever to work with tax experts in various jurisdictions, reaching and assisting clients who might have been outside our range just a handful of years ago.

With more foreign nationals owning real estate and other US assets, the demand for life insurance for these individuals has grown significantly. The ownership of US assets often creates an estate tax liability that life insurance can meet, and the attractiveness of financial assets is enhanced by the fact that these may be protected in the event of political turmoil in their homelands. The US life insurance market has lower cost products and much more capacity than most of the other insurance markets in the world. We work with international tax experts in various jurisdictions to design plans that meet foreign individuals’ needs while avoiding unfavourable tax implications.


Can you comment on the current tax environment in the US? What is your position on the recent tax legislation and the uncertainty relative to the estate tax?

The current tax environment in the US provides us with challenges and opportunities. The Trump administration and the Republican Congress have proposed repeal of the Federal estate tax, as well as reductions in marginal income tax and capital gains tax rates. For the life insurance industry, which sells products offering tax deferral and tax-free benefits, this could obviously lead to reduced sales. Just the talk of estate tax repeal initially caused many families and advisors to halt estate planning while proposals were being developed.

We have already seen many of those clients resume their planning, as tax reform proposals have been met with opposition and the reality of budgetary concerns, government deficits and ballooning debt have crept back into public consciousness. Experienced advisors have lived through past estate tax repeal, and many have counselled their clients about the fickle nature of repeal, especially in light of our fiscal reality. Estate planning is by nature long-term, and plans must be able to weather political changes. Most advisors with whom I speak don’t believe that the estate tax will be repealed, and even if it is, they believe the tax will be reinstituted or replaced in the long run, perhaps with higher rates. This Administration and this Congress have thus far been unable to accomplish much of their agenda, reducing the confidence of those who would like to see some of these taxes reduced or eliminated.

The current tax system has created an opportunity for affluent individuals to enhance their after-tax investment returns using life insurance, and this opportunity even exists for super-affluent clients who invest in hedge funds. Private Placement Life Insurance (PPLI) and Private Placement Variable Annuities (PPVA) allow accredited investors and qualified purchasers to invest in non-registered investment funds (i.e. hedge funds) within a flexible, ultra-low-cost insurance vehicle. While these products, particularly PPLI, can be used in estate planning situations, they are often based on investment decisions, focusing on current taxation. The simple math behind their appeal is that the insurance policy fees are much less than the taxes that are saved or deferred.


What are some of the most common mistakes, in relation to life insurance, that can be detrimental to beneficiaries?

Many of the most common mistakes that we see are related to products purchased many years ago, sometimes without proper disclosure and usually without adequate administration and review. Of course situations exist in which clients’ families wish they had more coverage, and sometimes the policy ownership creates adverse tax implications, but affluent families often have sophisticated advisors to help them avoid these pitfalls.

Older policies often have performed worse than originally projected, due to the declining interest rate environment, poor (or absent) asset allocation decisions and market performance, or changes made by the insurance company. Policies that haven’t been regularly reviewed can be in danger of policy lapse, often with little notice. For an older client, if a policy is in danger of lapse, due to reduced dividends or credited interest, the cost required to maintain coverage may already be too great to bear. If an insurance policy lapses with a loan outstanding, the loaned amount is often taxable as ordinary income. We were able to recently replace policies carrying ballooning loans with new, efficient policies, allowing the clients to repay the loans using policy values and eliminating the risk of potential income tax liabilities of several million dollars per policy.

There are a variety of issues and problems that we find in policy reviews for new clients. Many families are surprised to learn that older policies no longer maintain the expected guarantees if premium payments were not made as planned. Older policies typically matured at age 100, since few people lived that long. As a result, many older universal life policies have little or no benefit once a client reaches that age, but we can often fix this problem if it is identified before a person gets too close to 100.

We occasionally encounter sad situations in which a client agreed to a premium plan designed to increase over time, perhaps with questionable original assumptions. When a client could have easily afforded somewhat higher premiums at younger ages, some unsuspecting families have learned that the higher premiums required to maintain coverage in that insured’s 80s or 90s are simply too much to bear, making the complete (and significant) investment in life insurance a total loss.

Policies that were funded with third party loans or with a “Split-Dollar” structure often face difficulty if there was no adequate exit strategy. These plans, if left unmanaged, can sometimes result in losses and significant tax liabilities. In some cases, the brokers who sold these complex and risky plans haven’t provided service to their clients for years.


What are the particular challenges that insurers in the US have been facing over the past year in relation to changes in what customers expect in terms of products and services?

The continued low interest rate environment has created a challenging environment for the US life insurance industry for many years. Some companies are burdened by minimum guaranteed rates in old insurance products that exceed the current market rates, while all companies have seen their profit margins negatively impacted by lower rates. This, along with increased reserve requirements, has forced many insurance companies to stop offering guaranteed universal life policies, which were the most popular products for estate planning in the past. All of the companies who continue to offer that product have dramatically increased premiums for new policies to reflect their own increased costs. The duration of the fixed income securities in insurance companies’ portfolios will cause carriers to continue to experience downward rate pressure for the foreseeable future, even if rates rise modestly. As one might expect, this challenge has spurred product innovation, such as the development of Indexed Universal Life, which links policy performance to market indices such as the S&P 500 or the Hang Seng.

US insurers also face challenges with distribution, in part due to the decline of the agency model, which provided the bulk of training to new agents over the years. Less young people have been entering the industry. At the same time, consumers desire the ability to research products on their own or with a roboadvisor, with less sales pressure than a stereotypical insurance agent might provide. The complexity of insurance products and the burdensome application process have hindered many consumers’ ability to effectively navigate this without an advocate.

Fortunately, many technological advances are making it possible to obtain life insurance quickly and easily, sometimes in as little as 30 minutes. More advances are forthcoming, and this will change how typical Americans buy insurance. Affluent clients continue to need personalized advice and implementation experience, but IT advances will continue to make the process more convenient.


Can you tell us about your involvement in the community and its impact?

With school-age children, a lot of my community involvement has involved coaching youth sports, so I’d like to believe that I’ve had a positive impact on kids. I’ve also been involved with The Boston Foundation and the University of Rhode Island, in support of disadvantaged families and public education. I’m active in the Association for Advanced Life Underwriting, which is a great organization, dedicated to preserving the ability of our industry to help families provide and protect their financial security.



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