You’re wrapping up an annual meeting with a long-term insurance client. She’s purchased her life and disability income policies through you and has come to trust your judgment. “I’m thinking of retiring later this year,” she tells you. “My 401(k) plan will have about $400,000. If I want to roll over my balance to an IRA, can you manage the account for me?”
Let’s face it: Many advisors would have a set of completed account transfer forms on the desk before she finished her sentence. That makes perfect business sense and it’s a key argument in favor of dual insurance-securities registration. Clients have financial goals in both areas and if you’re competent in multiple fields, why not work with them on both their risk- and portfolio-management needs? It’s an ideal solution for all parties.
Or is it? Some advisors who focus exclusively on insurance solutions believe that a narrower focus — life and health insurance-only, in their cases — is still a viable business model. Given the degree of success they’ve had within their specialties, it’s worthwhile to examine their reasons for not providing securities advice and products.
Rick Scott, partner with Freedom Dream Team in Canoga Park, Calif., does not believe in taking risks with savings. By his own admission, he is a “safe-money” person who owns “zero stocks, zero bonds, zero mutual funds.” He brings that risk-averse attitude to his work with clients.
“I’ve been in the industry for 13 or 14 years now,” Scott explains. “I specialize strictly in safe money, which is primarily fixed index annuities. Within the market that I focus on, which is pretty much (age) 50 and up, the people that come to me have already lost money and their concern is basically trying to keep it safe. This is what I focus on.”
Randy Fine, LUTCF, president of Robert Fine & Associates in Framingham, Mass., also takes a risk-averse approach to his client relationships. Fine has worked in the insurance business since 1990 and has consistently ranked as a top producer with Guardian Life. One of Fine’s goals is to avoid “uncomfortable conversations” about investment losses with clients.
He estimates that 70 percent of his business comes from life insurance sales, 15 percent from disability income and 15 percent from variable annuities with contractual lifetime income benefits. That product mix allows him to focus on guarantees instead of investment market results.
“(With) the type of business style that I run, my friends become clients; my clients become friends,” Fine says. “And I never want to have an uncomfortable conversation to let them know that their million-dollar account is down 30 percent. That’s not what I want to have told to me as a consumer and that’s definitely not the conversation I want to have as an advisor.”
Securities licensing and investment management also bring the burden of additional compliance to an advisor’s business. Susan Combs, PPACA, president of Combs & Company in New York City, considered getting into financial planning at one point in her career. Complaints from peers who were securities-licensed dissuaded her, though, and reaffirmed her decision to focus instead on insurance products and advisement.
Compliance requirements would also crimp her ability to generate publicity for her firm, she believes. “I’m interviewed for a lot of articles and I’m actually an expert for eHow.com, so I do a lot of videos,” she explains. “And if I were securities-licensed, I would be able to do none of that because everything would have to be approved by compliance.. It would just tie my hands on a lot of how I get my business and how I network and, to me, it’s just not worth it.”
Scott believes that his exclusive focus on annuities allows him to specialize and develop in-depth product and marketing expertise. His goal is to focus on one thing and do it very well, he says, using the analogy of a brain surgeon versus a general medical practitioner. “I don’t prefer to be a jack-of-all-trades and a master-of-none,” he says.
“I like to focus on one thing and do it better than or as well as the best people in the industry. I don’t like to lose focus and I don’t want to put myself in a position where I could lose focus by implementing additional areas in my business.” This specialization has paid off: Scott reports that he serves over 2,000 clients and produces about $15 million in product premiums annually.
Dean Harder with The Harder Group in Zionsville, Ind., says that about 70 percent of his business comes from life insurance, 25 percent from annuities and 5 percent from disability income insurance. Specializing in these products works well for him, he believes, and he points out that almost every other profession specializes.
“You take medicine, education, you take even accounting firms, the large firms, you have people that specialize,” he observes. “I actually take it as a professional area of growth to find the area that I feel best suited to work in and specialize in that area. To me, that is not a negative but rather a positive supported by all these other industries.”
Specialization can also benefit advisors who work with groups in addition to individual clients. David Goldfarb is managing principal at Digital Benefits Advisors in Dallas, Texas. A Million Dollar Roundtable (MDRT) Top of the Table qualifier, Goldfarb says that specialization has paid off for his business.
He firmly believes “it’s much better to be a master of one trade rather than a jack-of-all-trades,” whether it’s with the Affordable Care Act’s complexities or with qualified and non-qualified retirement plans. All of these silos are becoming more complicated, he says, and that complexity makes it more difficult to provide the expertise clients need across the board.
Turning Business Away
These are sound arguments in favor of specialization, but how do these advisors avoid alienating clients by declining their securities business? Their response: It’s not a problem provided you’ve clearly positioned your services to prospects and clients. Scott reports that he has probably encountered just one case in his career in which he had to make a securities referral.
The reason he doesn’t encounter more securities-related questions is that during his business development seminars, he repeatedly emphasizes that he focuses exclusively on “safe money.” During these seminars, he tells attendees that if they want to meet with him to talk about their investment portfolios, he’s not the right advisor.
“My seminars are so straightforward about safe money, when they come in they’re not coming in to talk about their mutual funds or portfolios or their REITs or TIPs or whatever it is that they have,” he explains. “It’s all in how you’re perceived by the prospective client, in how you are willing to set yourself up in their eyes at your seminar. They know why they’re coming into my office.”
Additionally, wealthier clients often have solid relationships with investment advisors already, Fine notes, so prospects aren’t coming to him to discuss their portfolios. He explains that it’s not a problem for the prospect to work with both Fine and their investment specialist. “I explain to them that there’s not a conflict of interest because [the investment advisor] is looking at one thing for them and that’s rate of return,” says Fine.
“We’re looking for strategy and protection and savings and guarantees. So, it’s not me or them; it’s me and them. And I think that also gives them a sense of comfort that they don’t have to fire their existing advisors and work with me; it’s not an all-or-nothing deal.”
Developing and Sharing Business
These advisors all cite an additional benefit to avoiding clients’ investments: It allows other advisors to send them business, because they’re not competitors. For instance, Combs works with multiple securities advisors and financial planners who refer health insurance business to her.
The Affordable Care Act’s complexities have led to multiple new alliances recently, she says, because those advisors lack the time to develop expertise with the Act’s provisions.
In cases where clients need an investment management referral, these advisors have developed networks with advisors whom they trust to do a good job. Goldfarb’s approach is representative.. His firm makes referrals to multiple financial services firms to whom he can confidently refer clients.
“If you want to think of them as a trusted advisor, they think of us as a trusted advisor, (and) we think of them,” he explains. “And if somebody does have a large rollover that they need to speak to a financial advisor about, I have a whole handful of people, depending on the circumstance that I would refer them to.”