Collaboration in moving forwardArticle added by Mike Boot on January 8, 2010
Mike Boot

Mike Boot

Joined: July 31, 2008

Many of the best insurance agents that I have dealt with know all of the best practices in sales and marketing, but also want to know more about product profitability and actuarial issues. In turn, the actuaries that I have worked with not only know the technical issues of models and actuarial science, but also have a broad understanding of finance, accounting, taxes, behavior finance and, especially, marketing. It seems that this collaboration across many disciplines is now needed more than ever to help educate the public on emerging issues leading into the financial recovery. Two recent news articles highlight compelling evidence of the importance of collaboration across all areas of financial services to educate consumers on the complex financial issues facing society.

The first story concerns the signing of a treaty between 14 international actuarial associations to establish the Chartered Enterprise Risk Analyst (CERA) as the globally recognized enterprise risk management (ERM) credential. In making this announcement, Mike McLaughlin, the SOA President, stated that this move is a significant endorsement by the global actuarial profession of the need for an international ERM credential. It sends a strong message to employers that the skill set of actuaries provides risk management expertise, especially in this time of increased globalization.

When much of the knowledge that actuaries use is very nation-specific, such as reserve standards and valuation requirements, as well as product appetite, it is important that the global actuarial organizations combine efforts in the risk management area. It is unique to have a professional credential that is offered by multiple organizations. More information about this treaty can be found at

The second story appeared in The Wall Street Journal and was entitled "More Scientists Treat Experiments As A Team Sport." The article referenced the Large Hadron Collider, a $6 billion particle accelerator near Geneva. The project has 150 universities across 34 countries providing resources, with 100,000 computers linked to be able to handle 15 million gigabytes of information produced annually.

These stories of unparallel collaboration serve as an example for financial services, and focus on education of society over competing with other companies to be the first to the finish line. This is especially important now since studies show that Americans crave better financial knowledge. A new report from Mintel Comperemedia, a service that provides direct marketing competitive intelligence, reveals that three in four adults are trying to increase their financial know-how because of the recent economic crisis.

Thirty-two percent of people in that survey say they have already increased their financial knowledge, but 43 percent say they plan to learn more about financial topics in the future. About 38 percent of those surveyed say they have recently met with a financial planner or plan to do so during the next year.

However, a more recent Sun Life Financial study should cause alarm for those who work as financial planners. According to the biannual Sun Life Financial Unretirement index study by the U.S. division of Sun Life Financial Inc., working Americans seek financial advice more often from family members and friends than from financial advisors. In fact, financial advisors ranked third as a resource. Older Americans were more likely to look to financial advisors than younger people. This edition of the survey was conducted in September and polled 1,451 people between the ages of 18 and 66.

What does this mean for the financial service industry? It seems that more and more people need information, and there should be broad appeal for the industry to unite in increasing financial literacy.

Here are a few specific areas where you as a financial planner can specifically take action to provide needed financial information.
    1. You should actively reach out to all the functional areas of the companies that you represent. Actuaries, financial planners and insurance agents must carefully focus on the key financial needs of the public and communicate with each other. Many insurance companies removed guarantees and increased their premium rates in the last year. This was necessary due to the financial markets, but this sometimes happened without strong communication to the financial planners about how to position these changes. Now is the time to break down any walls and collaborate in a new, unprecedented manner.

    2. It appears that the majority of people invested in 401(k) or 403(b) pension plans did not make any radical changes after the losses of the financial crisis. This was the best move for most people, as they could have experienced as much as a 40 percent decline in their fund balance, but by taking no action they have seen their funds rebound back to the same point as the returns. At the beginning of December 2009, the S&P 500 index had risen almost 60 percent in the previous nine months. So, taking "no action" was the right move in this case, but that could lead people to believe that they should always not take action, and that is the wrong message. There are now more tools created to mitigate risk than existed two years, and many customers should now consider what the right position is and determine the risk tolerance they should now utilize. Just getting back to a zero percent return in the last two years by doing nothing is not likely the best long-term strategy. This will take important coaching from financial planners to offset this bias against proactive action.

    3. In 2010, there will be a new opportunity for Roth IRA conversions that did exist previously. This should create more need for people to consider this by talking to a financial advisor, but a October survey of the First Command Financial Behaviors Index reveals that more than 84 percent of upper middle class consumers are not aware of the change lifting the $100,000 income limit on Roth IRA conversions and allowing investors to pay the tax bill over a two-year period. This is clearly an area where financial advisors must educate their customers about this new opportunity.

    4. The MetLife long-term care IQ survey taken by more than 1,000 individuals aged 40-70 in 2009 revealed that people do not understand the need for long term care. In this survey, just 36 percent of those surveyed know that 60 percent of 65 year olds will require long term care services at some point in their lives. Just 37 percent of those surveyed know that most long term care services are received at home. It is clear that most middle-aged and older Americans fail to grasp long term care's concept, so this is an important area for the industry to develop education programs around in order to enhance upon the existing collaboration.
Working across functional boundaries, educating customers about risk mitigation opportunities Roth IRA opportunities, or the need for long term care coverage are just a few examples where there are now opportunities to educate. I hope that you actively work together in a spirit of collaboration that is now needed, since the entire industry must rise to the challenge by working together in new avenues.
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