As we close the year 2020 and the difficult environment it has created, we can all look forward to a bright new day in 2021. While the industry is facing significant headwinds on a number of fronts there are pockets of opportunity.
My experience over the years has taught me if there are challenges, there are always opportunities.
Let’s take a look at where the industry can look to find sales opportunities in the new year.
1. Adjusting Sales Efforts for Low Interest Rates
Rates will likely stay where they are for all of 2021, which will impact product pricing, compensation levels and consumer competitiveness. There is just very little available spread for companies to price certain products.
However, these conditions are making certain product types — MYGAs, buffered annuities and pure protection products, the most competitive, while making other products with stronger guarantees and interest rate sensitivity, such as accumulation-focused life insurance products and fixed indexed annuities, less competitive.
Focusing sales efforts on the competitive products to meet consumer needs looks like the winning ticket to increased sales. Distributor margins may suffer selling certain of these products and business models will need to be adjusted accordingly.
2. Reponding to Rising Income Tax Rates
At some point in 2021 or 2022 the reality that all the pandemic related stimulus and projected spending under the new administration will need to be paid for. In addition, the proposed increase taxation of higher income and asset households will look to be enacted. Higher income tax and estate tax rates should make annuity, qualified products and life insurance more attractive. Selling the tax advantages of these products for longer-term savings and protection goals should yield increased sales.
3. Embracing Regulatory Change
We will need to see how the policies of the incoming administration will impact the regulatory process. One thing we should bet on is we will have more regulation. To me this has created a who is on first regulatory mentality. Should the industry prepare for a new fiduciary standard or a best interest standard? A low- or no-commission world? Which one? Which path will the new administration take?
If financial professionals are fully or partially confused imagine how consumers feel. This creates the sales opportunity. Improving business practices to be a part of a fully transparent sales process will yield higher sales in the long term. Taking the lead on this issue is now a winning strategy in my view. We are going to see significant regulatory change. The trend is clear.
4. Accepting Technological Change
The pandemic brought forward the need to digitalize financial services business models by a number of years. We are also just beginning to see impacts of the Fourth Industrial Revolution, including artificial intelligence technologies. These new technologies are and will continue to change how business is conducted. They are also raising the sales experience bar for what consumers expect from all segments of the financial services industry. Consumers want experiences similar to what they get from other industries. To the extent that distributors and product providers do not raise their digital capabilities, sales will suffer. Investing in and embracing new technologies will increase sales over time.
5. Educating the Customer
The financial literacy of the average consumer remains at very low levels. Most consumers of all ages do not understand the financial risks they face, what possible financial solutions exist for their problems and where to go to get advice and coaching. The industry needs to accelerate its efforts aimed at financial education. A better educated consumer is a consumer that will purchase financial solutions they need.
6. Moving the Focus to Income, From Accumulation
The time is now to help consumers near or in retirement with how to generate protected or guaranteed lifetime income. The financial services industry has been almost fully focused on accumulation. Changing product and advice focus to generating income from assets should be a key focus. There are significant sales opportunities in this area.
To sum up: Given the forces that are in play, being in the financial services business will be very challenging in 2021. Finding sources of growth and profitability will take time and investment. I believe these six areas of opportunity can result in increased sources of sales next year and in the future. The key factors impacting 2021 are pretty much set. Focus and investment on growth areas will yield results.
Harry N. Stout has been the president of Fidelity & Guaranty Life, deputy chief executive of Old Mutual Financial Network, and managing director of Insurance Insight Group. He is also the author of The FinancialVerse personal finance books and of a new book, Today’s Annuities — A Tool to Create Protected Lifetime Income.