Insurance: A Force Underpinning the Global Economy
In various surveys asking people about the greatest inventions of all time, electricity, clean water, penicillin, engines, and the internet came out ahead.
Insurance didn’t make the list.
In fact, one of the core foundations that allows the global economy to function efficiently is risk sharing, the concept defining insurance. Whether it be companies or individuals, knowing that catastrophic financial loss is protected enlivens risk taking while undergirding a willingness to commit investment capital. Many of the top product inventions would not have made it from the lab to production and into people’s hands if insurance didn’t exist.
Insurance allows people – individuals or business leaders – to proceed confidently in the face of an uncertain future. Because insurance (risk sharing) is so vital, most developed countries enact laws that make insurance either favorable financially (life) or mandatory (auto).
Knowing that valuable financial assets and human resources are protected facilitates the free flow of capital in the form of bank loans, bonds, and equity.
With individuals, protecting property and lives through insurance brings peace of mind that otherwise would be lost, if, for example, financial ruin resulted from a car accident, home fire, illness, or a breadwinner’s death.
Insurance: A Bad Reputation
One would think that insurance’s importance as a financial bulwark and peace-giver would elicit good feelings, but that isn’t the usual case. Studies repeatedly reveal that insurance products have bad reputations as too complex, too costly, and too pushy.
This is not a malady for the concept of insurance, but how it has historically been designed, marketed, sold, and serviced. Private wealth advisors are not immune to having had bad insurance product experiences.
No advisor would deny how important insurance is to a client’s financial security, but, commonly, there’s friction to a welcome embrace. This friction arises from three main sources:
The way insurance products are designed and executed brings unnecessary complexity. While consumers are often flummoxed, these same people hire advisors to be experts in their place.
This brings fee-only advisors a day-to-day challenge along with a business risk. First, it takes time – a precious commodity for a service provider – to become an expert in insurance products’ fine print. Second, advisors face this complexity with an even bigger burden: if a complex insurance product is misunderstood and then misapplied, the client could be hurt financially and damage the advisor’s relationship.
2. Competing Voices
Selling life insurance products requires a license to do so. In most insurance company distribution models, this required “ticket to the game” allows an agent to have a seat at the client’s table for each insurance product transaction.
Meanwhile, agents (especially life insurance) with a seat at the transaction table increasingly are expanding their own services to include financial planning and investment programs. For the fee-only advisor, this expansion represents a potentially unwelcome, competing voice of thoughts and plans within the client relationship.
3. Conflicting Interests
The common compensation method for insurance products is a sales commission.
All transaction-based compensation methods tempt a seller to seek his or her own financial self-interest instead of the buyer’s best interest.
The fiduciary standard – seeking the client’s best interest in all circumstances – is a cornerstone of the fee-only advisor. Mixed compensation methods in an advisory relationship open the door to both confusion and conflict, producing hesitancy with the fee-only advisor (the one with the most to lose in a bad outcome).
Insurance: Applied to the Fiduciary Standard
For some fee-only advisors, bad insurance product experiences may lead to an expressed “not for me” attitude whereas others may react more subconsciously, but with the same biased reluctance.
The fiduciary standard’s best-interest call is not static. Indeed, fiduciary advisors are compelled to periodically put product biases (for and against) under a spotlight and learn with an open mind. These due diligence questions should be asked in every advisory firms’ investment committee at least twice a year when considering investment performance:
- “What new investment products have emerged that fit with our clients’ needs?”
- “Have certain investment product fees changed to make investing more efficient?”
- “How can wealth be better protected?”
Adhering to the fiduciary standard pushes advisors to continually rethink and recalibrate. For example, ETFs forced fee-only advisors to reconsider their mutual fund devotion. Now, advisors liberally allocate assets to ETFs, sometimes even to the exclusion of mutual funds.
The fiduciary standard is a prevailing call to stay current with planning and investment innovation. From new investment categories to rebalancing practices to practice management methods, an advisory firm’s willingness to innovate sets the stage for long-term growth.
Insurance: Innovation for the Fee-Only Advisor
Even though the DOL’s proposed fiduciary standard is a political football, it has enlivened insurance product development to align insurance benefits to the fee-only advisor’s fiduciary standard. (Note: many fee-only insurance products have been in the market for years, but often under the radar of the private wealth advisor; the DOL’s fiduciary rule initiative brought the importance of “best interest” insurance products into the limelight.)
