A Challenging Year
Brought New Appreciation
After a year that included a major new tax act, new minimum distribution rules for IRAs and qualified plans, a new notice on split dollar plans, the end of a record bull market, the beginning of a recession and the terrorist attacks of Sept. 11, this is what Bob Nelson observes at the end of 2001: “The incredible sense of appreciation for the value-added role of the trusted agent advisor.”
Omaha-based Nelson, who is president of the National Association of Insurance and Financial Advisors, feels that the public perception of the industry has really changed as a result of the industry’s response to the events of Sept. 11.
“The industry did a wonderful job of reassuring the American people that the promises would be kept, and the policies and contractual obligations would be delivered,” says Nelson.
Looking ahead to next year, Nelson feels that people will have a new found respect for professionals in the life insurance business. “They’re still looking for value,” he explains, “but they’re looking for that relationship with the trusted advisor and they’re looking to address issues that they now know could happen at any time.”
The change in the public’s perception is evidenced by a number of reports of increased unsolicited inquiries for life insurance. A recent study done by Fidelity and Guarantee Life, Baltimore, Md., showed that 40% of their agents and brokers have seen an increase in direct inquiries for life insurance since the attacks.
Ann Hartmann, who is based in Toledo, Ohio, and is president of The Society of Financial Service Professionals, cites two of the more significant events of the past year as the bad economy and estate tax repeal.
“I think they brought a lot of people’s practices to a standstill,” she says.
Estate tax repeal “made agents stop cold and say, ‘I can’t sell insurance based on estate taxes,’” she says.
Hartmann feels that while many agents feared estate tax repeal, they failed to recognize the opportunities brought about by the new act.
“We’re going to have an income tax issue with capital gains, people are going to need to deal with expenses, and certainly the need for estate planning hasn’t changed,” she says.
Jim Meaders agrees, “From an estate planning standpoint, the law is so convoluted, you need a planner now more than ever.”
Meaders, who is president of National Insurance Brokerage, Atlanta, Ga., feels there will be ample opportunities over the next year as a result of the tax act, especially with the changes to qualified plans.
“There’s just more money that can be contributed on a tax favored basis to every kind of plan,” he says.
“Even though we get a lot of press about unemployment and layoffs, you’ve still got a lot of people working, and there’s some kind of deferral plan that people are going to contribute to,” says Meaders.
Between the changes in consumer attitudes and the new opportunities in qualified plans, Meaders feels the biggest problem agents will have is deciding which direction to go.
“In the middle income brackets, there’s more consciousness than ever about providing for your family, retiring debt and having liquidity in the event of your death,” he continues. “And I think the baby boom generation is an ideal target market for the retirement planning business.
“There are so many things you can do now,” he says.
One common thread between the change in consumer attitudes and the opportunities that exist in the marketplace is the move toward more advisory relationships. Many feel this is due in part to the poor market performance.
“I think anytime there is a bad economy, it separates the salesmen and the advisors,” says Hartmann. “What it does is force people back to the basics, and to addressing someone’s need,” she says.
Meaders agrees. “I do feel a transition in our industry to the planning process, rather than the transaction–and I think that’s probably positive.”
“The most important thing is not going to be the transaction, it’s going to be the relationship,” says Michael Brink, an advisor with the insurance advisory firm of Nease, Lagana, Eden & Culley, Inc., Atlanta, Ga.
“If you have the relationship, you’ll do the business, if it is a true relationship,” he says. “If you focus on the transaction, you’ll lose the relationship.”
Hartmann says that many agents who were only focused on selling product rather than solving needs will continue to have a hard time with the slumping economy.
“If all you’ve said to a client is, ‘This is a good product,’ and you haven’t said, ‘This is why we’re using this product, this is the need you have that we want to solve,’ then you haven’t done the full job,” says Hartmann. “If you haven’t started with planning then you shouldn’t be dealing with product.”
Hartmann explains that when selling a product like variable universal life, part of the advisor’s role includes a discussion on the relationships between market volatility and product performance, in addition to any safeguards that may have been built into the plan.
In these situations, Hartmann says clients will better understand the market volatility. “You aren’t dealing with panic anymore,” she says.
“I think anytime there’s a bad economy or a bad situation the people who have been acting as advisors and saying ‘What does this client really need?’ are still in business,” she says. ” I don’t think people who have an advisory relationship with their clients have bad years.” she adds.
Acting in an advisory role also leads to other opportunities, says Brink, who feels that over the next year there will be an increased number of alliances and joint ventures between insurance agents and other financial institutions.
Brink notes that in addition to brokerage firms getting into the insurance business, “More non-traditional players such as banks and accounting firms are increasingly coming into the business, and forming joint ventures and alliances with those of us already in the business.”
While this creates new opportunities for advisors teaming up with these institutions, Brink says most alliances will fail. “You’ve got a clash of cultures, between the traditional insurance sales culture and the traditional accounting and higher end banking advisory culture.”
Brink explains, “If you’re going to be successful in a joint venture with another professional advisory group, such as an accounting firm, a private banking group, or family office group, you’ve got to approach it much more as a professional advisor, much less from a sales culture.”
Brink continues, “It’s not just about generating revenues, it’s about adding value to the relationship–if you cannot do that, it will fail.”
As the industry responds to market demands for an agent who plays more of an advisory role, many say the need for agents to continue their education takes on increased importance.
“With everything moving at the pace it’s moving now, we’ve really got to be sure we are very aggressively upgrading our skills and information as we go along,” says Hartmann.
Brink agrees. “The products are increasingly sophisticated and, therefore, the advisors need to be increasingly sophisticated.”
Brink continues, “We not only need to know the insurance industry, planning techniques, estate planning, and wealth transfer planning techniques, but we also need to know the insurance products and how to tailor them.”
“The demands of keeping current are heavily on the producer to stay in the continuing education mode,” says Nelson, who also stresses the importance of belonging to some type of professional organization.
“Those who don’t belong to trade organizations are going to go by the wayside, and if they don’t then they should,” he says. “I think the American consumer deserves a better qualified professional advisor than one that doesn’t have some kind of anchoring in a trade association that’s keeping them current about all the things the public is demanding,” he says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 24, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.