Advisors now live in an era where creating a “holistic” picture for clients goes far beyond the scope of what was once considered adequate. Gone are the days when clients had separate professionals handling the various elements of their financial plan; in place of the “good ol' days,” the squeeze is on to be a one-stop shop that includes more client hand-holding. And, when necessary, advisors are now even called upon to perform what borders on family therapy.
But how much is too much? If you are already assisting with a multifaceted financial plan, should you add another layer and offer to assist your clients in all matters of insurance planning? A recent report by DPL Financial Partners says yes, in short, but for now, the jury is still out on how to best approach this somewhat controversial animal.
First and foremost, the money to be made can be impressive. According to the report, the annuity market represents $4 trillion, while life insurance tops $12 trillion. DPL spoke with 118 RIAs for the report and found that 70% agree insurance is essential and consider it to be “an important component of a holistic financial plan.” Yet, only 25% directly offered clients a full range of insurance products. Meanwhile, 88% said they offer insurance planning in some form. The survey notes that the 88% offering planning could be missing out and leaving money on the table.
This, of course, stokes plenty of fires, and for very good reasons. While the money is compelling, the conflict of interest surrounding insurance, or anything considered to be a “product” for that matter, makes the entire topic taboo. DPL found that one reason advisors cite for not offering more insurance to clients is, indeed, a lack of fee-based products.
Important technicalities aside, for the most part, advisors acknowledge the need to discuss insurance options with their clients. For most, like Bob Rall of Rall Capital Management, the buck stops at having the discussion.
Rall, whose firm’s main office is in Cocoa, Fla., works closely with clients to ensure their policies meet their individual needs. “I am in the process now of helping one client couple secure some life insurance, and another some disability insurance,” he writes in a note to FA-IQ. “I also help review and update their property and casualty policies. So, while we don’t 'offer' the products, we do advise on them.”
Still, knowledge is power. Carl Goodin, president of Financial Planning Associates in Ellisville, Mo., was at one time a licensed insurance provider. When he switched to fee-only advising, he stopped selling the products. Nowadays, he sees the importance of having the discussion with clients and makes it a point to ensure there are no conflicts of interest at his firm, which has $19 million in assets under management. And his insider lens can be helpful during the discussion.
“Having been there, I’m aware of the propensities that the insurance industry has toward marketing their products,” he says in an interview with FA-IQ. “The industry is an aggressive marketer of their products, and being sensitive to how they operate can be a benefit as well.”
Rick Waechter, founder of Chapel Hill, N.C.-based Old Peak Finance, a firm with $165 million in assets under management, echoes the sentiments of most. He considers an understanding of insurance as a strength, enabling the advisor to assist clients in determining what they might need.
“But serious financial advisors cannot sell insurance,” he writes in a note to FA-IQ. “If they do, they have an immediate conflict. They will always have an incentive to recommend whole or variable life instead of term life – even though, for the vast majority of clients, term makes more sense and is far cheaper. They will always have an incentive to recommend variable annuities over fixed annuities or over low-fee mutual funds.”
On the flip side, he says, clients should avoid asking insurance brokers and agents about how much life insurance they need, or what the best product might be. “They are conflicted,” he writes. “Have an independent, fee-only advisor help you figure that out, and then shop for the best package of price and service.”
So, while insurance may be lucrative and compelling, on the whole, it looks like most advisors are staying in their lane and letting insurance providers handle that part of the business for the time being. Ave Maria, Fla.-based Patrick Logue of Prudent Financial Planning is licensed, but he does not sell insurance or any other product for that matter. Like so many, Logue prefers to stay out of it, citing conflict of interest.
“I only refer my clients to independent agents,” says Logue, whose firm has $6 million in assets under management. “I will tell clients if they have someone they want to call, to call them, but I have a couple people I can recommend.”