For advisors engaged in advanced markets sales, 2009 was one tough year to be doing business. When asked why, sources interviewed by National Underwriter point to the economy, which suffered its worst contraction in decades.
“The life insurance industry this past year was the victim of a very bad economy,” says Peter May, a strategic wealth consultant based in Bala Cynwyd, Pa. “The defining characteristic of 2009 was the severity of the downturn. This will be remembered as our generation’s depression event.”
“People were shell-shocked by the market downturn,” adds Richard Alan, a chartered financial consultant based in Palos Park, Illinois. “Between 25% and 40% of middle income clients drastically cut back on their equity investments.”
The market assault on equities adversely impacted advisors’ incomes, particularly those who tie planning fees to assets under management. Alan said his fee-based compensation declined by half since the start of the economic downturn and now represents 18% of his total income.
To compensate for lost revenues, many advisors expanded their practices by adding products and areas of expertise. Or they broadened their geographic coverage. David Archambault, a chartered life underwriter and a principal of Showley, Archambault, Alexander Insurance Associates, San Diego, Calif., says he has pursued revenue opportunities–prospects outside of his metropolitan area–that he probably would have avoided 2 or 3 years ago because it’s now harder to get clients.
In tandem with their shift to more conservative portfolios, clients also increased their scrutiny of insurers. As financial institutions with once sterling reputations teetered on the brink of collapse, sources say, inquiries about the financial strength of the carriers took on added importance during client engagements.
Advisors themselves also opted for the tried-and-true. Bruce Brittain, a principal at Brittain Financial Advisors, Highland, Utah, says he no longer takes on prospects who favor aggressive investment and estate planning techniques. A once preferred strategy, buy-and-hold, is no longer an option.
“Prudence now rules,” says Brittain. “I’m conservative in everything I do. Anything that might appear to be too aggressive I’ve removed from the conversation. In light of what’s happened to the economy, I’ve had to rethink everything I say and do in my practice.”
That extends to the due diligence Brittan conducts when evaluating clients’ ability to fund estate planning objectives. Among the questions he asks: How will the policy be paid for? When the financial wherewithal was in doubt, says Brittain, he often recommended buying a smaller or less expensive insurance policy that could be sustained over time.
Many among the affluent elected to do just that. Matt Rowles, an advanced marketing director for individual life insurance at Prudential Financial, Newark, N.J., says the use of term insurance for funding a range of estate, wealth transfer and succession planning techniques became much more prevalent during the year.
Because of continuing concerns about the economy and the heightened financial strains experienced by clients, the lower premiums of term contracts might have been the only viable option for meeting planning objectives. But it was often term with a twist: Many of Prudential’s high net worth customers, says Rowles, opted for the insurer’s Estate Hedge Plan, which lets them convert a term contract to a no-lapse guarantee survivorship universal life policy, thereby providing permanent coverage.