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.

It may be a while, however, before clients opt for such conversions. Apart from the economic doldrums, sources say, affluent individuals frequently deferred full implementation of wealth transfer and legacy planning strategies because of questions about the future of the estate tax.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax exemption and top tax rate, respectively $3.5 million per individual and 45%, are due to disappear for one year in 2010. If Congress does nothing–the U.S. House of Representatives voted on December 3rd to make the 2009 tax provisions permanent, but the Senate has yet to take action–the estate tax will revert to the pre-2001 regime, capping the exemption at $1 million and the top tax rate at 55%.

“Ongoing uncertainty about estate tax reform really put a damper on advanced markets sales this past year,” says Rowles. “So long as there is no long-term solution, the uncertainty will be only be prolonged.”

When Congressional legislation wasn’t at issue in 2009, financial challenges closer to home were. Advisors say that many clients, particularly struggling small business owners experiencing cash flow difficulties, put succession and estate planning objectives on hold. Or they funded advanced markets solutions less aggressively than they might have otherwise in a healthier economy.

That go-slow approach often translated to minimal premium contributions needed to keep a universal life or other permanent policy in force. Financially strapped individuals also borrowed against their policies’ cash values to meet premium payments, business operating expenses or personal needs. Still others established a legacy planning strategy, but held off on funding it.

“Advanced planning was being done, but the product solutions often were not implemented as quickly or in the amounts you would expect in a healthier economy,” says Deborah O’Neil, vice president of advanced markets team at AXA Equitable, New York. “The funding may have been enough to get by, but it didn’t always solve the whole problem.”

Indeed, she adds, a life insurance sale might not have figured into the solution at all. This was frequently true, for example, of advanced planning techniques which were especially attractive during the recession because of historically low interest rates and depressed asset values. Among them: loans/sales to defective trusts, the qualified personal residence trusts (QPRT), the charitable lead annuity trusts (CLAT) and the grantor retained annuity trusts (GRAT).

“This past year, estate planning firms were doing GRATs at an unbelievable pace due to the low interest rates,” says May. “Even if the GRAT fails in a down market, it’s an inexpensive failure because all you have are the legal fees.”

Charitable planning overall suffered in 2009, however, as depressed asset valuations prompted high net worth clients to defer legacy gifting to meet other financial planning objectives, such as the rebuilding of estates that took a hit after the bursting of the real estate bubble. To that end, premium financing of large life policies may have had a role to play, as the technique lets borrowers invest funds in high-yield vehicles that otherwise would be needed to pay for policy premiums. And the policy death benefits can replace lost assets.

Though premium financing declined in the wake of the credit crunch, observers say the strategy remained viable for the right type of client: those with the intention and the ability to hold policies for the long-term.

“There has been a lot of interest during the year past in premium-financed solutions,” says Brittain. “This constitutes growing part of my practice. People are looking for ways to maximize gains without taking on added risk.”