Insurer-Affiliated Reps Show Increased Interest in Selling Investments

Advisors affiliated with insurance companies are not locked into the insurance commission mentality; many of them looking to diversify their sources of revenues with other types of investment products as well as AUM-based fees. [What a grand time to make the switch, what with the market volatility scaring retail investors onto the sidelines. You only have to look at fiscal third-quarter trading volumes at, say, TD Ameritrade (Ticker: AMTD) or Schwab (Ticker: SCHW).]

According to a recent report by Aite Group, 63 percent of insurer-affiliated advisors surveyed said that they are “very interested” in selling investment products, while 28 percent said they were “somewhat interested.” Only 9 percent indicated that they sell investment products for defensive reasons, “to keep clients from seeking investment advice elsewhere,” the report said.

These numbers confirmed research by Rep. ThinkTank in 2010, which found that 95.2 percent of insurer-affiliated advisors sell mutual funds, while 79.7 percent sell mutual fund wraps, which are both higher than the industry average. Not surprisingly, this segment also has a higher percentage of advisors selling annuities and life insurance.

Despite the interest in investment products, these advisors want to have diversified sources of revenues. In fact, only 32 percent indicated they would like more than half of their income to come from investments, while 37 percent would like to derive between a quarter and a half of their income from it. Another 31 percent said they would like no more than a quarter of their income from selling investments.

When asked which revenue streams they expect will grow most over the next three years, 44 percent of insurer-affiliated reps said AUM-based fees would grow the most, while 13 percent expect investment commissions to grow. Twenty-two percent believe insurance commissions will grow, while 13 percent expect a boost in annuity commissions and 9 percent anticipate growth in DC plan fees.

While their shelf space is limited because they’re selling life insurance and annuities, this desire for diversified income streams can provide an opportunity for wholesalers who have compelling products with good price points, said Clark Troy, research director at Aite and author of the report.

“Basically, they [insurer-affiliated advisors] have a lot of products they have to keep their heads around,” Troy said, so wholesalers are challenged with targeting their products effectively to this market. “It’s not like walking into the office of a wirehouse.”

These insurance brokers also provide an opportunity for wholesalers because of the need to avoid conflicts of interest with their own asset management divisions. This is what led to the sale of Citigroup/Smith Barney’s mutual fund unit to Legg Mason and Merrill Lynch’s unit to BlackRock, said the report.

“Insurer‐affiliated broker‐dealers need externally sourced investment products, and this creates a sweet spot for product manufacturers that can wholesale effectively to their advisors,” Troy wrote in the report.

In general, the Aite survey found that insurer reps tend to have heavy workloads, with 150 or more clients. They also have lower levels of AUM, with 78 percent of them having total AUM of less than $60 million. In 2010, 34 percent of them brought in between $100,000 to $200,000 in revenues, while 22 percent brought in less than $100,000.

The data were derived from a first quarter 2011 Aite Group survey of 438 financial advisors, 32 of which were affiliated with insurance brokerages.

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