For registered reps, selling insurance is sticky business — in more ways than one.
It requires learning new products and a different sales approach and qualifying for a different license. And selling inappropriate insurance policies can put brokers in a sticky legal situation.
However, in marketing terms, insurance is also sticky — it creates a stronger and longer relationship with the customer. Prescribing the proper life insurance coverage requires learning more about the concerns of a client than a financial advisor may glean from handling investment accounts. And the deeper relationship can lead to other sales or to an estate planning relationship, for example.
The idea of selling insurance products arouses a complicated range of emotions in many advisors. On one hand, insurance products can make an advisor feel more secure — about both his clients' financial future and about his own livelihood. On the other, the thought of having to learn the nuances of so unexciting a product fills some advisors with boredom and dread. If they had wanted a career in insurance, they wouldn't have become brokers.
If you are one of the latter, you should probably understand that the removal of regulatory barriers separating banking, securities and insurance businesses has created the possibility of the fabled one-stop shop. And brokerage brass wants that. (Prudential advisors must now get their insurance licenses, which is understandable given that its parent is an insurance company. But consider that Raymond James is now asking its reps to get an insurance license too.)
In essence, insurance will soon be an integral part of what a financial advisor should understand and offer clients. This article and the two that follow it combine to form a primer on insurance and the various ways a financial advisor can make use of it.
One-Stop Shops
Insurance increasingly is viewed by brokerage firms as a foundation of the fully evolved financial practice — mainly because selling it is a good way to squeeze more assets and revenue out of every customer. However, as more brokers try their hands at selling insurance, the opposite is true as well.
For now, the crossover is happening largely at the borders. Insurance agents are most comfortable selling mutual funds or other prepackaged investment products, not stocks. Brokers, meanwhile, gravitate toward insurance products that most resemble what they currently sell. Long-term care insurance, for instance. Property and casualty insurance are still largely untapped by registered reps, says Joe Annotti, president of the National Association of Independent Insurers. “It's not a product that fits their mix,” he says.
Annuities, meanwhile, sit smack in the middle of the Demilitarized Zone. Fixed annuities are attractive to insurance salesmen because they pay out a fixed payment, like an old-fashioned pension plan. Variable annuities get the attention of reps, because they depend on the performance of the underlying investment.
By the Numbers
The trend of brokers selling insurance is hard to quantify, but there seems to be agreement that penetration is low.
Hartford Life and a handful of other insurers commissioned a proprietary study on the variable life insurance market last year. The research found the product was sold by 4 percent of wirehouse brokers, 5 percent of regional brokers and 20 percent of financial planners (affiliated with independent broker-dealers).
Meanwhile, a new survey from Cerulli Associates focused on insurance products in general, found a similarly low rate of penetration: 1 percent at wirehouses, 1 percent at regionals and 5 percent at independents. However, the Cerulli study indicated those numbers are expected to rise. Forty percent of wirehouse brokers, 54 percent of regionals and 44 percent of independents expect to increase their sales of insurance products.
“I don t see how you can call yourself a financial planner if you're not selling insurance,” says Scott Yanker, of St. Louis's Yanker and Co. Wealth Management Advisors. “I'm not saying the stockbroker's dying, but to me they're not competition.”
David Bendix, a principal with Bendix Financial Group in Garden City, N.Y., says expanding into insurance was a way to ensure that he is prepared for anything a client brings up. “It's a different world now,” he says. “You run the risk that they possibly develop a relationship with another professional.”
Learning the Ropes
One of the tough parts of selling new products is understanding the licensing requirements. While securities products are governed federally, with some state regulations added, insurance is regulated mainly by a patchwork of state regulations. Each state has different licensing requirements, which become crucial if you live in a border town.
For instance, long-term care insurance — a particularly hot area, given the aging Baby Boom population — requires licensing on the state level. However, according to Murray Gordon, president of MAGA Limited, a long-term care insurance agency located in Deerfield, Ill., some states also require extra certifications. Illinois requires salesmen to take a six-hour course and California has an eight-hour one, he says.
Licenses aside, there are psychological differences between selling a stock and selling a life insurance policy. Insurance agents are used to selling based on fund's protection. Stockbrokers are all about investments — what's up, what's down, capital appreciation. That goes double for brokers who are transaction-oriented. “If they're not dropping tickets today, they feel like there's not going to be a future,” says Jonathan Parker, a Miami lawyer-turned-broker-turned-financial advisor. But, he adds, the new form of financial advising is “a classic fortune cookie: ‘Better to have a hen tomorrow then an egg today.’”
According to Andre Cappon, a consultant with the New York-based consulting firm CBM Group, a brokerage firm selling another company's insurance product typically will get 90 percent of the first-year commission, roughly half of which goes to the salesman. After that, the firm will typically earn about a 5 percent commission, which it again splits with the salesman.
Despite the prospect of ingoing streams of revenue, reps still have a hard time warming to insurance. One reason is detailed personal contact with clients required by insurance sales. Whereas a pre-Gramm-Leach-Bliley rep might discuss the investment possibilities of a pharmaceutical company with an anti-Alzheimer's drug, today's advisor might have to discuss the implications of a client contracting the dreaded disease.
Some feel reps are not up to the challenge. Steve Kobrin, who sells insurance and is president of the Kobrin Agency in Saddlebrook, N.J., says some of the hardest aspects of insurance sales — prescreening clients on delicate medical matters, for instance — are unlikely to be mastered by someone for whom insurance is simply a complementary product. “It's almost better that somebody becomes a priest or psychologist or social worker and then enters this business,” he says.
Then there is the arrogance factor. The variable-life study commissioned by Hartford found that “social stigma” was still a major obstacle to reps embracing insurance sales — implying that insurance occupied a lower rung on the ladder of financial products. But that same study also found that reps found selling insurance too complicated, too training-intensive and too form-heavy.
With a Little Help
Hartford addressed these problems by creating a team of specialists to do the screening while still offering brokers the same commissions. This freed the brokers to do what they did best: sell. Last year Hartford Life booked $173 million in life insurance premiums, with more than 70 percent of it coming through wirehouses and independent insurance brokers. Fully one-third of its life insurance sales hail from wirehouses alone.
There's good reason for the brokerage industry's interest in insurance: It diversifies revenue streams and fills in gaps in down times, says Alex Sion, practice lead for personal financial institutions at Sapient, a business and technology consultancy based in Massachusetts. He notes that securities firms are starting to push employees toward insurance products.
At A.G. Edwards, new brokers get training in long-term care insurance and learn to invite groups of couples for coffee, donuts and an insurance primer. Raymond James has set up classes to teach its financial planners about various insurance issues. The classes are not the boondoggles of days of yore, but daylong, hard-nosed classes.
The examples go on and on. “I don't see much pressure to turn people with a Series 7 en masse to get the Series 6,” Sion says. “I know it's been contemplated, though.”
Experts say certain elements within the brokerage industry will fail to see the benefits of selling insurance, regardless of which way the winds of change blow. David Marks, a broker at Westminster Financial in Quechee, Vt., acquired an insurance license to please his firm, but finds that he hardly uses it.
Still, there is one good motivator for getting brokers up to speed on insurance: fear. Fear of client lawsuits, in particular. According to Mandell Winter, Jr., who teaches at the Kaplan College School of Continuing Education, one danger of providing one-stop financial shopping is that the broker does not completely understand the legal implications of an action — or inaction, for that matter. Brokers might be used to worrying about potential suitability claims, but are probably not prepared for a suit from a client who feels inadequately insured.
“If [crossover selling] is done well, it will continue to grow,” Winter says. “If it's done poorly, it will end in a lot of lawsuits.”