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Financial Planning > Behavioral Finance

How Soon We Forget

By Jack Bobo

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At the recent National Association of Insurance and Financial Advisors convention, NAIFA CEO David Woods delivered a very somber report regarding the future of the organization. With membership at slightly more than 62,000 (down from a high of 144,000) and continuing to fall, the future viability and effectiveness of the organization is in serious doubt, David said.

To meet this challenge, he announced that the board had hired a consultant to conduct strategic research. The primary mission of this project is to learn why NAIFA is not able to attract, as members, more of the estimated 250,000 insurance people now in the marketplace. I assume that following this project a strategic plan will be developed to remedy the situation.

The NAIFA board is to be commended for this action since the time for home remedy is long past. Too often individuals serving on such boards make judgments regarding the marketplace based primarily on their own experience and perspective. This is dangerous, for no one person or even a small group can experience the degree of diversity that exists in a business as vast and segmented as insurance. Too often leaders view the business as a giant replication of their own operation and judge the needs of the organization accordingly. Big mistake!

As the NAIFA board engages in this exercise I would offer a couple of caveats based on my own 22-year experience with the NAIFA board.

The biggest peril of a revolving board comprised of volunteers is its short memory. A new board is elected each year, and while there are holdover members, the new board will often have new and different priorities, particularly at the presidential level. Too often a new president, with a mind of his or her own, will change the direction of the association almost overnight. An example will illustrate my point.

A NAIFA president, nearing the end of his term, said to me, “We have inaugurated some important projects this year and I want you to be sure they are continued.” I replied that it was doubtful that they would be, and he asked, “Why not?” I reminded him that he totally ignored the projects set in motion by his predecessor. He said, “What programs?” I listed them and the effort that had been expended in their behalf – to which he admitted, “I never gave them a thought.”

Sadly, I told him his efforts are not the priorities of the person following him in the office. A few months after he left office his pet project started down memory lane. It is important for a board to be committed to such projects – not just the president. This will be especially important for the NAIFA board as they will be working with a new staff head as David Woods steps down, taking with him a large part of NAIFA’s corporate memory.

My second caveat deals with the fact that future boards will not always remember or honor the results of prior research. Once again, personal experiences and perspectives of the leaders often conflict with research results. Too often personal experiences rule the day and research is for naught.

Another example will, I believe, illustrate my concern. In the mid 1980′s the National Association of Life Underwriters (now NAIFA) commissioned a series of research projects with the then First Interstate Center for Services Marketing. The aim of the projects was to determine the viability of our products and the positioning of agents in a changing marketplace, especially as they related to the rising popularity of financial planning.

Centerpiece of the study was a survey and a series of focus groups comprised of 2,000 whole life policyholders. At the time of the study, and despite the growing popularity of financial planning, the discipline was receiving a lot of bad press because of the rise of scams in the name of financial planning and the reality of many people calling themselves planners with little or no background or training.

The findings of this research were very comprehensive and much too broad to be treated in a few paragraphs here. However, several issues germane to this discussion are worth recalling. The study did confirm that simply changing one’s nomenclature from agent to planner did not raise his stature in the eyes of the consumer.

The study identified 2 distinct profiles of those calling themselves financial planners. The “Type I” financial planner included bankers, brokers, and insurance agents selling an increasingly broad array of products, mainly in response to the diversification moves of their companies. To a limited extent this cross-selling could be viewed as a type of financial planning, according to the study.

The “Type II” financial planners are individuals who have enlarged their own specialization (law, accounting, insurance, investments, banking) to encompass the full planning process, with emphasis on client counseling. Often such an individual is the coordinator of a professional team that the planner is able to call upon.

An important conclusion of the search was that agents in the Type I category were held in much higher regard as “personal agent” than as “financial planner.”

Two questions seem to me to be important for today’s researchers to answer. Given the large number of associations that profess to represent financial advisors of all stripes, has NAIFA become lost in the crowd? Second, the broad base of NAIFA in former times was comprised of people engaged in cross-selling (Type I) or those engaged only in selling various lines of insurance. Were they left behind in the race to be out front in the financial services arena?

I don’t know the answers – but the NAIFA board should not only know them, but should not forget them.

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