Insurance gains prominence: Includes chart

The scores range from a high of 9.7 for Toronto-based boutique Richardson Partners Financial Ltd. to a low of 7.1 for Montreal-based, bank-owned dealer National Bank Financial Ltd.

RBC Dominion Securities Inc. and ScotiaMcLeod Inc. , both based in Toronto, tied for top spot among the bank-owned dealers, at 8.5.

“We’ve really ramped it up through 2007 and into 2008,” says David Agnew, DS’s national director, in describing the suite of insurance, estate and tax planning services the firm has introduced. “It’s what our clients are telling us in our client survey. It’s what advisors are telling us they need to retain and build their businesses.”

Among the other bank-owned firms, the tone was more modest, highlighting a desire for better results. “It is better than it used to be,” says a ScotiaMcLeod advisor from Ontario. He rated his firm a 9.0 in the category.

At Richardson Partners, however, most advisors are licensed to sell insurance, and an advi-sor with the firm in Ontario sums up the consensus feelings about the support services for the product this year: “Excellent. It just keeps getting better and better.”

The performance number for insurance support is not the only rating related to the category that has improved. Advisors rated the overall importance of the category higher this year — at 7.7 compared with 7.4 in 2007, highlighting the growing importance of insurance and support for the product line to advisors’ businesses.

Certainly, other details tell the story about how insurance is working its way into traditional investment dealers’ product lineups: the percentage of total compensation that insurance income represents for advisors; the increased numbers of advisors who have insurance designations and licences; and the general interest from advisors in financial and estate planning, in which universal life policies often play such an important part.

But probably the greatest single contributor to the changes in performance and importance scores this year is the rise of a new product line: the segregated fund with the so-called “guaranteed minimum withdrawal benefit.”

It’s likely the GMWB product has had the greatest single effect on scores this year, says Byren Innes, senior vice president and director with consultancy firm NewLink Group Inc. in Toronto. The product category has been that influential and significant.

Throughout the past year, Manulife Financial Corp. and Sun Life Financial Inc. , both of Toronto, have been busy ramping up features for the IncomePlus GIF and the SunWise Elite, their respective products in the GMWB category. The degree of sales success and interest in the category is matched only by, perhaps, the arrival of the mutual fund itself.

Manulife, the early entrant into the GMWB market in Canada, has seen investors and advisors pour more than $3 billion in assets into its product since it was launched less than two years ago. Although Sun Life is not as forthcoming about sales figures, it says that seg fund sales, the category into which the product falls, have increased by 32% year-over-year.

On the coattails of those Canadian results and the US$400-billion GMWB market in the U.S., other Canadian insurers have launched their own GMWB products, including Montreal-based Desjardins Financial Security and Quebec City-based Industrial Alliance Insurance and Financial Services Inc. They’re all looking to catch the fancy of clients who are worried about establishing and maintaining a predictable level of income through their retirement years. And that wave of product offerings has not gone unnoticed by advisors.

Each insurance carrier’s product offers some common features: a GMWB; downside protection in the events of poor equity market performance; upside potential that can be locked in to boost payments and extend guaranteed payments; and annual bonuses when withdrawals are not made.

@page_break@The knock-on effect is more revenue from the product type for the financial services industry overall, and advisors at brokerages have taken their share of commissions. Average insurance revenue per advisor jumped 42% this year, to $71,798 from $50,514 a year ago.

Although GMWBs may account for some of that, it doesn’t tell the whole story. In fact, seg funds still account for only 22% of advisors’ income from insurance products, while income from renewals and commissions on term life and permanent life products together represent 70%. Fixed annuities and living benefits split the remainder of the insurance-related revenue.

Although advisors score their firms on the same scale, it’s important to note relativity. The actual support advisors receive for insurance varies from firm to firm, a fact that is also underscored by how advisors are compensated.

Among the six bank-owned dealers, for example, about 150 specialists step in to help advisors. On average, one specialist services about 30 advisors at these firms.

Even NBF, the lowest-scoring firm in the category, recently hired three specialists to provide insurance support, with an added focus on estate and tax planning, says Gordon Gibson, the firm’s senior vice president and managing director.

These specialists often amass $800,000 in gross commissions, which they split partly with the advisor and partly with the firm. The specialists’ split can affect how advisors rate the support they receive.

Granted, the firms can differentiate themselves by their insurance support offerings, but this isn’t an unequivocal success. The specialists tend to migrate toward big tickets; when the help finally does arrive at the advisors’ desks, it doesn’t always make advisors feel special.

“The process is cumbersome,” says an advisor in Ontario with Toronto-based TD Waterhouse Private Investment Advice. “There are too many layers of people involved and too much split on commissions.”

In the past, advisors had been loath to peddle insurance policies to clients using actuarial tables and the lure of potential payouts on accidental death. Now, there is no doubt that tax and estate planning support has become part of the service equation. But, in the Report Card survey, remnants of that old attitude remain.

“It’s too slick to introduce to my clients,” says a MacDougall MacDougall & MacTier Inc. advi-sor in Quebec. “There’s a personality clash.”

Adds an advisor in Alberta with Toronto-based Raymond James Ltd. : “It’s available, but it’s not important to me.”

But most advisors understand that insurance fits neatly with broader financial planning concerns that drape onto a portfolio later in the client’s life. Insurance products, for example, offer an efficient way to pass money on to children or to charities, or to create a steady income stream in retirement.

Still, advisors across the board want more money’s worth from the commission on their clients’ assets. “If I called [the insurance specialist], he would be there,” says an advisor in Ontario with Toronto-based CIBC Wood Gundy. “But he’s not an idea generator. He adds no value.”

Arguably, advisors at some of the national independents, such as Raymond James and Toronto-based Blackmont Capital Inc., get better attention just because their advisor forces are smaller.

(Incidentally, several advisors at Blackmont remarked that Toronto-based CI Financial Income Fund‘s acquisition of parent firm Rockwater Capital Corp. slightly more than a year ago has helped in this department. Services from Assante Wealth Management Ltd., which is also owned by CI and has a financial planning and insurance background, have migrated toward Blackmont.)

At Richardson Partners, insurance-licensed advisors tend to make the sale themselves. However, there is support from the top, too, in the form of an executive who spirits in from Toronto when he’s needed.

“Experts fly in. I mean, come on,” says a Richardson Partners advisor in Alberta, who gave the firm a perfect score of 10 in the category.

Policy at Mississauga, Ont.-based Edward Jones says all advisors need to attain insurance licensing, says principal and president of the company’s Canadian division, Gary Reamey. The maturity of an advisor’s book tends to determine his or her need for insurance advice. An advisor with the firm in Manitoba, however, says that this policy simply means advisors are introduced to wholesalers that represent one of the carriers.

Toronto-based boutique GMP Private Client LP delivers a completely different service to advi-sors. The firm has a joint venture with Toronto-based PPI Financial Group Inc. , a managing general agency.

Finally, on the matter of insurance licensing, slightly less than 60% of brokerage advisors hold such a licence today; this is a strong rebound after a steady decline that ended in 2006, when less than half of the advisors in the industry had insurance licensing. IE