Overall, insurance advisors are wisely sticking to their knitting and focusing ever more intently on their core insurance business. However, underlying this general trend are some emerging divisions between independent agents and those advisors who ply their trade with the dedicated sales agencies.
The latest version of Investment Executive‘s Insurance Advisors’ Report Card indicates some differences between the two basic types of advisor sales forces, starting with demographics.
Overall, there doesn’t appear to have been much change in the fundamental makeup of the insurance channel over the past year. The average age of the advisors in the survey is up to 49.3 years from 48.7 last year, and their tenure in the industry also is up slightly to 17.4 years from 17 years in 2010.
There are signs of increasing movement among firms, though, with advisors’ average tenure at their current firm slipping to 10.4 years from 11.2 years last year. But, in general, it appears that the insurance channel’s basic demographics are fairly stable.
That said, there are notable differences in these demographic trends for the independents vs the dedicated sales force reps. Most of the action appears to be taking place in the dedicated sales segment of the industry.
For one, the average age of the dedicated sales advisors in IE‘s survey is down year-over-year to 47 years from 48. This indicates that the dedicated sales force has seen an infusion of fresh blood, which impacts the overall average.
This trend is confirmed in the channel’s experience data. Among dedicated sales force reps, average tenure in the industry has dropped sharply to just 12.6 years from almost 16 years. At the same time, average tenure with the current firm also has dropped to 9.9 years from 12.5 years.
In contrast, the average age of the independent advisors in the survey is up by exactly one year, to 50.8 years from 49.8 years, suggesting that this sales force is largely unchanged from last year. Similarly, average industry experience for these reps is up to 20.4 years from 18.4 years — and average tenure with their current firm rose to 10.8 years from 9.2 years.
Although the demographic profiles of the two segments of the channel may be moving in opposite directions, both sales forces share two trends: their assets under management and number of client households are down this year.
Overall, the number of client households served by the average advisor in IE‘s survey is down to 446.3 from almost 519.3 last year. A drop in client numbers is evident on both segments of the channel, although it’s notably larger for dedicated agents. This is not surprising, given the demographic shifts taking place on that segment of the channel — younger, less experienced reps are naturally going to have smaller books.
Although there was also a modest decline in client rosters among independent agents, the demographic stability on that segment of the channel suggests that this is more indicative of reps who are actively pruning their books.
At the same time, the advisors surveyed are reporting a big drop in AUM. Year-over-year, average AUM dropped by about a third, to $11.4 million from $17.3 million.
This large drop in reported AUM comes with a couple of caveats: for one, the percentage of advisors who responded to this question is down to just 48% from 56% last year. The smaller sample size naturally impacts the survey’s results, making them more volatile.
But, more important, there was also a sharp reduction in the number of advisors reporting very large books this year. In this year’s survey, just seven advisors said they have books in excess of $50 million, down from 18 in last year’s survey. And, in a channel of the financial services industry in which AUM tends to be fairly modest, a big drop in the number of reported large books has a significant impact on the overall average.
Yet, even if we exclude those large books from the results, we see that average AUM still has dropped significantly year-over-year. However, the reduction was a more modest 14.5% vs the 34.1% drop evident in the raw numbers.
As with the client numbers, the drop in average AUM is much larger among the dedicated sales advisors than it is for the independents. Again, that differential can be explained by the divergent demographic trends prevailing in the two segments of the channel. With the dedicated sales agents getting younger and less experienced, on average, it’s no surprise that this segment is reporting a larger drop in AUM than the independents.
Of course, AUM has always been largely a sideline business for most insurance advisors; it’s not indicative of the underlying health of their core businesses. And, on that count, things look a lot rosier for insurance advisors.
Overall, advisors report that their first-year commissions are up notably from a year ago. Although their first-year commissions from life insurance, living benefits and segregated funds are all up by more than 20% from last year’s survey, the average first-year commissions generated by money products has more than doubled. The independents, in particular, are driving this increase in first-year commissions from money products as their average commissions from this line have almost tripled from last year’s survey.
In terms of product mix, there’s relatively little year-over-year change at the overall channel level, but, again, there are some conflicting trends among the sales forces. For example, the independents saw the share of their books in seg funds rise to 19.5% from 16% last year. For dedicated agents, seg funds dropped to 18.2% of their books from 20.8%.
The independents also report that their share in both term and permanent life products is down a little year-over-year, whereas their use of other (e.g., group) products rose from the previous year. In contrast, dedicated agents report their use of both term and permanent life had ticked up a bit year-over-year, whereas the allocation to other products in their books dropped to 4.4% from 8.2%. IE