A Morgan Stanley advisor sat at his desk a few months ago, reviewing his professional life. During the late ‘90s boom, he had been trading millions of dollars a day. When, like many reps, he crashed to earth in the boom's aftermath, he had to re-evaluate his practice, starting with his product mix.
It was in the midst of this reverie that the true difference between his old and new self hit him: “All this time, I've thought of myself as a stockbroker, a real mover and shaker,” says the broker, who requested anonymity. “Then I looked over my books and how I do business now, and it occurred to me: I'm an insurance salesman. I sell insurance. It was quite a realization.”
As the industry continues its inexorable march toward “wealth management,” advisors have had to add new tools to their workbenches. Among all of them, reps seem to have the most trouble getting comfortable with life insurance.
It's not hard to surmise where the trouble lies: Though insurance products can be profitable for reps, their long sales cycles and steep learning curves tend to suck up time that could be devoted to selling other products. In short, many believe the juice ain't worth the squeeze. But the biggest obstacle is even less tangible than that: Insurance products are just not sexy.
“Some people got into this business because they didn't want to sell insurance,” says Mike Kalen, senior vice president and director of individual distribution at Hartford Life, in Simsbury, Conn.
Part of Life
Despite all these forces, insurance has crept into most reps' business, and it shows few signs of retreating.
According to a new proprietary study commissioned by Registered Rep. and The Hartford Financial Services, 66 percent of advisors sell individual life insurance products. And it's not just mom-and-pop independents either: 66 percent of wirehouse brokers sell life insurance, along with 71 percent of independents and 55 percent of regionals.
(The survey, conducted over the summer, gathered 926 responses, giving its findings a confidence level of 95 percent, plus or minus 3.2 percent.)
Of course, this doesn't mean the reps like selling insurance. Those interviewed for this story noted three stumbling blocks to a warmer embrace of the products.
First, they require clients to take a physical. Surprisingly, brokers are not put off by the prospect of asking the personal health questions that life insurance documents require — only 5 percent of respondents cited this as a reason for not selling insurance. Rather, the issue is that all the work put into gathering personal information goes for naught if the client flunks the physical and is denied coverage.
A second obstacle is that the sales cycle for insurance products is excruciatingly long, at least relative to other, more lucrative financial products. After a meeting or two with clients about a mutual fund, for instance, a rep is able to walk away with a sale. But with life insurance, the sales process can take months or even years.
The third obstacle is the aforementioned sexiness issue.
“Investment professionals see insurance professionals as guys who wear plaid jackets, like car salesmen,” says Chip Roame, head of Tiburon Strategic Advisors, a Tiburon, Calif.-based consultancy. “It's a step down. If you walked around a Merrill office and asked them what they thought about people who sell insurance, you'd hear a lot of negative words. Nobody wants to go to a cocktail party and tell someone you sell insurance.”
Get Used to It
Roame says any advisor who plans to be in the business for the next 10 years or more needs to be selling insurance, because as the client base — which is likely to be heavy with baby boomers for years to come — ages, it will be less interested in hot stock tips and more interested in securing and stabilizing their familys' financial futures.
The only question that remains is how heavily the rep — and his firm — will lean upon third-party firms for help with the sales and administration process.
Kalen says in his experience, the advisors who have good experiences selling insurance are those with deep relationships with clients.
“We want someone who has established relationships with their clients; they've talked to them about more than just a stock or a bond or a mutual fund,” Kalen says. “They have to be more willing to engage specialists in their practice; the do-it-yourself broker who wants to do everything is not the best guy for us to work with.”
This raises a very thorny issue: client ownership. A rep is nothing without his clients, and they are understandably reticent to hand over part of their relationship with them to anyone. Yet, unless the broker wants to become a bona fide insurance expert, that's precisely what a third-party relationship calls for.
One Edward Jones rep says he's been part of a worst-case scenario. He referred a client to an insurance specialist, since he didn't fully understand the intricacies of the policy the client wanted. The client got along so well with the insurance agent that he began doing mutual fund trades with him. Next thing the rep knew, the client was gone.
