WHAT'S HAPPENING?

Of the changes going on in the financial services marketplace, none is greater than the change in consumer attitudes and interests, followed naturally by the changes in regulations, compliance and issues related to market conduct. In the United Kingdom and Australia, new regulations have shaken the insurance business. Full disclosure (yes, including disclosure of sales commissions) and strict regulation of procedures suddenly changed the way most insurance is sold. I believe this change is for the good.

I have heard U.S. and Canadian life insurance executives blast the new regulations in these countries as critically damaging to the insurance business, therefore the economies of these countries. Sounds to me like the old 'What's good for General Motors is good for the country's argument a throwback to the thinking of the fifties. This argument does not hold water in the nineties.

One conveniently overlooked aspect of life today for insurance practitioners in the U.K. and Australia is that the professional practitioners have survived and are prospering exceptionally well. The pure salespeople, preoccupied with making transactions and failing to provide buyers with sufficient information to make informed decisions, are gone. This newly achieved level of competence serves everyone well.

The issues

Let's get back to the issues of buyer attitudes and expectations. They have changed. They are the real driving force behind insurance business changes. Today's consumers are better educated, have better and faster access to information they seek, have more alternatives, and participate more in their own decision making than ever before. No longer dependent on big business or big brother for their future health, safety and welfare, they accept more responsiblity and accountability for their own futures. For the past twenty years or so, financial services have tried to read the marketplace and keep up, or even lead the market in some cases.


What evolved?


The advent of personal financial planning for fees at the very end of the seventies heralded a new era for life practitioners and insurers.When personal financial planning began to take hold, many life insurance people claimed that they had always done financial planning for their clients. In reality, so few life insurance sellers understood what financial planning was, and fewer still had ever collected fees for advice or sold true accumulation products , that this claim was empty, and sometimes almost toungue in cheek. It remains so today, unless the life insurance practitioners making this claim have learned to do planning for more than what life insurance alone can do for their buyers.

What had happened to consumers that created personal financial planning? Their new thinking and values demanded more than currently available financial services provided. Consumers saw interest rates rising, home values skyrocketing, oil companies and other big business touting huge profits. Individual consumers, always felling comparatively small in corporate North America, wanted a piece of the action.

The consumer mindset that had traditionally seperated their savings dollar (no risk) from their investment dollar (with risk) changed. The new mindset was that they had one dollar to do both jobs, and they wanted products and services that matched their new thinking.

Mutual funds became easier for life insurance salespeople to sell, and protection product sales faltered. Insurers tried to recover by finally accepting the reality of consumer demand for accumulation products and starting up their own broker dealers. Up until then, life insurance never was an accumulation product because the internal build-up of cash values merely kept the premium level. The buyer (and seller) intended to keep the contract intact for the death benefit, in the same manner as a home is not an investment unless you plan to cash in on it for a gain. In both cases, when you sell or cash in the asset to realize the gain, the original benefit disappears. You have to live somewhere else in the case of selling the home, and buy new insurance or find other capital for a death benefit.

Nevertheless, insurers still wanted life insurance sales in a big way. They still do, and they compensate discommensurately in favor of insurance sales to get it.

A new awareness

Since 1980 or so, fee-based and fee-only personal financial planning has blossomed exponentially. While many life insurance salespeople became or claimed to have become financial planners, they no longer dominate the personal financial planning profession. People from all walks of life have studied, learned and become competent personal financial planners. More are on the way. Many know comparatively little about life insurance.

The old guard

Insurance oriented business people still cling doggedly to the belief that they can offer the consumer objectivity and still collect a commission. Maybe individual practitioners can, but let's face the consumers' and consumer advocates' perspectives. Whole insurers and their field forces are proving their position of being objective fallacious as they suffer defeat after defeat in courts and suits that force examination of their sales practices, indoctrination, training and corporate management and ethics.

As purely transaction oriented brokers and agents swear they will never accept level commissions, divulge their commissions, or accept fees for their advice because they are already objective, other leading practitioners are petitioning their companies for level commission products, support for their collecting fees for advice, and training in areas many companies would rather avoid but cannot, due to their broker dealer's requirement to provide registered rep supervision and assure compliance.

