The title of this article may surprise many people. A common misconception within the industry is that adding active money management to your practice will reduce your annuity sales because more money will be allocated to securities. In fact, the opposite is true. Let me explain.
If you are insurance-only licensed, and therefore only able to sell insurance products, are you able to close as much business as you could if you were licensed to offer securities as well? Do clients expect that you can manage all of their assets if you are only licensed to sell insurance products? My experience tells me the answer to both of the above questions is "no."
You see, most people inherently know that they shouldn’t have all of their eggs in one basket. As a matter of fact, I just met with a prospect last week who was also meeting with other advisors before before deciding who he would ultimately do business with. During our conversation, he told me that one of the people that he met with was only able to offer insurance products and so had recommended that the entire retirement portfolio for this prospect be directed to fixed index annuities. The prospect wrote that agent off as a potential candidate for getting the business, because he inherently knew that putting his entire retirement portfolio into indexed annuities was not a good idea.
So, how does that story help me make my point? Had the competing agent also been able to offer an active managed money option, the prospect would likely not have written him off because he could offer a more comprehensive financial plan. Most people who are nearing retirement age have made a fair amount of the money they've saved for retirement by investing in the stock market, and they aren’t ready to completely move out of the market. I would argue that most retirees, whether they just retired or retired 20 years ago, should have some exposure to the stock market, managed actively to help avoid large losses when the market moves lower.
In the case of the prospect mentioned above, I have a much better opportunity to gain him as a client because I offer exactly what he is looking for: safety for a portion of his assets so that he has a predictable income stream that he can’t outlive, and actively managed market investments to help him grow the remaining portion of his assets. Because I can offer both, this prospect will likely become my client, and I will write $1 million in indexed annuities and $500,000 in actively managed accounts.
By adding active money management to their practices, agents are able to stop leaving assets on the table simply because they don't have the ability to take over securities investments. Not leaving money on the table, the ability to take on clients that won’t do business with someone who only offers insurance products, and finding that clients will talk about all of their assets instead of just the assets that they feel may be appropriate for insurance products are all reasons to add active money management to your practice.
However, more annuity business is only one of several reasons why active money management should be added to your practice. Other reasons include better positioning as a full service financial advisor; avoiding the “source of funds” issue that is becoming more and more prevalent in the industry among regulators; building an ongoing, residual income so that you aren’t caught in the commission trap and starting every year from zero; and building a business that has value that can be sold.
These advantages make it a no-brainer for adding active money management to your practice. The advantages far outnumber the disadvantage of having more regulatory oversight and requirements. Any isadvantages are easily overcome by working with a registered investment adviser firm that will lead you through the regulatory environment so that you know exactly what is expected of you and have compliance help along the way.
So, go ahead and get in the game. Offer active money management to your clients and see your annuity sales begin to get wings and take flight. As this happens, you’ll see your assets under management take off, as well; and you will end up with a solid commission income along with a residual income from your actively managed accounts that will help free you from the commission clock that resets every January 1st.