To judge by the opinions of experts I interviewed for my feature, Outlook 2013: Expect more tax-wise advanced markets sales, life insurance professionals can look forward to improved advanced markets sales in 2013. Meriting some credit for this is the American Taxpayer Relief Act, legislation enacted in January that makes permanent IRS provisions respecting taxes on income, estates, dividends and capital gains.
Advisors and their clients should thus be able to implement with greater confidence planning explored in the feature, including executive compensation arrangements, exit planning and wealth transfer strategies, plus retirement and charitable planning.
Advanced markets should get a further boost if, as I expect, more agents and brokers whose expertise is now limited to life insurance sales to mid-market customers move into this space. Advanced markets have, to be sure, long attracted advisors because of the more lucrative compensation, both in commissions and fees, paid to those catering to the high net worth.
Also, the need to specialize in a niche area, be it exit planning or wealth transfer planning, has been a running theme in the financial services community for many years. Without such value-added expertise, producers will be challenged to differentiate themselves from competitors. To survive in the marketplace, these agents and brokers have to depend on high volume sales.
That’s fine for those starting out, but a commodity-like sales model is hardly a long-term proposition, in part because it results in so much lost business: If an advisor is unable to help realize certain planning objectives, then affluent clients will take their business elsewhere.
A fee-based comp model is more consistent with the needs of advanced planning. That’s in part because the frequency of meetings in advanced planning engagements—advisors and their clients will often get together quarterly to revisit and update plans and asset performance—are sustainable in a fee-for-services model. Also to consider is product neutrality: Clients with complex planning needs want high-quality advice divorced of producer biases in respect to the sale of the product. To the extent that producers depend on commissions, freeing themselves from such biases—real or perceived—becomes a challenge.
The evolution from commissions to fees and fee-like commissions is likely to advance later this year when the Securities and Exchange Commission and the Department of Labor unveil their respective fiduciary standards, the SEC’s applying to investment advisors and the DOL’s to employee benefit plans. A report released this month by the market research Aite Group forecasts the standards will “likely lead to a leveling of advisor commissions” to reduce or eliminate advisor product bias. More advisors will also adopt a fee-based model, tied mainly to assets under management, to cover the higher costs of delivering fiduciary-level advice.