Report Card: Defining top advisors

Even the assets under management (AUM) reported by the average advisor were essentially unchanged at $16.9 million. Of course, investment AUM is not nearly as important to insurance advisors as it is to the other advisory populations that IE surveys. For advisors with brokerage firms, mutual fund dealers and even deposit-taking institutions, AUM is king; but for insurance advisors, AUM is secondary to their core business.

This fundamental difference means that the productivity analysis that is central to IE’s other sector surveys – segmenting the advisor population into the top 20% of advisors and the others, based on AUM/client household – is not relevant in the insurance space. Instead, IE typically has divided the insurance sector by type of firm, comparing advisors who are independent with those who work at firms with dedicated sales forces.

However, in an effort to glean further insight into the differences between elite insurance advisors and those in the rest of the sector, IE attempted a different type of performance-based segmentation this year: reported total compensation was used instead of AUM/client household. And, as a result, some major differences in the two segments of the advisor population began to reveal themselves.

Starting with simple demographics, although the top advisors were, on average, a bit older than the rest of the sector, they also were much more experienced and had significantly bigger books.

The average age for the top 20% of insurance advisors was 52.5, compared with just 49.1 for the rest of the sector. However, this three-year age gap pales in comparison with the eight-year difference in industry experience: the average top advisor has been in the insurance business for 24.6 years compared with 16.5 years for advisors in the rest of the sector.

And this much greater tenure in the business was reflected in much larger books for top advisors, who reported having more than double the number of clients and four times the AUM as the advisors in the rest of the sector. The average top advisor boasted 1,145 client households and $47 million in AUM vs fewer than 500 clients and just $11.1 million in AUM for advisors in the rest of the sector.

So, although the investment component may be a secondary part of insurance advisors’ books, it’s certainly much larger, on a relative basis, for top advisors.

Of course, these top advisors’ core insurance businesses were much larger, too – and that was reflected in the significant differences in first-year commissions reported by top advisors and those in the rest of the sector.

For both advisor populations, life insurance products were the biggest single source of first-year commissions; the difference is that the top advisors did a much higher volume of business overall. Indeed, they report significantly higher first-year commissions in every product category.

For life products, the top advisors averaged almost $375,000 in first-year commissions, compared with just $78,450 for the rest of the sector.

The next-biggest product category for top advisors – echoing their much larger AUM totals – was segregated funds, for which they reported an average of $120,000 in first-year commissions vs just $35,850 for advisors in the rest of the sector.

For insurance advisors who didn’t rank among the top 20%, seg funds ranked only fourth as a source of new commissions. For these advisors, money products were a close second after life products as a source of first-year commission revenue, generating an average of $65,520, followed by property and casualty (P&C) products.

For the top performers, seg funds were a distant second to life products that were followed closely by money products, which generated an average of $108,880 in commissions, with P&C products ranking fourth and living benefits products in fifth place. (This was the case for both top advisors and those in the rest of the sector.)

Despite the large gap in the size of first-year commissions between top advisors and those in the rest of the sector, and the differences in product mix that generated this revenue, the breakdown of revenue sources was very similar for both advisor populations. Although top advisors had much larger first-year commission totals, those commissions nevertheless were slightly less important to the top advisors than they were to advisors in the rest of the sector.

The top advisors reported that first-year commissions comprised 50.7% of their overall revenue mix, vs 56.3% for advisors in the rest of the sector. Not surprising, given the top advisors’ greater tenure in the sector and their bigger books, these advisors derived a bigger slice of their revenue from renewals – 28.5%, vs 24.2% for the remaining 80% of advisors.

Top advisors also held an edge in fee-for-service revenue. Although most of the insurance sector generated almost nothing from these fees (a mere 0.2% of overall revenue for the remaining 80% of advisors), top advisors derived 2.4% of their revenue from fees for service – a small part of their overall businesses but nevertheless materially more than for advisors in the rest of the sector.

However, the percentage of asset-based revenue for both segments of advisors was essentially identical, at about 15%.

Regarding product mix, there were some notable differences between the books of top advisors and those of the rest of the advisor population. On the investment side, for example, top advisors had slightly higher allocations to mutual funds and proprietary managed products but notably lower allocations to third-party managed products.

Top advisors reported that 71.5% of their investment business was allocated to mutual funds, compared with 68.2% for advisors in the rest of the sector. The top performers also had 19.8% in proprietary managed products and 8.7% in third-party managed products. By contrast, the rest of the advisors had 17.2% of their books in proprietary managed products and 14.6% in third-party products.

On the insurance side, top advisors favoured permanent life products over term life products by a margin of slightly more than 2:1. In particular, top advisors had 40% allocated to the former and just 18.4% to the latter. In contrast, advisors in the rest of the sector reported being evenly split between permanent and term life, with 29.5% allocated to each type of product.

Top advisors also had a much larger chunk of their businesses devoted to group/other business. This product category represented 15.7% of the average top advisor’s book, ranking third within their business mix, vs being just 6.6% for advisors in the rest of the sector, the fifth-biggest category.

For top-performing advisors, seg funds ranked fourth, accounting for 12.6% of the average book. However, this product was the third-biggest category for the remaining 80% of advisors, comprising 18.9% of their businesses.

Living benefits also accounted for a smaller share of top advisors’ books, coming in at 10.5% vs 13.4% for advisors among the rest of the pack.

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