A matter of trust. (Financial Planning).
Insurers have grown accustomed to adapting as the individual marketplace changes, but increasingly sophisticated and affluent customers--facing ever-greater complexity in managing their wealth--have pushed companies toward reaching their clients through the financial-planning process. That imperative for change has sent the industry's heavyweights down divergent paths with a common trait: many of them would have seemed extreme just a decade ago.
The biggest change has been the evisceration of career agency forces, which were expensive and didn't meet the sophisticated buyer's expectations for objectivity. But while most big insurers have cut back on career agents or transformed them into independents, the companies have added their own, unique combinations of distribution strategies. Today, they acquire business not only through agents but through stockbrokers, bankers and independent, third-party professionals. Some insurers maintain sales forces-they call them "wholesalers"--to solicit and help those third-party advisers.
Mutual funds, stockbrokers, banks and independent planners provide plenty of competition, but insurers are doing well, especially in today's bear market in stocks, said Elda DiRe, a partner at Ernst & Young. "Consumers are no longer seeing insurance products as those with low rates of return, and they see value in the guarantees and death benefits," she said.
Insurers have always excelled at sales through planning, said Charles an Ratner an Ernst & Young principal and national director of personal insurance counseling. "Their agents are better trained than stockbrokers or people in banks, and they're more comprehensively trained than people at mutual funds. In many cases, they give financial planners a run for their money."
Insurance representatives might now have a leg up over competitors, given concerns about outliving retirement money, the costs of long-term care and security issues besides death, Ratner said. "Whether they can execute and get over the credibility problem, that's another matter," he said. Their "age-old problem" is the perception they're trying to solve every problem with life insurance.
Another weakness of insurer distribution is that advisers still are motivated primarily by sales as opposed to fee-only planning, according to DiRe. But in fairness, countered Ratner, so is most every other kind of adviser. "I'm more sympathetic to the agents' approach in the sense that necessity has caused at least the well-trained folks to look very broadly at their clients' situation," he said. "In many instances, the product is the solution, and [since] these folks can bring pretty good knowledge of planning with a breadth of product, they can really help people along." But he cautioned, "They're going to fall short when the planning becomes complicated."
A tenet of insurers' switch to a financial-planning strategy is what the industry calls "open architecture," which means advisers are free to sell any company's products. Even New York Life, which continues to fully support a strong career agency force, allows its agents to sell other products.
Boston-based John Hancock Financial Services Inc. in January 1999 converted its career-agent force into a general agency system under the trade name Signator as a way to offer "substantive, unbiased advice for both proprietary and nonproprietary products," said James Morris, chairman and chief executive officer of the Signator Financial Network. The nonproprietary products include mutual funds, traditional life insurance, universal life and variable universal life. The agents still have Hancock benefits, including health-care and 401(k) plans.
Signator agents' mutual fund sales are about 65% nonproprietary, Morris said. Agents use a mix of proprietary and nonproprietary funds in wrap accounts. A wrap account has a minimum-required value that is low for a fee-only account. But Signator agents almost exclusively choose Hancock long-term-care insurance "because the product is so good," and more than 90% of the life insurance they sell is Hancock products for the same reason, he said. Signator agents also choose Hancock variable annuities most often.
"An advantage of the system is that this isn't a company that makes you go in one direction regardless of what's in the best interest of your client," said Morris. "This is not to say we aren't going to encourage people to do business with the parent company."
In its first three-plus years, Signator itself has changed significantly. Morris said it has transformed from an asset-gathering organization that sold variable annuities and mutual funds into an organization with full trading capabilities, including wrap accounts, separately managed accounts and fee-based planning, all initiatives to give Signator's agents the ability to "compete in a world that's not just an insurance world today." Part of the reason for the transformation is to be able to recruit and retain agents, Morris said. About 2,000 agents are registered with the organization.
Hancock uses several other distribution channels. For many years, it has worked effectively with the M Group, a large independent brokerage organization. In July 1999, it formed a direct brokerage for annuities, life and long-term-care products, which previously had to be sold through the agency system. The brokerage works with about 30 independent distribution organizations, the largest being National Financial Partners, Ogilvie Securities Advisors and Highland Capital. Morris described them as "boutique broker dealers" in the upscale market, meaning they tend to specialize in protection sales vs. asset gathering.
Hancock has set up wholesalers to work with these companies. These organizations each might have 400 high-end producers, many of which are members of the Top of the Table, the upper echelon of Million Dollar Round Table members. The wholesalers often work individually with those producers, Morris said. Hancock also owns Essex Corp., a third-party marketer of annuities.
