“It started on a mega-scale, with the mega financial institutions merging with one another. Now, its trickling down to planners.”
Thats how Raymond P. Donnelly, a principal at Advisors Resource Group Ltd. in Garden City, N.Y., describes the current status of financial convergence in the United States.
For this article, financial convergence refers to the melding of the three financial sectors–insurance, banking and securities–at provider, distributor, product, and service levels.
Producers, says Donnelly, “dont have a choice” about whether to work convergently or not–if, that is, they want to survive and compete with the “big boys like Merrill Lynch.”
Many experts are telling National Underwriter something similar. In the past year or so, they say, convergence eyes have increasingly turned towards the convergent sales activities at the grass roots, buyer-meets-seller level.
The cross-sector corporate liaisons, made possible by the Gramm-Leach-Bliley Financial Modernization Act of 1999, still make headlines, of course. But theyre no longer the only convergent game in town.
“No one is there yet,” says Richard C. Murphy, referring to fully integrated financial services operations. But he says “the brokers have made more progress than anyone.” Murphy is consultant to, and the recently retired senior vice president of, Fidelity Investment Life Insurance Company, Boston.
The market is becoming such that, if producers cant handle the multiple financial needs of clients, “they cant stay relevant,” he maintains.
This is especially evident in the retirement market, he says, where the demographic of aging baby boomers demands new approaches. As boomers near retirement, he explains, “they stop making decisions about how they will live and they no longer look for financial investment ideas. Instead, they start looking at building a financial plan, one that takes the whole picture– their home, travel, medical, income sources, and so on–into account.
“They want and need more holistic help.”
Producers therefore need to be conversant with various financial products, ranging from bonds and preferred stocks to rental properties, pensions, 401(k) distributions, IRAs, income annuities, CDs and more, he says.
“They need to be able to reach across sectors, not just across the kitchen table.”
Donnelly agrees. “We have to be able to work with multiple products, not just one. And we need either to build practices and alliances with professionals from different financial sectors or to develop networks for referrals to trusted experts in those sectors.”
His firm already does that. It houses two estate attorneys, two accountants, and two planners; has affiliations with a nearby mortgage broker and reverse mortgage company; and maintains an extensive list of referring professionals.
“We also have a full financial services marketing philosophy,” Donnelly says.
If planners dont take steps like this, they risk losing business to the large convergent companies that are now out looking for assets under management, he warns.
They also risk turning off customers, many of whom now prefer to work in a one-stop shop, he says.
“Our clients tell us we make life easy for them,
Donnelly notes. “They know they are not required or obligated to use all our services or professionals, but after meeting everyone here, many say they feel comfortable so they do all their business with us.”
At the corporate level, the same cross-sector sales issues are percolating. “Companies are starting to approach their markets by thinking about life events that need funding,” not about specific products to sell, says Kenneth Porrello, director of insurance practices at Deloitte Consulting-North America in Chicago.
Examples include retirement funding, long term care funding, and home purchase funding.
The next step, in convergent terms, will be to find ways to meet such funding needs by wrapping various financial products together, Porrello says. The integration will be such that the client can shift assets to meet his or her financial needs at different points in life, he says.
Something of the kind already occurs under a government-mandated plan in Switzerland, he points out. In the U.S., the structure would likely be a private plan, he notes, perhaps one purchased by employees at the worksite. But Porrello says the end result would be “one package, one underwriter, and one approach to take care of certain basic needs.”
Such a fully integrated program is not yet here, the consultant allows, but the holistic thinking about how to do it has already begun.
The leading players are already “studying their capabilities, determining the needs, and moving the pieces into place for creating new products and services” that could accomplish multiple funding goals, he says.