Executives know that a key to growing any business is understanding our market and our customers. The life settlement industry is no different, and for years we have relied on the financial services industry to help promote our message and value proposition. Recently, we learned that despite more than 20 years in existence and countless educational efforts, life settlements remain misunderstood among many financial advisors – and we have the research to prove it.
The Lifeline Program and WealthManagement.com recently surveyed financial advisors about life settlements, and more than 40% of respondents were either unfamiliar or had only “heard of” life settlements. While nearly half of respondents were aware of life settlements, only 11% had either recommended a life settlement or assisted a client with a transaction.
All of this despite the industry growing by more than 20% in 2013 and continued growth on the horizon. The survey showed that many advisors believe they need specialized knowledge in order to recommend life settlements, and nearly 3 in 10 drew a strong association between life settlements and stranger-originated life insurance policy problems from a few years ago. Some advisors also believe the transactions are only for the terminally ill; while others say they may be illegal; and still others find them creepy.
A complete analysis is available through a white paper that can be downloaded here, but I wanted to focus some attention on how the life settlement industry needs to fix its current disconnect with financial advisors.
Continue to Educate About the Basics
The life settlement value proposition has always centered-around the transaction being a sensible alternative to surrendering a policy or allowing it to lapse. For those who understand life settlements, this message has gotten through. Nearly half of advisors surveyed believe that clients who plan to let coverage lapse should consider selling their life insurance policy. The same proportion of advisors also said life settlements are a viable option for clients with unneeded or unwanted life insurance. Our core message has reached part of our audience, but we need to get deeper penetration. Look for more webinars and continuing education programs in the future.
Explain the “Money in Motion” Benefit
Most financial advisors are vigilantly on the lookout for client liquidity events or “money in motion” – opportunities to help clients invest funds received from the sale of a business or large-scale financial transaction. In fact, our survey found that 70% of advisors actively look for liquidity events as part of their marketing strategy. Yet this group has failed to capitalize on an opportunity to put money in motion using life settlements, as only 18% of those surveyed cited life settlements as a strategy to provide clients with revenue for new investment opportunities. A major opportunity exists for advisors and life settlement companies alike if we can embrace that life settlements put money into motion.
Increase Education about Regulatory Issues and Fiduciary Responsibility
Life settlements are strongly regulated at the state level, but many advisors remain unaware of how the transactions are monitored. In fact, more than 80% did not understand the regulatory environment surrounding life settlements. To combat this, the life settlement industry needs to ramp up its education efforts so that advisors understand that the transactions are safe and monitored under the umbrella of state insurance commissioners. They also should be educated about their fiduciary responsibility, particularly in the wake of recent court cases.
The life settlement industry has an exceptional opportunity to re-cast how it is perceived by the financial planning community. It should begin soon and stress education and opportunity.
Stephen E. Terrell is Senior Vice President of Market Development and Branding of The Lifeline Program, a life settlement provider based in Atlanta, Ga. You can also follow him on Twitter @LifelineProgram