Funds Could Edge Out Insurers

Declaring that insurers let the mutual fund industry take the 401(k) market away from them, the top executive of Oppenheimer Funds Inc. thinks they could botch the market for annuities as well.

"I think they'll leave this market on the table because that's what they do," said John V. Murphy, chairman, president and chief executive officer of Oppenheimer Funds, New York, during a panel of financial executives at last week's LIMRA meeting. His company is a unit of Massachusetts Mutual Life Insurance Company, Springfield, Mass.

"It's a failure to execute," Murphy said, because insurers are "product-focused, not client-focused."

"If the mutual fund industry comes up with a guaranteed product, they are going to be winners," warned Robert L. Reid II, president of Wachovia Corp.'s retirement and investment products group, Charlotte, N.C.

Reid thinks that consumers want annuities but need them presented in an understandable way.

"An annuity is not easy to sell," he said.

Annuity carriers need to be more transparent about their fees and sales charges, commented another panel member, Stephen G. Bodurtha, senior vice president of the private client group of Merrill Lynch and Co. Inc., New York.

"The insurance industry needs to think about unbundling sales charges and asset management fees," he said of annuity prices. "People want to see how you price the pieces of it."

Insurance companies are too slow to move and to react to changes in the marketplace, Murphy charged.

"Agents have to become more advice-oriented, more sophisticated in the solutions they offer to clients," he said.

To that end, he said he would like to see insurers change from a commission-based approach to a fee-based one, which he maintains would motivate agents to think more about what the client needs rather than what the agent wants to sell.

"Insurers still use first-year commissions as their primary measure of success," he said.

While he acknowledged insurance companies are trying to raise the professionalism of their agents, "they are a little behind the Wachovias and Merrill Lynches," he said.

Bodurtha noted that insurers may have had a lot of strong growth in the 1980s and 1990s using the "traditional push model"–selling what they had rather than what the consumer wanted. Now, however, they "need to train agents to be broader in their approach," he insisted.

Consumers are looking for more consultative selling, he said. "They don't want to be sold to; they're looking for ideas."

Insurers need to focus more on the consumer and provide innovative products that provide higher value, Reid added.

"If they do that, they will be well positioned to take advantage of the boomer market," he said. "But they must move fast."

Funds Could Edge Out Insurers

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Funds Could Edge Out Insurers

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