Often, the independent producers have relationships with other financial services professionals, such as attorneys and accountants, and will bring them into a case as needed. But Hancock has an advanced sales unit it can offer for estate and business planning that Morris said is "very supportive in nonqualified plans, corporate-owned life insurance and business-owned life insurance." Many producers use the advanced sales group, not just career agents or direct brokerage, he said.
Hancock's chief competitor in its career channel is the independent broker dealer, much more than wirehouses or career agents of other companies. "That's a 180-degree turn from 10 years ago," Morris said. "Then, 90% of the competition was other insurers and their captive broker-dealers."
Like Hancock, Minnesota Life spun off its career agents into an independent distribution arm with its own brand name. The broker-dealer organization is Securian, which Minnesota Life created in May 2001. It has 1,100 full-time representatives located in about 60 firms that are locally owned and spread across the country. The representatives still have health insurance and retirement programs through Minnesota Life, but the firms are owned by local management teams made up of people who never were employees of the insurer. Securian works with representatives to provide better training, including the credential of certified financial planner, said Peter D. Seltz, vice president of sales and marketing at Securian Financial Services Inc.
The representatives earn commissions from product sales, but income from fee-only planning will double this year over last year, Seltz said. The insurer uses its own wholesalers to compete with wholesalers from other companies for shelf space at Securian.
New York Life Insurance Co. is among the few large insurers that rely primarily on career agents. The company sells fixed annuities through many distribution channels, including banks and stockbrokers, and it sells life insurance through membership associations and the AARP, but its agent force continues to lead the way.
Agents do have access to outside products, however, said President Frederick J. Sievert. Those products can be used for diversifying a sale or when underwriting is unsatisfactory to a client. But agents are overwhelmingly loyal to New York Life and can sell it on the basis of the company's financial strength, highest ratings and strong brand, he said.
New York Life also offers its agents a registered investment advisory firm, Eagle Strategies RIA. Through the firm, agents can participate in fee-only planning and can offer a broad array of products, including outside life and annuities as well as securities. Sievert said about 250 to 300 agents have registered. The company has more than 10,000 agents in the United States and 8,000 in other countries.
At one time, Prudential Financial Inc. had about 18,000 career agents. Today, the number is down to about 4,500 as a result of a major overhaul promulgated by Art Ryan after he became chairman and CEO in November 1994.
"The impact has been tremendous," said Jeff Draper, vice president of financial planning. "First, there has been an overall effort to provide choice, both for producers and clients, so the product architecture has been opened dramatically the past five years. Second, we've made a dramatic effort to get financial planning--needs-based analysis--to our clients." He said the program has included efforts to ensure that every client has attention from an active producer.
Biannual client-satisfaction surveys have shown that the changes are useful and have been in the right areas, Draper said. Prudential's clients are primarily people with at least $100,000 to invest.
Prudential pared its agent force by more than doubling productivity standards and beefing up training for the surviving agents and management. The agents still sell mostly Prudential products, but they choose others if pricing is an issue, when Prudential doesn't offer a product or when it is an investment product without an insurance component. Prudential also offers financial advisers through its investment arm, Prudential Securities. The company's agents, however, are more involved in sophisticated planning than are the securities dealers, and most of the fee-based planning offered through Prudential occurs among the agents, Draper said.
Relationships Have Advantages
"Insurers are well situated due to the depth of relationships with clients," said Draper. "That's not to say that bankers and brokers don't need to do a fair share of needs-based analysis, but stockbrokers, oftentimes, have never met their clients face to face. Insurance producers will have closer relationships with clients and a greater understanding of their goals and dreams."
The company also has relationships with independent distributors. In 1987, Prudential Select Brokerage began marketing a portfolio of life insurance products to life brokerage general agents, national general agencies and producer groups. More recently, it is targeting banks and wirehouses. Prudential actively competes with other carriers for the business of these distributors by compensation, service, underwriting, technology, marketing support and quality of products.
A network of wholesalers--regional brokerage directors and regional marketing directors--represents the company throughout the United States. A single relationship manager also is assigned to large national general agencies or producer groups, said Michael Arcaro, a Prudential spokesman.
Philadelphia-based Lincoln National has two distribution work forces. Members of Lincoln Financial Advisors work directly with clients, while Lincoln Financial Distributors is a wholesaling team that works with third-party intermediaries. The latter is growing faster.
"Today, the top advisers that have built a holistic practice are thriving," said Westley Thompson, president and CEO of Lincoln Financial Distributors. "We're seeing that at Lincoln Financial Advisors, too. Our top planners are having a very good year."
