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May 17, 2013 at 12:43 AM
Regulation is sweeping the industry worldwide and will change the way insurance agents and financial advisors conduct business in the future.
In 2010, the passage of the Dodd-Frank Act in the United States required a uniform fiduciary standard covering both stockbrokers and financial advisors when providing personalized financial advice. Recently, the Australian legislature imposed a fiduciary duty to act in customers’ best interest applying to all retail products, including superannuation and investment products. In the Netherlands and U.K., they are banning commissions and moving to a fee-for-advice model.
Registered Investment Advisors have both a suitability requirement and a fiduciary duty. They are regulated by the SEC and are normally paid through a percentage of assets under management or on an hourly basis.
Let’s take a look at the definition of a financial advisor, according to Annuity Digest:
“A financial advisor is a professional who works to help their clients meet and manage their most important financial goals in life. A fundamental goal of a financial advisor is to increase the net worth of their clients over time, while protecting them from risks such as loss of income due to disability, premature death and long-term care expenses. Financial advisors will also work with clients in the areas of tax planning, estate planning, and retirement income planning and asset DE accumulation.”
Why is all of this so important? I spend most of my day working with insurance agents and financial advisors around the country. It amazes me that a high percentage of advisors don’t sell life insurance anymore!
Most got their start in some type of captive agency system where they were taught about life insurance. Over the years, many advisors have drifted away from it because it is not a transactional sale; rather, it’s a sales process. Many advisors have instead gravitated to annuities and other investments.
According to a survey by M&O Marketing, financial advisors are so uncomfortable speaking about life insurance that more than half (59 percent) don’t do it. Many of the advisors surveyed said they don’t sell life insurance because:
- The sales process is too long,
- There’s too much paperwork,
- There’s a low placement ratio, and
- Clients have to undergo a physical and reveal medical information.
If the work were easy, the insurance carriers would do it themselves.
With increasing fiduciary responsibility in the insurance industry likely now and in the future, it is important our industry stop being so transactional. We have recently just begun to recover from what is seen by many as one of the worst recessions the United States has ever seen. Planning for the future is more important than ever, and I believe the public sees this.
With the move to a fee-for-advice model in Europe, no longer will the product offer the value; rather, the value will be in the advisor’s advice. This is a real shift. Advisors in only one line of business will have to offer a superior level of value to justify fees, or they will have to gravitate toward working more comprehensively with clients.
What is more valuable to a client? Working with an advisor holistically? Or having a relationship with a life insurance guy, an annuity guy and an investment guy?
I am not suggesting that what is happening in Europe will necessarily happen here in the United States, but I promise one thing: it will be watched closely.
