Those who have trouble getting excited by insurance products should note the following:
A recent study by LIMRA International, a Windsor, Conn.-based research and consulting firm, showed that 44 percent of U.S. households say they need more life insurance and 27 percent say they expect to buy life insurance in the coming year. If all these folks were to purchase insurance, LIMRA says, the policies would add some $9 billion to industry revenues, almost doubling the amount of new premiums written each year.
These findings “reveal a wide gap between the amount of insurance that households own and the amount they feel they need for adequate financial protection,” says Robert Kerzner, president and CEO of LIMRA.
There is, of course, another reason for reps to have an interest in insurance products. As the brokerage industry evolves from its transactional roots, advisors are offering an ever-broadening array of products and services. Advisors who do not have good knowledge and access to all the financial products their clients want risk losing business.
“There is an increasing level of interest in taking the wealth management/financial planning approach rather than being the traditional transaction-oriented broker,” says Michael Freiman, senior vice president of investments at Legg Mason. “Insurance plays an important role when providing comprehensive planning advice.”
What's the Hold-up?
One of the major stumbling blocks reps encounter when recommending the purchase of insurance is the degree of specialized knowledge needed to analyze insurance needs and to make suitable recommendations. An increasing number of advisors are leaning on wholesalers, brokerage managers and other specialists for the information and expertise they need on this front.
Barbara Wells, an attorney with the Denver law firm of Minor & Brown, has seen a definite increase in the number of financial advisors who want to do the complete package — investments, insurance, referrals to other advisors — as a way to provide value-added services to their clients. Exit planning for corporate executives is one of the main areas the advisors are focusing on. Business succession planning is another. These financial planning events often involve insurance for owners.
Earl Marks, branch director and senior vice president with RBC Dain Rauscher in Mount Laurel, N.J., says there is a trend at broker/dealers to add more insurance products to the portfolio mix, but that the trend is client-driven. Still, a new generation of reps weaned on the idea of “holistic” financial planning is starting to make itself heard. Here are a few of the most popular ways in which insurance is being plied by registered reps.
Long-Term Care and Asset Protection
Given their focus on accumulating and growing a client's assets, it seems logical that reps would want to protect those assets in the last few years of the client's life. Long-term-care insurance addresses this issue, and helps both a client and his advisor avoid late-life financial disasters that can be brought on by health problems. (See “Helping Heirs Get Theirs,” p. 79.) Eunice Krieger, principal in the Morrison, Colo.-based long-term-care insurance specialty firm Krieger and Associates, has noted a recent upswing in the amount of business from registered reps.
She says the value of the long-term-care insurance business from traditional insurance producers and independent financial advisors has easily doubled over the past 10 years. But until recently, the business produced by registered reps has lagged. Now the momentum has begun to pick up among registered reps, as many awaken to the possibility that without long-term care, years of hard work caring for a family's finances can go to naught.
“Reps need to address the consequences of not having long-term-care insurance rather than the likelihood of needing the insurance,” she says. “Without proper asset protection in place, all the careful retirement accumulation and estate planning the rep does goes down the drain.”
Kip Keener, principal with The Keener Group in Littleton, Colo., also has seen an increase in b/d long-term-care insurance business.
“Registered reps are beginning to appreciate the need for long-term-care insurance as their baby boomer clients age,” he says. “This is an emerging market that is greatly underserved.”
Life Insurance and Life-Cycle Planning
When reps recommend the purchase of life insurance, why are they making the recommendation and what products are they suggesting?
Keener and others say that the primary insurance purchases recommended by registered reps involve life insurance. And, perhaps surprisingly, not variable (universal) life insurance, but low-premium, no-lapse universal life insurance or guaranteed level 10- to 20-year level premium term life insurance.
Freiman uses annuities as an investment vehicle for qualified plans, IRA rollovers and supplemental retirement income plans because of the living benefits.
“Of course, we look at each case individually and discuss the extra costs associated with a variable annuities vs. mutual funds or other investment options with the client,” he says. “We find that more and more people opt for the guarantees so they can sleep better at night knowing they have a minimum cash flow and/or return of principal.”
The trend seems to be along the lines of recommending variable annuities as supplemental retirement plans — once everything in the equity-based investment arena has been maxed out.
A Little History
Until recently, the brokerage business was not structured to sell insurance, according to Doug Campbell, national sales life distribution manager for Wachovia in Charlotte, N.C. For many years, growth had been held back because the products and their compensation structures were so foreign to the average rep. Brokers “often considered insurance to be a poor investment because of the amount of the client's invested dollars that were paid as commissions,” says Campbell.
But insurance products have evolved over the last 15 years. Now there are level-commission insurance products, and annuity commissions that look a lot more like mutual fund commissions. The tax advantages of life, long-term care and annuity products also add greatly to their appeal to clients and advisors alike.
“One of the only frustrations we encounter is the additional administrative burden we face with the need to maintain licenses and appointments for all of our team members,” says Freiman.
Given all the benefits that insurance can deliver to both reps and clients, an increasing number of reps are deciding it's worth the effort.