Thanks to the financial-planning approach, sales through LFD beat industry averages in the first half of the year, and most are up on an absolute basis, despite the difficult market environment. Sales of the ChoicePlus Variable Annuity were up 37% over the same period last year, compared with a 1% drop industrywide, Thompson said. Retail life sales were up 23%, better than overall industry growth that was in the single digits, primarily reflecting universal life sales. Variable universal life sales were down 14%, compared with a 28% drop for the industry as a whole. Sales of Lincoln's mutual funds, Delaware Investments, were up 11%, compared with a 5% decline for the industry. Separately managed accounts sales were up 33%, but Thompson said there are no good industry data.
Lincoln formed LFD in March 2000, just as the bull market was ending. Previously, Lincoln wholesalers tried to win shelf space from third-parry distributors one product at a time, usually with one wholesaler having no idea when another wholesaler had paid a sales visit. Lincoln transformed itself into a single, cohesive, solutions-based wholesaling company. "We would have been very limited in our ability to gain shelf space" in the emerging bear market with the former business model, Thompson said. The company still has life, annuity and investment wholesalers, but they work as a team, saving the customer time.
High Standards for Wholesalers
LFD carefully measures the performance of its wholesalers and has developed a hiring and screening process to help recruit the best candidates. "It's not just up to each manager," said Thompson. "We institutionalized a format for getting at behavior and skills to screen out wholesaling prospects. It's created a much higher rejection rate, from five prospects interviewed to hire one, to as many as 15.
LFD had about 250 wholesalers in October, about the same as a year earlier.
Despite their static number, wholesalers are bringing in 20% more year-to-date revenue than over the same time last year, Thompson said. One of the drivers of higher productivity has been formal and better training, he said.
Lincoln's retail broker-dealer, Lincoln Financial Advisors, is made up of career agents from the old Lincoln National, the acquisitions of the retail life insurance business of Cigna Corp. and Aetna Inc., and newer members. They number more than 2,200. They're still statutory Lincoln employees and earn compensation and benefits from the parent company, but they aren't captive agents. "We embarked on becoming a financial-planning firm seven years ago, and we're much further down this path than any career agency system we re aware of," said J. Michael Hemp, president and CEO.
What is different about LFA is its "absolute commitment to open architecture" and the "complete conversion of the mind set of LFA management structure and infrastructure toward providing support of the financial-planning process," Hemp said. Under the change, LFA's agencies became "regional planning firms" and its managers "regional directors of financial planning," said Hemp. Fee-based planning revenues rose to $20 million in 2001 from $17.3 million in 2000, and Hemp said LFA is "in the business of selling plans."
While LFD generated more than double the first-year life insurance premiums that LFA generated in 2000, Hemp said owned distribution has advantages over alternative distribution. "You can always exercise more influence in the channel you own," he said. "All distribution will ultimately be owned. Many career agency systems or broker-dealers have been bought. Everyone is trying to buy distribution, so if you already own it, and it's part of the family, it's a great relationship to have." He added that there's little chance companies can now succeed in starting their own distribution from scratch.
"Lincoln has figured out how to do both," Hemp said. "If you can do both, then you'll be a very viable organization long term. Companies that opt to get rid of their career systems lose that leg of the stool."
Nationwide Life Insurance Co., the main life subsidiary of Nationwide Financial, has evolved as a financial-planning competitor in a much different way. Nationwide Life had slightly more in assets in 2001 than Lincoln National Life Insurance Co., the main life subsidiary of Lincoln National Corp., but almost twice the net premiums written.
Relying on Partners
Until recently, all of Nationwide Financial's financial-planning business was written by third-party distributors, except for some written by the career agents of its sister property and casualty company, Nationwide Insurance. Nationwide Financial has partnerships with about 50,000 third-party producers, about 16,000 of whom are active writers.
Partners by channel include independent firms Linsco Private Ledger, Royal Alliance, Caderet Grant and Raymond James; wirehouses UBS Paine Webber, Morgan Stanley, and Waddell and Reed; and banks Citigroup, BankOne, First Union, Wells Fargo and Wachovia (which merged with First Union). The fastest growth in recent years has been with financial institutions (banks) and wirehouses.
Nationwide has recently been setting up partnerships with certified public accountants. In October, it completed an acquisition of Provident Mutual Life Insurance Co. after it sponsored that company's demutualization. Through the acquisition, Nationwide has picked up about 770 career agents and 1,100 independent agents, which for the first time gives it a career agency force that specializes in financial planning.
"The Provident Mutual people will help us because career agents have represented about half of all variable life sales today," said Brian Haviland, Nationwide Financial's public relations officer. "This takes us from No. 6 in variable life sales to No. 4, and close to No. 2. We're able to provide them a broader suite of solutions for their clients. Our intention is to grow the number of agents and the number of solutions those agents can offer."