Another facet of reps' hesitance to offer insurance involves a desire to stick with what's working. Most reps did not build their book through insurance, and in an era of increased specialization, many can be wary of embracing an entirely new specialty that requires all manner of new skills.
“One of the challenges we face is the reluctance to talk about these products, which comes from lack of understanding of these products,” says Scott Curtis, president of Planning Corporation of America (PCA), Raymond James' insurance general agency. “Advisors are hesitant to discuss products with their customers of which they are not familiar. And that makes sense.”
For this reason, many old-school reps, particularly ones with large books, are more likely to stay away from the insurance game. According to the study, 70 percent of reps with assets under management of less than $20 million sell insurance, while just 56 percent with assets under management of more than $100 million sell it.
Where's the Beef?
To hear brokers gripe about insurance is to believe that they make next to nothing on their sales. Judging from the survey, though, it's probably more accurate to say reps believe they are not paid enough for the trouble they take to sell the product.
When asked what would help convince them to sell more insurance products, only 12 percent indicated a need for better financial incentives. By contrast, 34 percent said they needed more product training and 32 percent wanted better access to expert assistance.
Reps aren't exactly getting rich off insurance, but sometimes, if they're patient, it can be worth their while. An insurance commission can run as high as 8 percent to 10 percent, which, in absolute dollars, is a nice haul (almost twice what you can get from many equity loads). However, it's important to note that the amount of time and effort behind an insurance sale tend to be significantly steeper than on the sale of, say, a mutual fund.
Still, it's clear that the financial incentives take a back seat to wealth management considerations: Reps and firms understand that no comprehensive financial plan is complete without the product, so they make sure to offer it.
Merrill is currently leading the charge on insurance products, thanks to its Merrill Lynch Insurance Group (MLIG), which focuses not only on training individual brokers in the intricacies of insurance, but also on bulking up its internal staff of experts. Smith Barney has had similar success with its Travelers Group.
At Raymond James, the focus is on educating advisors, not just on the company's own products, but on those from third-party vendors, such as The Hartford.
Curtis, who says insurance-related revenues at Raymond James are up 25 percent from last year, says the firm doesn't give any specific financial motivations to its affiliate reps to sell insurance — it doesn't even require they utilize PCA; in fact, at times they can get a higher commission using an outside vendor — but emphasizes to them that it really should be an active part of a wealth management practice.
“They've got a good program there,” says one Raymond James rep that uses PCA. “They make it easier for us, which is to say, it's still really hard. We hate this stuff.”
Faced with this resistance, many firms are turning to companies like The Hartford. For less complex products, such as term insurance (which typically is less complicated than variable or whole life), the firms build technology-based solutions, which streamline the information-gathering process with short, basic questions.
“'Do you smoke, and are you dead? Here's what it costs.' That's it,” says Roame. “It looks like a financial planning application, but the end result is insurance.”
The study shows that 82 percent of advisors who sell insurance sell term insurance, higher than any other kind.
Still, even as firms recognize the importance of insurance in the future, they're still behind the game in many key areas.
“There's an abundance of talk of being into wealth management, with much less action happening to provide advisors with product components they need,” Roame says. “That's going to have to change.”
Insurance and the Registered Rep.
Results from the Registered Rep. - Hartford survey.
|Individual life insurance||66%|
|Stocks and bonds||90|
|529 college savings plans||78|
|Wrapped mutual funds||67|
|401(k) benefit plans||56|
|More product training||34%|
|The ability to make sales faster and simpler||33|
|Better tools on desktop/computer||20|
|Greater financial incentive||12|
|No medical questions||7|
|Wealth transfer or estate planning||85%|
|Supplemental retirement planning||44|
|Life insurer provides product training||60%|
|Broker/dealer provides product training||55|
|Life insurer provides sales support||47|
|Life insurer provides point-of-sale assistance||46|
|Broker/dealer provides sales support||45|
|Broker/dealer provides point-of-sale assistance||34|
|Life insurer meets with clients||31|
|Life insurer helps identify prospects||18|
|Broker/dealer meets with clients||18|
|Broker/dealer helps identify prospects||15|