These products (primarily annuities and life insurance) provide five essential functions:
- Strip away transaction-based compensation
- Remove complex fee structures
- Provide an external salaried agent/partner to execute the transaction
- Place the fee-only advisor as the overseer of the wealth inside the insurance product
- Keep the advisor in charge of the client relationship
Indeed, with fee-only variable annuities and variable universal life products (responsive to the fiduciary standard), the advisor stays in the essential role as the builder, manager, and monitor of the products’ underlying portfolios. This keeps an insurance product’s invested wealth fully integrated in the client’s wealth and investment plans.
The advisor gains an essential investment resource, the client gains peace of mind (and a highly tax-advantaged investment experience), and innovation reveals itself in the wealth plan.
Solving Your Biggest Client Issue May Be at Your Fingertips
Written by: Shileen Weber
When the American Funds’ Capital Group asked 400 advisors last year to name the biggest issues they face in their businesses, it wasn’t the DOL, market uncertainty or the economy that sat in the center of the idea cloud of answers.
It was client issues.
At a time when regulatory concerns and market turbulence would seem to be at all-time highs, the advisors who answered the survey were most concerned about servicing their clients as well as ways to find new ones and grow their businesses.
It’s one of the ironies of the business, that the things most people find so hard to manage – creating financial plans, managing assets and staying ahead of events – are what advisors find to be the easiest parts of the business. Marketing - the business of selling themselves – can be the area advisors find the hardest elements to master.
In this age of instant communication, it can be even more intimidating to market your practice, especially to younger clients for whom many traditional methods like newsletters, postcards and phone calls don’t work anymore. For them, email is the preferred way to get information, and, if it’s important, they are more likely to respond to texts, not phone calls.
But, it doesn’t have to be that hard. The digital age gives you access to ideas and content of all kinds you can use to touch your clients in a way that positions you as a valuable resource. The key is to keep it simple, stick to some basics and create consistent outreach that clients and potential clients are interested in and will appreciate you sharing with them.
Here is a common-sense approach you can take that will not require you to hire an expensive agency or take valuable time away from managing your clients’ assets and running your business.
Content is King
Create a content calendar for the year: Think about reasons to touch a client 13 times during the year – that can be once a month and on their birthday. (The common rule of sales is that it takes at least 7-13 touches to make a connection.) The number is limited and keeps you from inundating the clients who likely already feel inundated with content. You can take the seasonal approach – tax planning in the fall, January for account review content, college financing in the spring – and supplement it with topical events during the year. Creating a calendar will help you stick to a plan. Here’s one resource for a content calendar.
Review what content is already available to you: Basically, this means finding the resources you already have and determining what pieces will be most valuable to your clients. Start first by checking out content your broker-dealer already generates that you can personalize. Many firms have economists who write regularly about the market. That’s content you can pass along to keep clients up-to-date they would not have access to anywhere else. In addition to your broker-dealer, mutual funds, your clearing firm, and money managers are all excellent sources of informative and even analytical content.
Personalize the content you use: Add your name, the client’s name or some way to avoid making it feel like canned content that you are using just to check the outreach box. See what capabilities your email program may have to help you.
The birthday strategy: One advisor used clients’ birthdays in a new way. Instead of the card or lunch date, the advisor asked the client’s spouse for a list of friends he could invite to a birthday lunch and made it a memorable event that was also a soft approach to getting referrals.
Become a curator of good content: What your review will show you is that you don’t have to generate the content yourself. You can point clients to pieces you find insightful. You are likely already doing this every day just to keep yourself informed. The next step is to compile it and send out the very best pieces to your clients, again, with a note with your own thoughts about why you found it valuable.
Find out what is working and do more of it: Use your client interactions, in-person and online, to find out what types of content clients liked and any they didn’t. You can use tracking on your emails to see how many were opened as a measurement tool, but the personal interactions tend to provide more insight than raw data.
Be disciplined about your execution: Get help from an office assistant or schedule the time each month to do the content development and outreach. As any good strategy, if you make it a habit, it won’t seem so hard.
Most importantly, be yourself and be personal: You may want to regularly get personal by talking about your family and hobbies. The ultimate is if you can provide content that is personal to your clients, not just about their investments – they get that from their statements, apps and online portals. Think alma maters, hobbies, children and parents.
Of course, as a disclaimer, you have to make sure all content and communications are complying with regulations and the rules of your own broker-dealer.
The process of creating a plan will get you thinking about your clients in a new way. That exercise alone can re-energize your business and get you seeing marketing opportunities in places you may never have seen them before.
Shileen Weber is Senior Vice President of Marketing and Communications at GWG Holdings. She was previously Director of Online Strategy and Client Experience at RBC Wealth Management, where they placed first in two JD Power and Associates U.S. Full Service Investor Satisfaction Study (2011 and 2013).
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