Haviland said Provident Mutual also brings a "highly affluent" clientele, wealthier than Nationwide's already typically affluent customer, which it defines as having at least $100,000 in investable assets.
Nationwide uses about 180 wholesalers, and it has realigned them, much as did Lincoln Financial Distributors, "so that we don't have different wholesalers calling on the same people with different products," Haviland said.
As part of its wholesaling model, Nationwide has an advanced sales team. It is made up of experts that can help financial planners solve some of their clients' more complex problems, particularly on questions of taxes. While general wholesalers call on producers, they are supported by wholesalers who specialize in life insurance, annuities or other products.
"Financial planning has been the core focus from our very beginning," Haviland said. "We're structured to provide financial advisers with the products and tools to properly advise clients through a range of solutions."
Top 10 Reasons to Plan Results of a 2002 survey of upper-income households of all ages revealed the following top 10 reasons people begin financial planning: Percentage of Survey Respondents Building a retirement fund 83% Building an "emergency fund" 38% Managing/reducing current debt 34% Home purchase/renovation 35% Vacation/travel 32% Building a college fund 32% Accumulating capital 31% Providing insurance protection 30% Sheltering income from taxes 28% Generating current income 23% Source: Certified Financial Planner Board of Standards Note: Table made from bar graph Who Does the Planning? The 2002 survey received responses from 996 households of all ages with income ranging from $60,000+ to $80,000+. The 1999 survey included responses from 897 households of all ages with income ranging from $50,000+ to $80,000+. Percentage of Survey Respondents Current 1999 Percentage of Survey Respondents Consult financial planners 37% 32% Use financial planners 22% 19% as primary advisers Do their own planning 45% 48% Source: Certified Financial Planner Board of Standards Note: Table made from bar graph When to Seek Financial Planning Help Results of a 2002 survey of upper-income households of all ages pointed out nine situations that encourage the use of financial-planning professionals. Percentage of Survey Respondents Receiving an inheritance/windfall 72% Increasing complexity of investments 61% Portfolio growth 52% 401(k) distribution decisions 52% Loss of assets from own trading/investing 43% Market downturns 37% Change in marital status 30% Change in job status 23% Birth of a child 15% Source: Certified Financial Planner Board of Standards Note: Table made from bar graph Where the action is Many large life insurers have embraced financial planning -- through a variety of distributors and programs -- to reach the end buyer in nontraditional ways. Below is a sampling of what companies do. 3rd-Party Company Career Agents Advisers Banks John Hancock Financial System revamped Yes Yes Lincoln Financial System revamped Yes Yes Manulife Financial No Yes-an affiliate No Minnesota Life System revamped Yes-an affiliate Yes Nationwide Financial Recently acquired Yes Yes New York Life Yes Yes Yes Prudential Financial System enhanced Yes No Sun Life Financial No Yes Yes Other Professional Open Company Wholesalers Services (1) Architecture (2) John Hancock Financial Yes Yes Yes Lincoln Financial Yes Yes Yes Manulife Financial Yes Some Vies for shelf space Minnesota Life Yes Yes Yes Nationwide Financial Yes Yes Yes New York Life Yes Yes Yes Prudential Financial Yes Yes Yes Sun Life Financial Yes Yes Vies for shelf space Turnkey Fee-Based Planning Company Accounts (3) Packages (4) John Hancock Financial Yes Yes Lincoln Financial Through 3rd Party Yes Manulife Financial Yes No Minnesota Life Through 3rd Party Yes Nationwide Financial Will offer in 2003 Yes New York Life Yes Yes Prudential Financial Yes Only for Pru advisers Sun Life Financial Through 3rd Party Yes (1.) Company can provide attorneys, accountants or other professionals, directly or indirectly, to facilitate a sale (2.) Practices that acknowledge a competitive marketplace, such as allowing one company's agents to sell other companies' products (3.) Wrap accounts, managed accounts or separately managed accounts (4.) Company-designed financial planning strategies to solve common problems
RELATED ARTICLE: The Big Picture
A demographic juggernaut is pushing through middle age in the United States, pouring unprecedented wealth into the financial system, but making unprecedented demands in return. The challenges of building that wealth--and making it last--point to at least two facts of financial planning at the start of the 21st century: Never has it been more complex, and never has it been more necessary.
How insurers, particularly in the life industry, respond to those challenges will determine their success in enduring the strains and seizing the many opportunities. At the point of sale, insurers are reaching out to customers through trusted advisers, and they have been willing to surrender control of those distribution channels to establish that relationship.
