Why are financial advisors ignoring the opportunity of selling life insurance? I believe there are many reasons.
According to an article published in the Wall Street Journal on August 16, 2011
, financial advisors are missing the opportunity to incorporate life insurance planning into their practice. According to the Saybrus Partner’s survey identified in the article, only about half of the surveyed individuals working with a financial advisor have ever discussed adding life insurance to their plans.
Why are financial advisors ignoring the opportunity of selling life insurance? I believe there are many reasons for this.
- Most traditional financial advisors work for banks, wirehouses, and/or broker/dealers such as Morgan Stanley Smith Barney, Bank of America Merrill Lynch, Wells Fargo Advisors, Edward Jones, etc. They are accustomed to a transactional based business model with a relatively short sales cycle. The sales process for life insurance can be lengthy and even when the client agrees to apply for the coverage, the underwriting process may take an additional 90 days or longer to complete.
- For most financial sales, the financial advisor is credited for the sale almost immediately. Although commissions are higher for life insurance, receiving the corresponding compensation on insurance transactions takes much longer because of the extended sales process.
- In order to sell life insurance, a financial advisor is required to obtain additional licenses, carrier appointments and meet CE requirements. These requirements can be a hassle to the financial advisor if life insurance sales are not a primary focus of the advisor’s practice.
- Life insurance sales are not simple transactions. Especially for permanent life insurance, the products and planning concepts can be very complex and there is a significant learning curve. As a result, many firms utilize life insurance company wholesalers that offer point-of-sale assistance and advisor training.
These insurance company wholesalers are often viewed as biased because they tend to recommend their employer's insurance products over other options. In addition, the wholesaler receives part of the commission from the sale of insurance products, which then reduces the advisor’s commissions.
- Many banks, wirehouses and broker/dealers have limited or no advanced case design and marketing support staff in-house. These and other back office support services are often outsourced to broker general agencies such as Capitas Financial, Highland Capital Brokerage, Crump Life Insurance Services and others.
These BGAs receive part of the commissions and may also offer point-of-sale assistance. An internal team dedicated to supporting the sale of life insurance is often viewed more favorably because an internal team carries a similar business card.
- Best practices indicate that a life insurance policy should be proactively managed to ensure the policy is properly funded and not in danger of lapsing. A life insurance policy that is unmanaged and neglected can quickly ruin a client relationship.
Although there is a greater servicing need to life insurance products than most other financial transactions, there is generally little to no in-house service commitment to these products. In addition, providing enhanced life insurance policy service is contrary to the advisor’s typical transactional based business model and can be costly for the firm to provide.
Most banks, broker/dealers and wirehouses have high aspirations to make life insurance sales a larger part of their businesses. As a result, these firms are continually tweaking their business model in an attempt to address the issues and challenges identified above. Those firms and advisors that address these challenges first should be very successful and will have an edge on their competitors.