2011 First Annual Senior Market Advisor Industry Survey
As the stock market dips and dives in a capricious fashion, seniors seek the security products like annuities and life insurance can give them.
This year, Senior Market Advisor conducted its first-ever Industry Survey to gauge the current attitude of advisors and others in the business of producing and/or marketing insurance products to seniors as well as their outlook for the future. We also asked what gives their client sleepless nights. What did we find?
We found a lot of worried people, that’s for sure. Worried about stock market volatility that leaves retirement accounts flush one day and down in the dumps the next. Worried about legislation that could make an advisor’s job even harder or make the products they sell less attractive. Worried about the next presidential election and what that will mean to the economy.
Perhaps owing to the erratic times we live in, products that offer safety (albeit with less upside potential) and guaranteed income are proving best-sellers right now. Indeed, of the nearly 200 respondents, 40.7 percent reported annuities and 30.8 percent said life insurance were their top sales success stories currently. Garnering a number of write-in votes were Medicare Supplement contracts—a sign that more and more baby boomers are hitting age 65.
Such safety-first options are proving popular because in a turbulent stock market, they represent a comfort zone, a place where money may not grow tremendously, but principal is nevertheless protected.
And it’s that unpredictable economy that is keeping advisors up at night; 36.6 percent of advisors said so. Lead generation took second place (30.2 percent) followed by industry legislation (15.7 percent).
It’s no surprise, therefore, that with the economy top of mind nearly 70 percent said economic policies will be the deciding factor when they go into the voting booth in 2012. When asked who they would vote for in the upcoming presidential election, 60 percent pointed to the Republican candidate, while nearly a quarter (23.2 percent) said “other” and 17.3 percent favored President Obama.
Reading over the comments, it’s clear there is a deep dissatisfaction about what is going on in Washington, D.C. and skepticism over whether anyone can do the job. “Undecided as of now. Whoever I think will screw up the least,” said one respondent.
What they are looking for in a presidential candidate? Said one: “Someone who will follow the constitution, make our government smaller, bring back and encourage jobs in the U.S. and quit running up the national debt.”
Though the GOP may be the overwhelming favorite of the industry, not all took a conservative slant, however. One respondent stated the country would be benefit by “having a system where taxes are paid proportionally on income.”
Clients worried, too
If advisors and industry insiders are worried, so, too, are their clients. When asked what their clients biggest fears are, a clear majority answered the economy (64.1 percent), seconded by health care (52.4 percent). Rounding out the list were outliving their money (51.8 percent); the government (45.3 percent); and having to work longer than they planned (43.5 percent).
The response by advisors to those concerns is to be, well, an advisor. A majority—nearly 70 percent—agreed they have taken on more of a teaching and coaching role with clients (and their employees) since Wall Street had its epic financial breakdown. This invariably brings the discussion to so-called “safe” products.
“Now, as seems common when the market collapses, prospects and clients may be looking for safer alternatives—fixed/indexed annuities,” said one survey participant. “The market volatility and the low interest rates at the bank leave room for an educational/advising role to commence with existing clients.”
Seniors vs. boomers
As more baby boomers enter retirement age, advisors have had to adjust their strategies accordingly. Roughly 73 percent conceded that their business has been impacted as the oldest of the baby boomer generation graduates to the senior class. (Interestingly, when asked if they customized their sales and marketing approaches between senior and boomer clients/prospects, most—51.8 percent—said no.)
“It has changed our marketing and services,” declared one respondent. “The boomers tend to leave a larger portion of their portfolio at risk with B/Ds [broker-dealers]. When they move some of those funds to FIA or other insurance products the B/Ds tend to slack off on their services to these clients. So, we have become securities licensed to move the entire portfolio under one roof to increase service and monitoring of the portfolio.”
Long-term care issues are also coming to the forefront. “Quite often, they’ve had LTC experience/knowledge with family members and friends,” said one survey participant.
“I am being overwhelmed with people turning 65 and knowing nothing about Medicare and Part D,” said another. “The average time for an interview and applications for a Med Supp and Part D app is two hours.”
If there are differences between boomers and seniors, then there must be differences in selling to women versus men, right? Well, maybe not. Seventy percent said they do not customize their marketing approach for either gender.
Yet in their comments, advisors concede a change in tactics when working with men as opposed to women “Women are more into guarantees and risk averse while men still think they can do it all for free on the web,” said one participant.
“I am more low-key with women than with men,” stated another advisor. “With men, you usually have to be more aggressive in the reason for the coverage.”