The distributors--agents, financial planners and other professionals--need to know more than ever before. Their training requirements seem endless, but even so, they look to the insurers for further support in making sales that make sense for the customers. Questions about long-term care, estate planning, even the fledgling business of life settlements, all can figure into building a client's comprehensive financial plan, because it's no longer just about retiring comfortably. Meanwhile, some customers resolutely go it alone, and for those too, there are services to help them navigate an increasingly bewildering world of financial choices.
The competitive environment is pushing insurers to develop new products and services and to beef up their capabilities to handle the flood of customers that will only grow as the baby-boom generation matures. Insurers don't have the financial-planning marketplace all themselves; in fact, they risk becoming also-rans if they don't compete vigorously against the banks, brokerages and mutual-fund companies vying for dominance. No one strategy has emerged as the best way for insurers to prevail. But however they go about it, a common denominator is the quest to win the customer's trust.
The Life Settlement Option
The life settlement industry thinks it holds an important piece of the financial-planning puzzle; its challenge is to build credibility with investors, consumers and regulators.
The industry has evolved out of the viatical business and into the life settlement business, said Kenneth Klein, president and general counsel for Living Benefits Financial Services. Its role in financial planning involves using insurance funds to provide for long-term care or retirement income, and advocates for the industry say it's an option people will need to know about as they age and their needs change.
"We tend to look at what we do as trying to create an industry around a new product," said Paul Moe, chairman and chief executive officer of Living Benefits. Life insurance is an asset owned by 78% of all U.S. households, he said. People need to know about life settlements because they might be a valid option in later years, he said. Perhaps no more than 10% of the people will take advantage of it, but that's still a large market, he said.
Some experts say the life-settlement industry is poised for growth. Institutional investors have committed $1 billion to buy life settlements this year, according to industry players. Within four to five years, they expect to need $2.5 billion annually to buy expected face amounts of $10 billion to $15 billion. Industry experts estimate annual life-settlement sales could hit $20 billion to $50 billion in face amounts within the next 10 years. There have been at least six or seven international institutional sources of capital coming into this business, which confirms that the present-value sale of a life insurance policy is credible, Klein said.
For seniors with children in their 30s, holding a life policy might make less sense than using its liquidity to fund a long-term-care policy, Klein said. It becomes a transformational asset, he said. "We know the capital markets see the potential, and we know the legislative people see it," Klein said.
Until recent years, life insurance policies were bound by a monopsony, in which there was only one buyer for the instrument. If a consumer wished to sell a life insurance policy, the only buyer was the company that originally sold it.
In the late 1980s, viatical settlements were offered to life policyholders who needed immediate cash, usually to pay for medical care related to a terminal illness. That business was plagued with fraud, but this type of sales of life insurance has shifted to the purchase of policies from consumers who are usually over the age of 65, have a projected life expectancy of 10 or more years and no longer have the same needs for life insurance they once had.
"If there's about $500 billion of life insurance in force today that is held by seniors, then there's still a lot of room to grow with this market," Moe said. "And as the next wave of baby boomers comes into the 65-plus age market, they have an even higher level of insurance coverage."
The key is education, Moe said. If the capital markets can be educated about this asset class and see portfolios growing, the industry will attract more capital and provide more opportunities for policyowners, be they individuals or corporations, he said.
When viaticals started, there was virtually no barrier to entry, and some people thought they could make a quick buck, Moe said. The industry is trying to get appropriate legislation passed on life settlements, as it did for the viatical marketplace, Moe said. There are only 16 states with regulations about life settlements, compared with 36 that have regulations for viaticals, and that's not enough, he said.
Life settlement companies have been "hoping to attract more attention from regulators, because the market that life settlement serves is growing and is in the age range of many of the regulators: senior citizens who are every politician's favorite voting block," Moe said. "Senior citizens and wealthy senior citizens are the market for this product. The average transaction is somewhere north of a $1 million policy size in face amount. Florida has been very active in getting regulations passed and in enforcement of those regulations, because why have the regulations if nobody enforces them?"
The current environment is such that if the insurer doesn't provide fair value to policyholders, they will turn to the secondary markets, presumably life-settlement companies, said Alan H. Buerger, cofounder and CEO of Philadelphia-based Coventry First LLC, an institutional buyer of viatical or life settlements.
Life-settlement companies add value to life insurance, Buerger said. Any financial planner advising clients over 65 needs to look into what assets might be there, including the possibility of life settlements, he said, It's a "good news-good news" situation with a life-settlement review, he said. If the policy is worth the cash value, the policyholder can plan appropriately and perhaps keep the policy for a while. If the life-settlement value is the higher value, however, the client knows this and can get the additional value, or, if there is sufficient cash flow, might gain more by keeping the policy for a while longer, he said.