As regulators clamp down on sales abuses and insurers feel the heat to clean up after the debacles of vanishing premiums, life insurance sold in disguise as private pension plans, and lack of full disclosure of the new risks in life insurance products, the very nature of life insurance distribution must change. To recruit, train and properly supervise career agents is incredibly expensive the way it is being done, and no objective analysis of the insurance business could deny the need for insurers to find additional, more profitable ways to distribute the products they manufacture. The majority of insurers who recruited and trained career agents ten years ago no longer do so. They are developing alternative distribution channels. The present-day career agency system will fade from lack of profits. Don't want to believe this? Then just look at the changing composition of leadership in major life insurance companies and see how many outsidersÑbankers, professional executives, corporate managersÑhave taken over the corporate insurance leadership positions that insurance careerists used to fill.

Malpractice hurts

Company failures are one thing. To live with the ignominy of systematic wrongdoing, however, as some companies face in court and out in class action suits of company-wide mistreatment of customers, is altogether another issue. Bad management is a lot more understandable than systematic misconduct by company trained and supervised agents.

The big news today is market misconduct. Just wait. The lawyers going after insurer deep pockets in these market conduct cases still don't have a clue about the impact of undisclosed assumptions underlying the sales pricing of insurance products, the obligation in tort law and contract law that insurers and salespeople have to perform the duty of care necessary to provide the buyer with sufficient information to make informed decisions, or the impact of heaped commissions versus level commissions on the product, the seller, the insurer and ultimately the buyer. We are just at the very beginning of a revolution that will remake the insurance business into something unimaginable today. It seems clear, however, that only consumer awareness and advocacy, perhaps resulting in litigation, will prod the insurance business to face reforms it now resists.

How to survive the sea change

What does this all mean for professional insurance practitioners who are financial planners, estate planners, corporate executive benefit planners and purely life insurance experts? There is a gold mine marketing their insurance expertise.

When people say they don't trust life insurance agents, what do they mean? They do not mean they don't trust life insurance. They don't trust the people who deliver the products.

Ask the consumer who understands his or her need for financial protection, accumulation and preservation, and they will almost always say that the products which provide these are almost always secondary to the suitability of the plan that recommends the products. They must buy into the plan before buying the product. When they trust the plan, they will buy its recommendations. The only remaining question is which company's make and model of the recommended product should be bought.

Who provides the plan?

Consumers seek objectivity (unbiased advice), and increasingly pay fees for that advice. Ironically, in more than 80 percent of the cases in which a planner who can collect fees for advice and also commissions for delivering products works the case, the product will be placed by that advisor. It is human nature to implement a plan that took some interest and effort to create, and to implement it with the person trusted to creating it. The psychology here is simply that the buyer wants to be a client before s/he becomes a buyer. S/he thinks: If I pay a fee I am a client. If I pay a commission, I am a buyer. First things first. Oddly, insurance agents and brokers think, Sell them something, make them customers first, and they will eventually become clients. Maybe-but it is very inefficient to operate this way. Tactical myopia kills even the best strategies.

Many buyers do not really mind paying both the fee and a commission to a practitioner who earns both. Practitioners successful at accepting both know how to explainÑto the consumer's satisfactionÑthat the fee pays for the advice and the commission pays for underwriting and servicing the dynamic product as it requires change over the years to come.

Many practitioners today in the high-end and middle markets often also make full disclosure of what they are earning. They know how to explain themselves to their clients and have enough self-esteem and knowledge of their business to explain it rationally and with the composure expected of professionals. Because they do this they gain an edge in the marketplace.

Full disclosure disarms the wary consumer of his or her distrust. Psychologically, people seek parity in most cases of developing relationships. The more disclosing the professional can be, the more accepted s/he will be by the client. After all, the client has laid bare his or her life to this professional in order to create a plan that will achieve specific, intimately critical life goals. When the professional makes full disclosure, the buyer perceives this advisor more like a lawyer, accountant or professional advisor and advocate, and less like a salesperson seeking a commission. They also begin to see themselves more as clients, less as buyers. They become more loyal because they trust their advisor's competency and style. They feel more understood, less pressured. They make better decisions.

What can you do?


There are a number of marketing approaches you can take to sail smoother in the sea change you must go through marketing insurance. I list them here without priority or hierarchy. The choices are entirely yours to make.

  1. If you want to hold yourself out as a financial planner, earn and maintain the CFP and/or ChFC marks.

  2. Explain to non-insurance professionals what you do and why they need your insurance expertise to help their clients. Do not offer the quid pro quo basis of doing business by swapping clients. Rather, offer your expertise in insurance as equal to their expertise in their profession, and work together as counselors and advocates for the client, not as competitors.

