For Banks Selling To The Affluent: Advanced Agents Or Financial Advisors?

After years of trying to sell life insurance to the mass market, banks are now finding success in selling to the emerging affluent and the wealthy. The 2000/2001 Kehrer-LIMRA Bank Life Sales Benchmarking Study confirms that banks are having more success selling life insurance to trust, private banking and commercial customers than to retail customers.

At the same time, banks are debating what is the most effective system for delivering life insurance to emerging affluent and wealthy customers. Should they hire advanced producers? Or should they use an existing system that is already paying for itself–the financial advisors who sell mutual funds and annuities?

At first blush, the data suggest that the advanced agents are the delivery system of choice. The average advanced agent produces $147,052 a year in annual gross sales commission revenue, 18 times the average production of a financial advisor selling life insurance. (The total annual gross production of the average financial advisor, including mutual fund and annuity sales, was $290,940 last year.)

However, choosing to sell insurance through the most productive agents may not be in the banks best interest. Instead, a bank should choose delivery methods that generate the most profit for the size of the banks customer base.

Our Bank Life Sales Benchmarking Study examined customer penetration by computing the life revenue produced per bank customer household. It is appropriate to measure the relative success of bank life/health sales by comparing customer penetration because, for the most part, banks and credit unions are trying to capture the insurance business of their existing customers rather than the population at large.

Revenue penetration of customer households also enables us to compare the success of life/health marketing efforts at different size banks, comparing the banks pound for pound, as it were. We would expect, say, Bank One to sell more life insurance than Dime Savings, because Bank One has nine times as many customers. But the Dime might actually have better customer penetration.

Banks that sell life insurance through advanced agents produce $1.18 in new annual life sales revenue per bank customer household, two-thirds more than banks that sell life through financial advisors. But the penetration gap is substantially narrower than the productivity gap. That is because banks have so many more financial advisors than advanced agents.

A typical bank employs one financial advisor for every $911 million in assets, but only one advanced agent for every $16.9 billion in assets. Thus, the typical bank has 19 times as many financial advisors as advanced agents. The low life productivity of the financial advisors adds up to substantial aggregate production, because there are so many more of them.

Why doesnt the bank hire more advanced agents? Advanced agents are difficult to recruit and hard to retain. Advanced producers are chary of working in a structured environment like a bank and insist on compensation levels that many banks balk at.

In fact, because advanced agents command such high compensation, some advantages of their high productivity are eroded. The typical advanced agent in our Bank Life Sales Benchmarking Study earned 66% of the gross commission revenue the agent produced. (The average commission payout schedule was not that high, but guarantees and salary components of compensation pushed sales force compensation up.) By contrast, the financial advisors earned 33% of the available commission for their life production.

When you combine the higher sales force compensation with the higher back-office expenses of supporting advanced agents, selling life insurance through financial advisors has a better profit margin. Banks that sell life insurance only through financial advisors report pretax profit margins on their life business of 40%-60% better than banks that sell only through advanced agents.

The best yardstick may be the amount of profit the bank earns from selling life insurance relative to the size of the banks customer base. When we combine customer revenue penetration with profit margin, we compute customer profit penetration. Banks that use financial advisors to sell life insurance produce a pretax profit contribution of $0.28 per bank customer household, almost as much as banks that sell through advanced agents.

Banks may, in fact, have more upside potential in selling life insurance to the emerging affluent and wealthy through their financial consultants because in most banks only a minority of the financial advisors now actively sell life insurance. In addition, the industry has been developing better support systems for advisors. Insurers and insurance brokers are developing simplified selling systems supported by wholesalers, and some insurers even have a cadre of advanced agents prepared to take on any complex cases.

For example, Hartford Life has 190 advanced agents deployed around the country who are available to support advanced cases in banks. By tapping into this outside expertise without foregoing any of the commission revenue, a bank is able to bring a much higher percentage of the revenue from life insurance sales to the bottom line.

Banc of America Investment Services, Inc., Charlotte, N.C., was able to increase its life sales six-fold last year, with virtually no insurance infrastructure. It used a combination of Hartford wholesalers supporting its financial advisors more transactional opportunities and Hartfords advanced agents for complex cases.

It was natural that bank life insurance sales initiatives would eventually turn to centers of wealth. But the challenge is how to tap those opportunities in a cost-efficient way. Should a bank build an advanced agent sales force and support structure? Or should it rent the advanced sales force and use the infrastructure it already has? A focus on profitable results will show banks the best path to success.

John T. Gies is director of individual life for financial institutions at Hartford Life, a sponsor of the Kehrer-LIMRA Bank Life Sales Benchmarking Study. Kenneth Kehrer is head of Kenneth Kehrer Associates, a Princeton, N.J. research and consulting firm.


Reproduced from National Underwriter Life & Health/Financial Services Edition, February 18, 2002. Copyright 2002 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.


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