Planning Needs Foster New Products, Services
Even in the individual market, the business of insurance isn't just about insurance anymore. As insurers gear up to meet the financial-planning needs of buyers, they are racing to offer individually tailored investment accounts, higher levels of service, more and better packaged plans, long-term-care insurance and new annuity designs.
Much of today's action is in the fee-based investment accounts, with the new entry, so-called "managed accounts," offering tax-sensitive, individualized portfolio management for people with as little as $100,000 to invest. Before improvements in software technology, such accounts were open only to people able to invest from $250,000 to $1 million. Major insurers for years have offered a lower-minimum alternative, wrap accounts, or the full-service, high-minimum accounts for the affluent known as separately managed accounts.
Toronto-based Manulife Financial in September announced its entry into the managed-account business as a way to "get the early-mover advantage and secure some key accounts," said Marc Costantini, senior vice president and general manager of managed accounts for the insurer's Boston-based U.S. subsidiary The Manulife product makes use of the company's wholesalers, independent distributors, service capability through the Internet, investment manager selection and oversight, and back-office support. About 90 of Manulife's 150 regional wholesalers will work with intermediaries on managed accounts, and eight new dedicated experts will help those wholesalers.
"We were absolutely better prepared than many competitors to enter this business, the same as we were to enter the 529 college savings plan business," said Costantini.
Prudential Financial has the most experience among insurers in managed accounts, having offered them for at least five years. The company continues to see them as "a huge opportunity for Prudential and the planners to build a business with recurring revenue that properly compensates them for serving their clients on an ongoing basis," said Jeff Draper, vice president of financial planning. "Managed accounts are extremely attractive mostly due to their tax benefits"--namely, the ability of individual account holders to decide when to take their profits, Draper said. "It's a powerful concept."
Prudential calls its product Managed Account Consulting Services (MACS). It is a member of the Money Management Institute, the trade association for managed accounts. Prudential, UBS Paine Webber, Merrill Lynch, Morgan Stanley and Salomon Smith Barney controlled 70% of the $417 billion of managed-account assets at, mid-year, according to the institute.
Lincoln National doesn't offer a product per se but rather supplies the products to third-party distributors that do offer a program. "They have built very sophisticated platforms," said Westley Thompson, president and chief executive officer of Lincoln Financial Distributors. "We in turn provide product to them to fit the various asset classes that form their platforms. They look for the best of breed. Then, on the back end, we have the technological capability to support their platforms electronically. Delaware Investments [Lincoln's mutual fund subsidiary] happens to be really strong in that since it has had a strong institutional business."
Other insurers, including John Hancock Financial Services Inc. and Minnesota Life Insurance Co., offer some version of managed accounts through their distributors, and customers of Ernst & Young's personal financial counseling business have been asking for and receiving it. "We're finding that it's necessary," said Elda DiRe, an Ernst & Young partner. "Financial planners are recognizing that it's hard to go in and be the planner and deal with just one component of a plan. The client is pulling for you to take care of everything."
LTC and Immediate Annuities
Insurers have long seen promise for long-term-care insurance and immediate annuities as fast growers in the future. But DiRe said they aren't popular in the high-networth market, and she doubts they will be because such clients believe they can self-insure. Charles Ratner, a principal and national director of personal insurance counseling, said the products are hampered by their complexity and the time and effort producers must devote to learning about them, and by the fact that they generate lower commissions than other products.
But Ratner noted one trend that augurs well for the products: People lately seem to care less about estate taxes--even if repeal never takes place. "As long as the surviving spouse gets to keep the assets, then the thinking is that the kids get what they get," he said of the trend.
Some in the industry have maintained that failing to recommend LTC insurance could set up a financial adviser for liability lawsuits in the future, but DiRe and Ratner said the recommendation of an inappropriate product is a bigger problem than a failure to recommend. "Product suitability is important," said Ratner. "People have a kind of fluidity to their lives today that requires a lot of flexibility in the products they're buying. When people are sold insurance products that don't allow them to adapt, a lot of problems occur."
A major writer of LTC insurance, John Hancock is very pleased with its sales, said James Morris, chairman and CEO of the company's broker-dealer, Signator Financial Network. Hancock has introduced several LTC products in the past two years. "We're not giving it away; we're controlling the underwriting," he said. "But the public is willing to pay."
Prudential's Draper predicted LTC insurance would be the product that booms through the financial-planning process. "It's a very emotional product," he said. "The higher the relationship between adviser and client, the likelier the issue of LTC will come up."
As insurers increasingly rely on the financial-planning adviser to sell their products, their support for advisers, will continue to grow. "It's not just the products but what the company offers alongside those products," said Jeff Botti, a spokesman for Nationwide Financial. "Does it have the service to help producers bring the solutions clients really need?"
