The Hot Market Makes Insurance a Tougher Sell
It’s rarely easy to convince clients that buying more life or property insurance is a good use of their money. But advisors say the nearly 6-year-old bull market has made the conversation even more difficult. Intoxicated by their portfolios’ growth, clients feel irrationally immune to loss. The last thing they want to talk about is asset protection.
“When markets are rising and times are good, people want to discuss how to manage their wealth playing more offensively, not more defensively,” says Jim Gambaccini, managing partner at Acorn Financial Services in Reston, Va., which has AUM of $550 million. So he and other advisors frame insurance as a proactive way for clients to maintain their lifestyle while ensuring there will be something left for heirs.
Gambaccini’s strategy is to schedule meetings with clients and their adult children. Many members of the next generation are just starting families of their own, he says, so insurance tends to come up naturally. Before they know it, the clients are talking about the role of life insurance in estate planning, as their children discuss income replacement. “By bringing more family members into the planning process, we’re creating a more open environment to discuss questions like when it’s most appropriate to buy insurance,” Gambaccini says.
Frazer Rice, a managing director at Wilmington Trust, says it’s been a challenge to pull clients back from obsession with their investments and get them thinking about the big picture. For example, he recently met with a retired financial-services executive who was keen to squeeze more out of his $100 million portfolio while market conditions remain favorable. By suggesting they look at his overall risk exposure, Rice deftly maneuvered him into a detailed review of his estate plan — during which they found an insurance-coverage gap that could potentially cost the client $40 million.
It wasn’t an isolated incident. “We’re finding clients are less concerned these days about filling any potential gaps in insurance coverage,” says Rice, whose Delaware-based firm manages $80 billion. “They’re more interested in finding out how to take advantage of an improving economy.”
It can feel almost inappropriate to force clients to think about illness, injury or other disaster when they’re euphoric about their portfolio gains. So Kelly MacRae of Beacon Pointe Advisors in Newport Beach, Calif., with $7.5 billion in AUM, tries to interject insurance into conversations without going anywhere negative. “A discussion about legacy planning can provide a natural transition to a more in-depth discussion about insurance,” she says. “You don’t always have to talk about death and dying.”
That’s especially true with business owners, for whom insurance policies are often an important piece of succession planning. When a client recently told MacRae he wanted to retire from his construction company, for instance, he also mentioned that only one of his four children was interested in taking over the business, which was valued at about $1 million. MacRae suggested he consider buying a $3 million universal life policy to be split equally among his other children down the road.
No matter what the market conditions, advisors should develop a script for talking to clients about insurance, says Bill Valone, vice president at Insurance Decisions in New York. The firm consults to FAs on insurance planning. He recommends avoiding phrases like “right away” and “what if” — which insurance agents use to create a sense of urgency when selling products. Instead, talk about long-term goals and family requirements. The point is always to frame insurance as part of the client’s broader plan.
“Insurance can be a very emotional topic,” says Valone, “so you want to use language that’ll be sensitive to a client’s needs without creating an even greater sense of fear.”