Michael Gordon, first vice president overseeing RIAs and broker-dealers for New York Life Insurance, was already running several initiatives when he was asked, in late 2008, to take over New York Life's RIA division, Eagle Strategies of Bedford, Texas. It employed just 800 advisors, only 400 of whom consistently did advisory business. He needed to turn the group around.

To do so, Gordon's team recently rolled out two new platforms: a managed account platform called the Lifetime Wealth Portfolio (LWP) that integrates life insurance with fee-based investment management, and Lifetime Wealth Analyzer (LWA), a goals-based financial planning tool. Advisors can develop comprehensive plans or attack specific areas like estate planning, investments or college finance. Eagle Strategies began using the LWP in July and the LWA in early November. With these platforms, particularly the LWP, Gordon aims to take a lagging outfit and make it cutting edge.

The LWP relies on a patent-pending method that recommends a product only after it has determined that a client needs life insurance and what that level of coverage should be. There are four general prescriptions: investments only, whole life, variable universal life and term life plus investments. If the LWP recommends a variable policy, it will manage the underlying asset allocation. The investments are almost entirely nonproprietary and are chosen by Morningstar Investment Services, based on allocation recommendations by Ibbotson Associates. New York Life selects the life insurance. Next May, the platform will offer a variable life product.

Essentially, LWP treats life insurance like an asset class, giving it its own slice of the allocation pie. Over time, the platform adjusts its recommendations, considering a client's family circumstances, career path and life insurance needs. As the client nears retirement, the platform would also recommend annuity products. The LWP is the first platform of its kind in the financial services industry, according to several of the industry professionals contacted by Financial Planning. There is a version available to New York Life's 7,500 registered reps that works almost the same way, but it allows the representative—not Morningstar—to select mutual funds, Gordon says.

THE INNER WORKINGS

Underpinning the platform are two critical components: an asset allocation method developed by Ibbotson called the Lifetime Financial Advice Model, and New York Life's Protection Solution Decision Model. Both are driven by the concept of human capital, which is the net present value of an individual's future earnings, including Social Security and pension income. Human capital is a fairly new economic theory based in part on academic research co-authored by Robert Merton and others in the early 1970s, which said that people with the ability to increase their income can invest more aggressively, says Peng Chen, president and chief investment officer of Ibbotson Associates.

According to Ibbotson, an individual's human capital depends on that person's profession, job situation, age, current income and savings rate. The concept involves more than how much money a person will earn and save over a lifetime. It also gives weight to the volatility of a person's income and how the capital markets affect his or her earnings. In addition, it factors in mortality risk.

In 2000, Ibbotson began examining investors' balance sheets over time, focusing on how they funded major expenses like college and retirement. Ibbotson paid particular attention to how human capital affected their choices. The company then developed an asset allocation framework that allows investors to decide whether to buy life insurance, while keeping their investments in mind.

To illustrate how human capital works within the platform, New York Life looked at a hypothetical professional with a very unstable income: a real estate broker, whose earnings are almost purely commissions. Say he has an investment portfolio allocated to stocks and bonds, and that he also owns a whole life policy. Say, too, that his advisor suggests setting aside some extra cash because the real estate market's so bad. The LWP would then suggest that the client reduce the fixed income in his portfolio to account for the expanded cash stash, plus the cash value of the insurance policy. "The advisor is trying to account for the client's risk profile in a systematic, structured way," Gordon says.

Financial planning that considers life insurance is hardly brand new, but the LWP revives a method that many advisors have gotten away from, according to Karen Lee, who heads up Karen Lee and Associates in Atlanta. (Lee is not affiliated with New York Life.) Many advisors are so focused on accumulating assets that they neglect the insurance component of the portfolios, she said. "I think it will help pull all the parts together," Lee continues. "The consumer does want one person, one trusted advisor, to handle as much as possible."