New Regulations For A Changing Industry
Those of you who came into the business 25 or 30 years ago might feel like you need to be a superhero to keep up with the changes. Others new to the business may not appreciate how much the business has changed.
U.S. broker-dealers (including our organization) have redirected their focus from selling simple products to supporting producers as they offer advice. The insurance industry is also witnessingand benefiting fromthe final demolition of artificial walls that separated manufacturers of financial products for the last 75 years.
The regulatory environment has not, however, kept pace with this evolution, as separate federal and state rules still govern the insurance, securities and financial advisory businesses. That should change in the coming years with the development of uniform, securities-type regulations for all financial services.
Back in the 30s
After the Great Depression, the U.S. Congress created a peculiar set of regulatory barriers that kept all financial services businesses separate. Those barriers required clients to go to a bevy of specialists who often gave them conflicting advice about how to construct a financial house.
Insurance people sold life insurance. Property and casualty agents sold property insurance. CPAs gave tax advice. Stockbrokers sold equity products. Banks offered fixed savings vehicles.
In this fragmented market, each professional operated in a rigid structure, acting like a human product kiosk for a specific product or single manufacturer. Separate regulations and regulatory bodies governed different advisors.
Brick salesman could sell bricks. Lumber salesmen could sell lumber. But no one professional was permitted to serve as the chief architect in designing the client?s financial house.
Clients have never wanted products. They want what those products provide: a comfortable, safe financial structure to provide for and protect their families. But regulatory barriers dictated that we serve as brick salesmen.
When my father entered the life insurance business in 1964, he had 3 simple products: annual renewable term insurance, whole life insurance and immediate annuities.
He could sell red, yellow and white bricks, all at a fixed price, based on a client?s given age. He looked up a number from the rate book, multiplied it by 10, 25 or 50, and filled out an application.
The whole MDRT era of the Ben Feldmans was based on finding creative ways of selling these simple, commodity-like products.
The best people in the business learned they could sell more bricks if they drew a picture of a house with windows, doors and shingles. However, in the old system, they could only get paid for selling bricks.
In 2004, you can sell thousands of financial products, including insurance, securities pensions and group benefits. Most importantly, you can charge your clients fees for your advice.
Today, I estimate that broker-dealers like ValMark Securities offer 4,000 products, not counting individual stocks and bonds. In variable life and annuities alone, there are more than 450 products.
The biggest challenge is not the number of products but their complexity. Now, more than ever, clients need your advice.
They need you to help them design and construct their financial homes. They need advice on which products to choose. And they need your advice on tailoring products to their needs.
In fact, the advice component of today’s products may be more important than the products themselves.
Even for those of you who think you are only in the insurance business, the world has changed. We no longer are limited to selling just insurance bricks; the lumber man is no longer limited to selling just lumber.
Some of our firm’s most successful insurance professionals are housed in banks, CPA firms and even law firms.