A Designated Field
In recent years, The American College has adapted its curriculum to meet changes in demand for professional education, as growing numbers of life insurance agents move from selling to advising roles.
Beginning in the mid-1990s, officials of the college, located in Bryn Mawr, Pa., recognized that their courses needed to include more financial planning and the application of that planning. In fact, Retirement Planning became a key course because so many baby boomers were accumulating wealth. "Everyone was rushing to the planning process," said Samuel H. Weese, president and chief executive officer. "There was this whole concern about having the financial wherewithal for living too long and very little concern about the risk of dying too soon, which was the life insurance side of it."
The college began to see an increase in registrations, largely driven by securities firms, Weese said. Companies such as Morgan Stanley and Merrill Lynch, which had been doing very little business with the college four or five years before, now ranked among the college's top five or six companies, he said. "They have moved fairly quickly to the realization that they have to educate their retail brokers, now that they want to call them financial advisers or something similar," Weese said. "It's a vastly different marketplace today, and the demand for professional education is as strong or stronger than it's ever been."
Last year, the college counted 2,400 new designees as ChFCs (Chartered Financial Consultants) and about 2,200 new designees in CLU (Chartered Life Underwriter). "For us, it's been the best of everything," he said. "Our numbers for last year were up, and this year the momentum has continued."
Two years ago, the college realigned its curriculum so that the first five courses to be completed in advance of the CFP (Certified Financial Planner) exam also bestowed credit toward earning the ChFC and CLU designations. The college also reduced the number of required courses from 10 to eight to obtain a CLU or ChFC. "That strategy seems to be really working," Weese said. "We wanted to be able to show that we had equal tracks for the CLU, ChFC and CFP," he said.
It now takes about two years to complete the five CFP courses and usually another year to obtain the CLU or ChFC designation. "We used to talk about five years and 10 courses, with two courses a year," he said. "That's pretty outmoded."
For example, students who took an estate-planning course five years ago and now want to take the exam for certification might find that half the material they learned is wrong, simply because "the rules may have changed," Weese said. "It's behooved us to realize that we've got to package this education, so students, if they're disciplined, and stick with it, are certainly going to get it in less than five years."
The college has begun offering a series of online courses to expand the study alternatives for students. All five CFP courses were scheduled to be online by mid-October 2002. They integrate video and audio with text so students can use all three in the learning process.
The college's newest specialization is Chartered Advisor in Philanthropy, a three-course program on the graduate level. One CAP course already is up and running, and a second will be launched by the end of the year. The third will be available in Spring 2003. The goal is to make the CAP program appeal to fund-raisers as well as financial advisers, now that fund raising for nonprofits has become a fast-growing market, Weese said.
"This opens tip a segment of a whole new constituency for us, because these are the fund-raisers for nonprofits--the relationship-building people who get the charitable gifts--as well as the financial advisers who understand charitable trusts, gift annuities and the financial tools appropriate for people with a higher wealth accumulation," he said.
In contrast to the 1990s, the pendulum is swinging back these clays to a much more balanced approach in financial planning--balanced in the sense that the importance of life insurance again is being recognized, Weese said. With the euphoria of the stock-market boom over, investors are realizing that a conservative, fixed rate of return is very appealing. There's even a renewed appreciation of whole life insurance with a fixed, guaranteed rate of return. "Nobody wanted that in the mid-1990s-they thought it was outdated," Weese said. "Well, it doesn't look so outdated now."
The Path to Becoming A Financial Planner
The American College offers three main programs for certification in financial services:
* CFP: Certified Financial Planner. This program provides up-to-date education and information on financial planning and professional guidelines for adviser/client relationships. Study highlights include securities markets; mutual funds; federal estate taxation; trusts; life insurance; health insurance; and annuities. Students who complete the five courses qualify to sit for the CFP Certification Examination administered by the Certified Financial Planner Board of Standards. Students who earn their CFP can go on to earn CLU or ChFC designations by completing three more courses.
* ChFC: Chartered Financial Consultant. This is the most extensive education available for a professional designation in financial planning, the college says. About 37,1)00 professionals have earned this certification through studies at the college. Its eight-course ChFC program, which includes the five-course CFP curriculum, offers advanced financial-planning knowledge for financial planners and others in this field. Electives include The Financial System in the Economy, Estate Planning Applications and Financial Decision Making at Retirement.
* CLU: Chartered Life Underwriter. This has long been recognized as the highest level of study for life insurance professionals. Since 1927, when the college began offering this program, about 90,000 people have earned their CLU designations there. The eight-course program focuses on the protection, accumulation, preservation and distribution of assets, as well as current estate-planning strategies and planning for business owners and professionals. Depending on their areas of specialization, students also may take classes on income tax, medical insurance, investment planning and retirement planning.