And the rest of the survey said…
Other findings from the survey were interesting, to say the least. Despite all the emphasis on technology to build a practice, survey participants were less than enthusiastic about social media, tablets and personal websites. While nearly 40 percent agreed that such new-fangled methods have increased productivity, 32.7 percent said they “complicated things” and 29.2 percent found they have “taken away the personal touch.” Somewhat surprisingly, only a bit more than half—54.6 percent—said they had a website or a blog.
That could be a mistake. Warned one survey participant: “You must keep the personal touch, but seniors are more technologically literate these days.”
Participants also weighed in on the never-ending debate over whether to get a securities license or not. The split was nearly 50/50 between those with a securities license (45.9 percent) and those without (54.1 percent). Of those without a license, 91.4 percent said they had no plans to get one.
Asked how they reel in new prospects, nearly 90 percent of survey participants said they come via referrals. Partnering with other professionals (such as CPAs or attorneys) and direct mail were also cited as successful methods by 46.3 percent and 28 percent, respectively.
There was good and bad news for FMOs: 50 percent said they do not work with an FMO. Of the advisors that did, 81.7 percent said their current FMO provides value.
Looking ahead, 50 percent cited Social Security maximization strategies as an area they were most interested in learning about or adding to their product mix. Next up was ways to combine fixed and fixed index products (41.6 percent).
As to where they see their business expanding in 2012, life insurance sales got the most votes (66.5 percent), followed by long-term care (48.8 percent), indexed annuity sales (47.6 percent) and Medicare Supplements (33.5 percent). Again, a flight to a comfort zone.
So there you have it. Where the industry stands and where it’s going in 2012. We’ll check back with you next year.
Sleepless over more regulations, stormy economy
Low interest rates and the possibility of more federal oversight keep insurance insiders tossing and turning at night. But banks and broker-dealers are welcome to join the party.
To get a deeper look into the industry, Senior Market Advisor spoke with three people on the front lines: a carrier CEO, an FMO executive and an advisor. Here’s what they had to say.
Wendy C. Waugaman, president and CEO of American Equity Investment Life Holding Co. West Des Moines, Iowa
On challenges facing the industry… “In 2011 and coming into 2012, it’s been the overall economy and in particular, very low yields on fixed income securities, which are our major investments. We have to be able to invest at a rate that allows us to credit a competitive rate of interest to our policyholders. When yields on bonds are very low it means we can’t offer as attractive of rates to our policyholders.
“It’s very difficult to know given the current administration in Washington what might lead to improvement in the rate environment. All the things we hear are that this very low rate scenario is very likely to be around for the next couple of years, if not even longer, and there are very few things that might cause rates to start to rise. So it’s a long-term concern.”
Regulatory issues… “What has me most concerned are the things that are happening on a federal level. The insurance industry has historically been regulated by states and the state insurance departments. The state regulators are very knowledgeable and experienced in the industry. Now we see the federal government entering into regulatory issues as they relate to insurance. There’s the new federal insurance office and the new consumer protection bureau. Those things are unknown quantities. We don’t know for sure what direction the administrators of those new agencies will take and what the new regulatory system will be. So those things are of great concern.”
On banks and broker-dealers entering the business… “My company is a specialist in fixed annuities and in particular, indexed annuities. Because of all the volatility in the market, our sales are increasing and we see many new entrants into the market. In particular, some of the large wirehouses and other broker-dealers are embracing our product line and beginning to look into marketing our products, which we think will help validate the concepts of the products. We aren’t terribly concerned about the competitive environment because we think there is enough growth in the potential market that there is room for new entrants.
My company has filed and developed a product that’s been designed for use in the broker-dealer distribution channel so we are working on getting sales going in that new channel.”
Threats to annuity business… In the annuity business, I think we are on the cusp of a new growth era because of the guarantees, the protection versus longevity risk, income planning—all those things have become a focus now in the public and so I think it will be a very good time to be in the life insurance business.
The threats are more on the financial side. As rates continue to go down at some point the products cannot be offered in a profitable way and that’s potentially a threat. It’s very difficult to find high-quality investments that pay an attractive yield. It’s those macro-economic issues that are the biggest threats today.
“Top things affecting the company right now is trying to manage a spread margin on our business in a very low rate environment. It’s also new competitors entering our market. It’s a focus on asset quality and it’s a focus on maintaining very strong capital ratios at a time when capital is a very important thing in the eyes of the regulators and the rating agencies and investors in general.”
