A sharp decline in the percentage of advisors recommending life insurance products has some experts and advisors wondering if it is the ghost of the departed Department of Labor fiduciary rule.
One in three financial advisors recommended permanent life insurance in 2016. By 2018, only one in four recommended the products, according to the 2018 Trends in Investing Survey conducted by the Financial Planning Association.
A retirement planning professor said he sees the hand of the DOL rule in the decline.
“The DOL rule absolutely had an impact on life insurance and annuity sales. I still think there is a lingering effect to the rule,” said Jamie Hopkins of American College. “Many companies had to make changes last year in 2017 and did implement changes for the DOL rule.”
Although the DOL rule was vacated by a federal court earlier this year, the pressure from the rule over the past few years may have accelerated the movement toward financial advisors, particularly the fee-only end of the business.
In fact, of the 265 respondents to the survey, 60 percent identified as fee-only advisors. “It is clear that an advisor’s fee structure does impact advice and products,” Hopkins said. “Fee-only advisors do less insurance and fewer products are set up for those advisors today, too.”
Monica Dwyer, vice president, wealth advisor, speculates that the rise of fee-only firms has led to annuities such as life insurance falling through the cracks.
“Fee-only advisors don’t even touch annuities because they are commission products. We would have to send clients somewhere else for that,” said Dwyer of Harvest Financial Advisors, West Chester, Ohio, “It does tie our hands a little bit, doesn’t it?”
Even though the DOL rule was quickly overturned, financial planner Mark Beaver said the fiduciary rule may have had a bearing on the decline as advisors and their firms make an effort to become more transparent and whittle away potential conflicts of interest.
The decline in life insurance product recommendations from advisors does coincide with the DOL push against commission-based sellers and conflicts of interest, occurring in late 2016 and stretching through much of 2017.
As 2018 approached and insurance sellers moved to become advisors, less insurance was recommended and consequently less insurance was sold.
Another consideration for the decline in recommendations for life insurance products is behavioral investing.
According to Beaver, thriving markets encourage advisors to take more risk when investing, steering them away from more conservative options, including life insurance products.
“When markets drop like they did ten years ago, many investors like the idea of ‘guaranteed’ investments and protection, when the markets are doing well, like they have been, it tends to take investor's tolerance for risk up with it making insurance and annuities less appealing,” said Beaver.
Despite the decline in recommendations, many in the field still think life insurance is something for investors to consider. Dwyer said, “Life insurance is an important part of any good financial plan.”
It seems some people don’t look up to see what’s going on in the world.
Excerpt: “Fee-only advisors don’t even touch annuities because they are commission products. We would have to send clients somewhere else for that,” said Dwyer of Harvest Financial Advisors, West Chester, Ohio, “It does tie our hands a little bit, doesn’t it?”
Are advisors really not aware of products like the Monument Advisor flat-fee variable annuity? No commissions. No CDSC. Just a flat monthly fee. It seems that it should fit right into the RIA/Fiduciary model.
Excerpt: “Fee-only advisors don’t even touch annuities because they are commission products. We would have to send clients somewhere else for that,” said Dwyer of Harvest Financial Advisors, West Chester, Ohio, “It does tie our hands a little bit, doesn’t it?”
So forget what might be best for the client because it doesn’t fit the compensation model?
Is it really a fee when the amount is based on assets under management?
If you don’t discuss life insurance with a client is it really holistic financial advice?
Jim,
Your point is a good one. I am not exactly saying that RIA’s wouldn’t advise clients to get insurance. In the case where a commission based product makes sense for the client, we would refer them to another firm that could handle that. Of course there are situations where it makes sense to refer for that, and that does happen, however I wonder how often clients follow up with that or how often clients are referred. If you look at the data that was used for this article, there is a correlation (although more data would need to be gathered to show a direct correlation) that shows more respondents using fee only advisers and a drop in insurance products that are purchased. To me that shows there may be a disconnect somewhere.
Keep in mind that at the bigger firms, even if the Financial Adviser is not getting a commission for selling an insurance product, they are required to make certain quotas for sales in all categories, including annuities. This keeps the insurance side of these companies busy and you don’t tend to see big drifts up and down based on the markets because during periods that would normally be dry, Financial Advisers are pushing those products more to meet their quotas. That certainly doesn’t sound holistic either.
When speaking with Cassie, I was trying to theorize why the numbers would be lower. We don’t know that industry wide insurance sales were down, only that this is the case for the people who answered this questionnaire. It would be interesting to view the numbers of insurance sales globally, though I wouldn’t know where to get that information.
There are not many products offered that are commission only and many advisers are reluctant to use annuities due to the high fees. As more and more products that are non-commission based are offered, I could definitely see more advisers offering them.