'I'd Rather Do It Myself'
Despite the growing complexity of financial planning, some individuals are choosing to do it for themselves, spurning the need for agents, brokers or advisers.
Do-it-yourself financial planning isn't for the faint of heart, said Bob Bland, chief executive officer of Quotesmith.com, an online insurance information and access service. Yet, "we believe in the existence of the self-directed insurance buyer," he said. "The industry doesn't believe that customer exists, and that's fine with us. All of our money spent in marketing--approximately $50 million over the past six years--has been directed to those people."
These consumers are the kind of people who would trade stocks at Schwab, might do online banking and habitually buy online travel, Bland said. The buyers typically are slightly older than 40, married, own two cars, have $75,000 of household income or more, have been renewing insurance for a decade or more and are quite Internet savvy, he said.
"We've sold about 125,000 policies since 1996, and what we've found is that these people don't pick the lowest price, which we think is interesting," Bland said. "They either know what they want or think they know what they want."
Knowing what they want, however, can be a problem. Education is a big barrier to do-it-yourself planners, said Pete Jacques, associate scientist with LIMRA International, an insurance industry research firm. Many people don't have the specialized knowledge or aren't familiar enough with the issues of financial planning, he said. "They generally think of financial planning as just retirement, when there are a number of issues which are relevant," he said. "They think of it as just estate planning or inheritance planning. They also don't understand the value that working with a financial planner brings in terms of understanding products and tax laws."
Lack of understanding can, in some cases, drive the impulse to go it alone. Financial planning is outside the comfort zone of many people, Jacques said. One reason is that consumers don't want to appear ignorant when speaking with a professional about insurance, he said. Rather than calling someone they know and getting a referral, they decide not to do it, he said.
In a recent telephone survey conducted by LIMRA, 76% of consumers said they had a strategy in their head, and for whatever reason just didn't get to it. But with the recent drop in value of 401(k) plans, more people are beginning to realize that maybe they can't do it themselves, he said.
For those who do want to plan their own financial future, however, there are avenues and information.
Quotesmith.com--through its recent acquisition of Insure.com--provides consumers with 7,500 articles on a wide range of topics, indexed and searchable, with tools, calculators and "a cornucopia of insurance information," all written from the standpoint of the consumer to facilitate an informed decision, Bland said. That site typically generates between 200,000 and 700,000 unique visitors a month. If they prefer, consumers may purchase insurance online through Quotesmith.com, in many cases without seeing an agent, Bland said.
"In our customer service units, if we find out someone doesn't understand the difference between term life, whole life, universal life and variable life, we stop them and advise them not to buy through Quotesmith.com and to seek the counsel of a face-to-face agent," he said. "Online buying only works if you know what you want to buy"
"Most data we see says 1% of insurance is bought over the net," Bland said. The reason that number is stuck at 1% is the industry's insistence on "wet" signatures and paper applications, he said. "Once the industry moves to e-signatures--which I believe will be a watershed event in our sector sometime within the next 24 months--you've just eliminated the paper application. We believe that when e-signatures become accepted by companies, you will see an explosion of purchases online."
But the increase in online transactions won't be the end of the agent force in insurance sales, Bland said. "I think there is a very bright future for agents who provide consultative service and advice," he said. "I see agents moving. more toward the 'fee-for-service' situation, because insurance is inherently complex, and once you throw estate-tax or liquidity issues in, it becomes even more complex."
Hartford Financial Services Group Inc. has' developed a Web site that is very consumer friendly and designed not to barrage visitors with insurance jargon said Mananne Stefanov, the company's marketing communications manager.
"Our site is designed so that people who do want to do it themselves can go in and get a lot of information about insurance subjects without wading through tot of extra stuff," Stefanov said. "One of the most popular features of the site is what we call the Jargon Translator. It takes' the insurance terms and describes them in legalese, then explains it in language a consumer can understand."
"The big thing is we're trying to help people buying insurance to be more informed in what their needs are, Stefanov said. "That way when they do go into an agent's office, they can talk intelligently about what they need, what they want and can ask intelligent questions and understand the answers."
-- John Hillman
|Printer friendly Cite/link Email Feedback|
|Title Annotation:||insurance market|
|Comment:||A matter of trust. (Financial Planning).(insurance market)|
|Date:||Dec 1, 2002|
|Previous Article:||Best's Rating Changes. (Ratings).|
|Next Article:||Making up for lost time: Absence management plans are gaining greater acceptance with employers, adding business opportunities for insurers....|