William E. Kauffman, Jr., CLU, ChFC, LLIF, vice president, financial products, Senior Market Sales, Inc., Omaha, Neb.
Why annuities are so popular now… A primary reason would be safety. The underlying product itself is an insurance product with inherent guarantees that protect the clients from something adverse happening to them. The other side of the coin is not only are you protected from risk with your money, but you know there is going to be the potential for some upside gain. Now, it could be a small amount depending upon what type of annuity that you purchase. But a lot of people are OK with that as long as their money is protected. They don’t have any loss in principal like they would in the market due to market declines or something like that.”
Threats to the annuity business… One would be regulation, some type of government intervention in the form of regulations and compliance. Not saying it could doom the annuity business, but it could certainly make it more difficult. If interest rates are depressed for a long period of time, as with any type of investment, you’ve got threats in the way of possible returns. Then you also have the financial wellbeing of the companies themselves. When you have this much pressure on companies to make a return for themselves, make a return for their clients and also be able to accept business from producers…It makes it very tough. It’s not just a matter of being able to sell something it’s the future promises that you [provide] to the consumer.”
On banks and broker-dealers entering the business… “I don’t think any competition is bad. If they see there is something that is very popular with the public and is going to stay, then obviously they are going to want to get involved in it, too. I think there is enough room in the market for everybody to get in. You want to make sure it’s a level playing field and that everybody competes on a fair and favorable basis.”
Lead generation strategies for agents/producers… “A lot of the focus with regards to direct mail or lead programs in general has to do with Medicare and Medicare Supplement types of policies. It was true 20 years ago and still true today that some of the biggest returns to direct mail programs come from that age 65 and up segment of the population. So it gives an agent the greatest opportunity to meet new clients and offer different types of coverages.”
Richard Schneider, general agent, Lodestar Insurance Advisors, Baltimore
Regulatory issues… “Anything that has to do with trying to make insurance products into investment products, [like they tried to do with 151A]. Any time the government gets intrusive it scares me. The tax advantages of annuities are in serious trouble based on the fact that this country is looking to stick their hands in any pocket they can find. Somebody goes to Congress and says, ‘You know, we have all these people with trillions of dollars in annuity money and they are not paying any current taxes on it. What are we going to do about that?’ It’s the way the government is right now. We are regulated by the federal government and the state governments. They have done so many things to create a negative outlook among the people that invest.”
Why annuities are popular now… “Mainly because of the stock market. Although interest rates on annuities are low, they are still better than CDs. [Clients] understand that they don’t get all the upside [of the stock market], but the risk is so minimal that it makes sense for them to have part of their money in an annuity. You talk to a stockbroker and diversification to them is having money in tech stocks, having some money in retail stocks, having some money in consumer goods. My definition of that is having money in CDs, the stock market, bonds, annuities, and having money in your mattress. That’s what diversification is to me. So annuities are an excellent investment alternative for anybody who’s investing. It’s almost inarguable.”
Products with the most value… “Besides annuities, asset-based long-term care policies. I’m tired of beating my head against the wall trying to sell $15,000-a-year LTCI policies. People who have bought these long-term care products with these very high premiums were depending on portfolio income to fund the premiums and the money is not there. So I’ve decided that we’ll take this same money, whatever is there, and we’ll put it into a product that is an asset instead of a liability, either a life insurance or an annuity that has an accelerated benefit if they need to access it to pay for long-term care.”
Changes in marketing and media mix… “I used to advertise a lot in newspapers. But this past summer I ran some ads on a multi-year guaranteed annuity at a very good rate. After six weeks I got three calls on it. It was in a very prominent place in the newspaper. The reason I had to stop and the reason I think the ad didn’t work was because the insurance commissioners require you to put a lot of disclaimers into these ads that scare the hell out of people. The newspaper thing is probably over for me now.
“I do emails to my clients on a regular basis. I still do direct mail. I don’t have a website because I deal mostly with seniors and most of my clients don’t use computers. My business is largely based on referrals. I call all of my clients at least twice a year. Every morning when I come to the office, I go to my client list and I just call them, just to talk, just to say hello. I’m not afraid to ask them for referrals. I’ve found that’s the best way to build business, plus I’ve hooked up with some lawyers and accountants. We work together as a team to help people. They refer people to me more than I refer people to them. We have a symbiotic relationship and it seems to work.”
By Maria Wood
From the December 01, 2011 issue of Senior Market Advisor