A new LIMRA and EY study finds significant growth of advisory services in financial professionals’ business mix across multiple types of advisor channels. The largest growth of fee-based advisory services comes from full-service broker-dealer advisors, which grew nearly five times, from 10% in 2008 to 48% in 2018.
“As competition grows, consumers now expect their financial advisor to offer a broad range of products and services to meet their individual financial needs,” said Laura Murach, LIMRA associate research director for distribution. “As a result, we are seeing similarities across all practice models in terms of their service and product offerings. And by offering a wider array of services, advisors can deepen their relationships with clients.”
Empowered advisors expect more
Thanks to the significant practice growth during the last few years, the study, titled “Harnessing Growth: The LIMRA-EY Experienced Financial Advisor Study,” says advisors feel empowered and optimistic about their future prospects. It has also increased their expectations for service and support from insurers and other ecosystem partners.
The increased emphasis on providing advisory services (as well as other products) has affected the sale of life insurance by career insurance professionals. Once the dominant product line for these financial professionals, today it accounts for less than half of their business. Other LIMRA research confirms that career insurance agents now receive less than half of first-year commissions from the sale of life insurance. Annuities, investments and other products and services now make up a larger percentage of the business mix for career insurance professionals.
The study also noted that while advisors typically write business with three to five carriers, they place almost 60% of their insurance sales with their top life and annuity carrier.
Advisors place business based on underwriting efficiency, customer service and product selection or quality, depending on the practice model. Name recognition features strongly with full-service broker-dealers and bank financial advisors.
Advisors reported that poor customer experience and poor advisor support are the leading causes for dropping a carrier. In some cases, manufacturers are selected by broker-dealers, marketing firms or advice platforms and even at the advisor team level. Nearly one-third, or 30%, of advisors added a life or annuity carrier to their product set over the past two years, while 20% dropped one. There continues to be opportunity to gain – or lose – shelf space.
Strong product features and competitive costs, faster and easier underwriting and strong advisor and customer experience get products on advisors’ shelves initially; ongoing service and support keep them there.
In 2008, independent broker-dealer (IBDs) advisors were primarily investment-product focused (53%) with advisory services representing just 14% of their business. Today, IBD advisors report their business is almost equally divided among investment products (31%), insurance products (31%) and advisory services (37%). Advisory services have almost tripled in this channel over the past decade.
Advisors report income growth over past 2 years
The LIMRA-EY study finds 8 of 10 advisors surveyed report significant gains in gross income over the last few years. Income growth rates exceeded double-digits across all types of practice models over the two-year period.
While many advisors benefited from market gains that increased the value of their book of business and the volume of assets they manage, half of the survey respondents reported that the increase in their income was due to growth in the number of clients. As a whole, survey respondents reported 22% growth in their client base over the two-year period.
“Not surprisingly, almost all advisors (99%) rely on referrals to expand their client base and it is considered the most effective way to get new clients,” said Murach. “Interestingly, advisors’ websites and social media accounts are considered the next most valuable tools to market to new clients, which were rarely used 10 years ago.”
Digital tools have become essential to all types of advisors and survey results indicate continued adoption. To a large degree, this is merely a reflection of consumer preference, the study says. Clients expect to interact with advisors in any media, anywhere, any time. Consequently, advisors have adopted digital communication methods for prospecting and ongoing client relations. Almost 8 in 10 advisors see digital solutions being most impactful for marketing, client acquisition and ongoing client engagement.
Changes in regulations, technology advancements and the expectation for richer, more personalized customer experiences are causing advisors and the organizations they represent to step back and re-evaluate their fundamental value propositions.
Fiduciary rules are the new normal
The survey results clarify advisors’ views of the impact of rising fiduciary standards, with varying impacts by type of practice model.
- 86% of advisors expect to operate within an increased compliance infrastructure; RIAs already are, or view themselves as fiduciaries.
- 74% of advisors see an opportunity to offer more customized planning.
- Half of advisors plan to reduce the number of less-affluent clients they serve; a similar number are considering a reduction in their total number of clients. This is especially true of investment-oriented professionals. About three-quarters of bank advisors (76%) and full-service broker-dealer advisors (74%) see this as a somewhat or very likely outcome.
- Seven in 10 advisors expect a squeeze on their profit margins.
Fiduciary standard regulations are also causing advisors to review their overall product mix, specifically their use of index funds and annuities, including fee-based annuities. For example:
- 35% of investment-oriented professionals foresee greater use of low-cost or indexed funds.
- 33% of bank advisors indicate they will sell fewer annuities overall. Full-service broker-dealer representatives (28%) and independent broker-dealers (24%) expect to do the same.
- 40% of independent insurance agents and 30% of career insurance agents say they will sell more life insurance.
- 25% of full-service broker-dealer advisors and 20% of bank advisors will increase their use of fee-based annuities.
Fluctuations in annuity sales – along with advisors’ needs to demonstrate transparency and that they are acting in the consumer’s best interest when recommending products – will require product manufacturers to become more agile in their product design and support models.
The 2018 results were based on an online quantitative survey of nearly 1,500 financial advisors, insurance and investment professionals by LIMRA and EY. The data from 2008 were based on a joint survey of 1,200 sales professionals and financial advisors from July 2008 to November 2008 by LIMRA and McKinsey & Company.
About LIMRA: LIMRA, a worldwide research, consulting and professional development organization, is the trusted source of industry knowledge, helping more than 600 insurance and financial services companies in 64 countries. Visit LIMRA at www.limra.com
About EY: EY is a global leader in assurance, tax, transaction and advisory services. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. For more information visit ey.com.