Financial advisors are, apparently, hungry for insurance: Two-thirds of registered reps plan to sell more life insurance products over the next two years. And most reps consider insurance an especially important part of an individual's financial portfolio in tough markets like the one we're in today. Indeed, nearly three-quarters of advisors sell life insurance and annuities to help clients manage risk in uncertain economic times. These are some of the findings of Registered Rep.'s recent life insurance survey, sponsored by Protective Life and conducted by Penton Research.
“More advisors are finding that insurance simply must be part of their clients' comprehensive financial plans,” says Eric Miller, vice president of Protective Life Insurance Company's life and annuity division, in Birmingham, Ala. “Ignoring that aspect of their clients' needs can leave substantial gaps in their planning.”
If advisors don't offer insurance, Miller speculates, they “may actually lose clients to other advisors who better recognize the value of insurance products for protection, accumulation, retirement income and wealth transfer needs.”
Of course, many respondents say their clients don't feel they need insurance, or consider it too expensive. So, advisors need to discuss suitable products with clients carefully and avoid products with high fees. On the other hand, more than half of respondents believe their clients are very concerned about retirement, and lately have shown greater interest in products that give them a source of guaranteed income.
Mutual funds play the largest role in a rep's arsenal of investment products, but annuities and life insurance are not far behind. Ninety-two percent of those polled sell mutual funds, followed by 77 percent who sell annuities and 74 percent who sell life insurance products.
Some three-quarters of the survey respondents consider an insurance product that provides a systematic stream of guaranteed income to beneficiaries when the policy-holder dies to be “beneficial.” Eighty-five percent believe that variable annuities best fit the bill. That's because a variable annuity's lifetime withdrawal benefit guarantees that the annuity owner will receive 5 percent to 6 percent in annual income for as long as they live — regardless of the performance of underlying mutual fund investments.
Meanwhile, 67 percent of respondents sell fixed annuities and 48 percent sell immediate income annuities. Only 20 percent sell indexed annuities. Overall, 63 percent of respondents plan to sell more annuities in the next two years. That said, nearly half expressed concerns that negative press about sales suitability hurts annuities sales.
Take Wilma Anderson, a Littleton, Colo.-based financial advisor. She uses a variable annuity with a guaranteed lifetime withdrawal benefit in conjunction with other income investments to reduce longevity risk for clients. Plus, she can manage her clients' variable annuity mutual funds for long-term growth by investing in a combination of asset classes that can deliver high risk-adjusted rates of return. But Anderson says variable annuity sales' suitability rules must be followed closely.
“I use a personal checklist and everything goes through the suitability desk,” she explains. She considers the individual's age, investment goals, risk tolerance and tax situation, as well as how the annuity fits in with a client's overall investment portfolio. “It's not a problem for me.” Her attention to suitability, she says, results in repeat business from clients.
On the life insurance side of things, term insurance is one of the most popular options among financial advisors, but interest in secondary guarantee universal life and variable universal life sales is growing quickly. The respondents also sell long-term-care insurance, universal life insurance and variable universal life insurance. And more than three-quarters of respondents say they review client insurance needs at least once every two years.
“Term insurance certainly has great appeal due to its simplicity and affordability, particularly for clients who may only need the coverage for a certain number of years, instead of for a lifetime,” Miller says. Indeed, some 92 percent of respondents say they sell term insurance, which provides only a death benefit. Large amounts of term coverage can be purchased for periods of more than 20 years at a low cost. So the difference in premiums between term insurance coverage and more expensive cash value policies can be invested for long-term growth. “For many consumers in that category, buying term and investing the difference makes a lot of sense,” says Miller.
Secondary guarantee universal life sales and variable universal life can be more complex than term insurance, “but reps are finding them effective long-term tools in solving a wider array of client needs,” he adds.
Most financial advisors use insurance for simpler client needs, referring clients to traditional insurance agents for the complex stuff. In fact, 90 percent of respondents believe that income protection is the most important use of life insurance. More than three-quarters of the respondents see life insurance as an important tool for wealth transfer or estate planning. More than half look to life insurance for business continuation needs, as well as long-term-care expenses. Meanwhile, nearly half of respondents' clients already get life insurance through their employers.
John Catafamo, partner with Primoris Capital Management, Palm Beach Gardens, Fla., says that he prefers to refer his clients to insurance agents and estate planning attorneys. “I focus on managing money,” he says. “Some of my clients are looking to grow their assets. I look for the best combination of income investments that offer safety, liquidity and yield for my retired clients.”
The most important variables registered reps use when picking an insurance company include financial strength (84 percent), price (71 percent) and ease of doing business (46 percent). By contrast, only about one in four said that brand recognition, wholesaler and sales support and product variety are important.
Survey Subjects: At A Glance
Registered Rep.'s poll was conducted on September 10 and there were 296 respondents. The bulk of the respondents — 46 percent — are affiliated with independent broker/dealers. The rest are split among regional firms, wirehouses, financial planning firms and bank brokerage firms.
The respondents have an average of $42 million in assets under management. Not more than 10 percent of their clients have over $3 million in investable assets. On average, nearly half of respondents' clients are aged 40 to 60. Twenty percent are under 40; 35 percent are over 60. About half of the respondents' income comes from commissions.
Mutual funds comprise 44 percent of the reps' business, while life insurance and annuity products make up another 27 percent. The rest of their business is split among stocks, bonds and other investments.