Don’t Count Out Insurance Producers vs. Financial Advisors

We have all seen the multiple studies showing the number of independent insurance producers sliding while the number of financial advisors rises (or at least doesn’t fall as alarmingly). But apparently not everyone is getting on the train—and some are getting off the financial advisor express. That is according to some opinions voiced at the annual meeting for the Association for Advanced Life Underwriting (AALU) in May.

Sure, when we asked about the shift to financial advice-giving, several people framed the traditional insurance agent as a quaint relic from the black-and-white days of Father Knows Best. After all, the argument goes, clients want an advisor who can give them an array of options, especially for rapid accumulation. And insurance agents these days have to be careful in discussing and comparing even their own products lest the word “investment” escape their lips and fall on the ear of a regulator.

But financial advisors aren’t exactly problem-free. Depending on their designation, they have to answer to a fiduciary standard in addition to other tangles of regulation. One of the aims of the fiduciary standard is to ensure clients know their options and make the best choice from a variety of products. So, some insurance producers who became financial advisors now find themselves focusing even more on products and less on clients than before—to meet the standard that was sup-posed to ensure focus on clients. If financial advisors devise a solution tailored for the client’s needs, they have to be careful about over-steering the client to that choice. Another factor is clients’ post-traumatic stress from the economic collapse. Susan Waters, CEO of the National Association of Insurance and Financial Advisors (NAIFA), put it this way:

 
“In the past 10 to 15 years, we saw a big shift toward the securities advisor and away from the insurance producer,” Waters said. “That is even reflected in NAIFA’s name change—from the National Association of Life Underwriters to the National Associa-tion of Insurance and Financial Advisors. But what I’ve heard quite a lot from both my members and company representatives is that since 2008, many of them are seeing at least some shift back to the risk manage-ment kinds of products—to insurance and annuities.”

It’s a trend she said the industry has to recognize: “We need to refocus on risk management and on those products that guarantee safety.”

Daniel Mulheran, ING’s president of retail life distribution, also said he’s seen the drift toward financial advisors and their main products, but he has noticed a pullback lately. “I think there is a recycle back to risk management,” he said, with financial advisors adding a new twist. “Life insurance is a new outlay for clients. And today, with so many insurance producers having migrated into the advisory space, producers now know where the money is. They are helping clients manage their money, and they can show the client now how life insurance fits into their plan.”

Mulheran, CLU, ChFC, said the advisor with insurance experience is well-positioned to take advantage of the shift toward protection products. But what about the younger advisors coming up along the financial route? John S. Kerr, CLU, ChFC, said he is concerned about the future of life insurance distribution.

“I don’t think that the advisor community, as a generalization, has been educated on the real uses of life insurance,” said Kerr, managing principal of Bay Financial Associates and a registered investment advisor. “They are focused on investments and managing money. If you have a total wealth management practice, you are into the insurance piece as well as others, but if it’s pure investment advisor, the advisors either never develop the real expertise in insurance or they had it but they kind of deskilled them for a period of time and they lost it.”

Of course, others at AALU said they saw the future belonging to financial advisors, for many of the reasons we outlined earlier. David Froscheiser, an assistant vice president-producer at The Lockton Companies, said clients do not have the time for different advisors.

“I think the old days of the life-license insurance guy with his [Series] 6 and 63 is over,” said Froscheiser, JD, ChFC, CLU. “Clients want a one-stop shop to address all of their needs, and the people or firms who position themselves in that manner are going to win the day.”

Michael Mingolelli, CEO of Pinnacle Financial Group, said the life insurance industry’s model is not attractive to young people. “If you have anyone who gets out of college and has done halfway decent in school, they don’t want to go get a yellow pages thrown in front of them and go on 100 percent paid commission,” said Mingolelli, JD, who added that the advanced age of advisors is still advancing. “I think in Massachusetts last year there were 130 members of AALU, and there were only five producers between the age of 30 and 40. The average age at AALU is 64. The consultants that we work with in our firm in the advanced market are people being pulled out of multifamily offices and the securities environment. And they have advanced degrees—an accountant, a law-yer—so I think that is the future of the advanced market demographic at AALU.”

Others also saw a shift toward a multi-disciplinary approach. Steve Cain, executive vice president of national sales at LTCi Partners, said he is interested in salespeople who bring something else to the shop.

“We have focused on the registered rep, the benefits broker and the tax professional,” Cain said. “I do think that there is a shift going on from insurance agents to advisors who control other lines of business or planning, and really that’s where we’ve played.”

 Matthew P. Andersen, senior vice president at National Financial Partners, said he saw sweeping change in his field of executive benefits. “The COLI portion of our industry really went to almost all variable in the mid to late ’90s with more traditional 401(k) style plans. And then BOLI went through a period where there was a rush to separate accounts in the mid-2000s. So I think you saw a sweeping change over the last 10 years that virtually everybody that operates in this space today will have some sort of securities license, versus 10 years ago, when 50 percent did not. At this point in today’s marketplace, for somebody to be competitive in executive benefit sales, they need to have a securities license.”

Kerr, the managing principal of Bay Financial Associates and himself a regis-tered investment advisor, said the think-ing that everyone needs a securities license has him wondering who will be selling life insurance in 10 to 20 years.

“It is scary because a lot of the insurance that is being sold is being sold by people in their late ’50s,” Kerr said. “So, where is that younger generation who really under-stands life insurance and knows how to use it with their clients? That is an issue our industry has to deal with.”

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association.

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