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Life Health > Life Insurance

3 Ways Insurers May Be Doing Fee-Based Products All Wrong

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Insurers have kept the press release wires burning in recent years with announcement after announcement about the launch of new, fee-based life insurance and annuity products.

LIMRA reported in November that, in the third quarter of 2017, actual sales of fee-based indexed annuities accounted for just $48 million of the $14 billion in indexed annuity sales recorded that quarter.

(Related: LIMRA Reports Drop in Q3 Annuity Sales)

David Lau, the founder and chief executive officer of Louisville, Kentucky-based DPL Financial Partners, said Thursday, in an interview, that there’s a simple reason fee-based life and annuity product sales have been low: typical insurers have paid too little attention to the needs of RIAs, the people who have been selling fee-based products all along.

Typical insurers’ systems “are built for paying commissions,” Lau said.

Lau, who previously was Jefferson National’s chief operating officer, has been working on establishing DPL as a distributor of fee-based insurance and annuity products for about three years.

He is working with 15 carriers, and eight have already put products on his shelves.

Right now, about half of the products on the shelves are life products, and half are annuity contracts.

An insurer pays a fee to put a product on DPL’s shelves, and an RIA pays an access fee.

Eventually, Lau would like to add disability insurance, Medicare supplement insurance, and life- and annuity-based long-term care benefits hybrids.

People in the insurance community who look at the third-quarter fee-based indexed annuity sales numbers may feel as if life insurers are doing everything about selling fee-based products wrong. Lau said he personally doesn’t believe that life insurers are doing everything involved with reaching RIAs wrong, but he does see a great deal of room for improvement.

Here are three points Lau made about insurers’ problems with getting RIAs to take their products seriously, drawn from the interview.

1. Some insurers simply convert existing commission-based products into fee-based products.

“RIAs aren’t sales people,” Lau said.

If an insurer wants to appeal to fee-only advisors, it needs to create a product with fee-only advisors in mind, Lau said.

2. Some insurers try to offer RIAs complicated, expensive products.

RIAs see themselves as money managers and portfolio optimizers, and they live to increase the client’s value-to-cost ratio, Lau said.

When an insurer cuts product costs by eliminating “bells and whistles,” that might increase the appeal of the remaining benefits to the RIAs, by increasing the benefits-to-value ratio, Lau said.

3. Some insurers are just learning how to pay fees.

Insurers tend to be used to working with broker-dealers, who help agents in the field get sales commissions and other compensation, Lau said.

Pure fee-only RIAs have no broker-dealers, and insurers have to do more to develop the infrastructure for handling fee-based advisors, Lau said.

Developing that infrastructure is worth the effort, Lau said.

“This market is growing tremendously,” he said. “The market for us is huge.”

CORRECTION: An earlier version of this article gave the wrong headquarters location for DPL. The firm is based in Louisville, Kentucky.

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