  3. Obtain and keep investment licenses, such as series 6 and 7. Even if you don't use them to sell product, use them to substantiate your advice.

  4. Stop trying to win insurance sales contests. Frankly, the minimum annual production required to keep a career contract and benefits in one company is amazingly lowÑin most cases not much higher than poverty level incomeÑso it's easy to meet if you choose to. Stop thinking contest. Start thinking revenue streams.

  5. Diversify your own revenue portfolio. Money under management or pools of investments you have placed and service earn level commissions. Sell mutual funds, traditional insurances, variable products, annuities and diversify your income.

  6. Sell your expertise, planning, and plans as the first outcomes you create for clients. Implementing the plan is second, and is based on the client's choices.

  7. Seek to develop clients, not sales. Clients create more sales than buyers do, and their persistency is better.

  8. Become refreshingly candid with your clients about how you conduct your business. Make disclosure. Give them choices. Once buyers know you won't pressure them to make one choice over others, they will begin to take more of your advice more easily. Once you start asking questions and explaining options, and stop trying to close, you will be on the right track.

  9. Develop and hang your hat on specific expertise that singles you out in the crowded marketplace. Don't be afraid to specialize. There's less competition in specialties directed at target markets, and you will still be able to do other things if you wish. Some financial planners specialize in being the generalist, the client's personal CFO. This works, too.

  10. Use the Internet. Whether you put up a web site is irrelevant. The power of the Internet is in communicating quickly and cheaply, and researching quickly, easily and cheaply. Communicating by email is incredibly efficient and effective. Many of your buyers and clients are already using the Internet and WorldWideWeb to explore and learn.

  11. Develop target markets. The better you know your clients, the more effective you will be with them. This correlates to marketing your expertise. These two relate.

  12. Survey your clients. Public relations is dialogue with your target markets. Client surveys are dialogue and good communications with your clientele.

  13. Market; don't just prospect. Control whom you see so you can control whom you work with. Focus, and enjoy your clientele. If you have a portion of your book of business that is unprofitable or no longer suitable to be served by you, divest yourself of them-ethically.
  14. Package yourself to meet your market and its expectations. If your messages cannot be heard above the din of the crowd, the crowd will pass you by.

  15. Study the doctors, lawyers and accountants you like and respect as professionals. See what they do to be professional. Think through how to emulate their business practices in your own professional practice.

There will always be the consummate salespeople to make transactions and exchange product for the buyer's cash, but they will dwindle in the insurance business. Companies will court great producers for great production, but this will become less and less significant as a source of profitable revenue in the overall scheme of things. More product we responsibility and accountability for their own futures than ever before. For the past 20 years or so, financial services have tried to read the marketplace and keep up, or even lead the market in some cases.

What evolved?

The advent of personal financial planning for fees at the very end of the seventies heralded a new era for life insurance practitioners and insurers. When personal financial planning began to take hold, many life insurance people claimed they had always done financial planning for their clients. In reality, so few life insurance sellers understood what financial planning was, and fewer still had ever collected fees for advice or sold true accumulation products, that this claim was empty, and sometimes almost tongue in cheek. It remains so, unless the life insurance practitioners making this claim have learned to do planning for more than what life insurance can do for their buyers.

What had happened to consumers that created personal financial planning was that their new thinking and values demanded more than then currently available financial services provided. Consumers saw interest rates rising, home values skyrocketing, oil companies and other big businesses touting huge profits. Individual consumers, always feeling small in corporate North America, wanted a piece of the action.

The consumer mindset that had traditionally separated their savings dollar (no risk) from their investment dollar (with risk) changed. The difference between the two dollars evaporated. The new mindset The new mindset will be placed by financial planners and other non-insurance professionals, and insurance will lose its weathered veneer of being a miracle. Insurance was once a unique miracle, but its own business turned it into a commodity. Now the death benefit is simply one aspect of the product, which has become increasingly complex to the point of being too complicated.

There's no turning back. Consumers are on the scent of the change and forcing it. They want the guidance of professional advisors through the maze of all financial issues. Expect increasing consumer and regulatory resistance to selling insurance in anything less than a professional advisory role with codified procedures and good written records. The New Age has dawned. The watchword is no longer caveat emptorÑbuyer beware. The new handwriting on the wall says, Seller beware.

The moving finger wr