Clients head to safety (includes chart)

In addition, the shift toward clients parking their cash in money market funds has led to mutual funds increasing their representation in the percentage of investment products that insurance advisors sell significantly, to 75.1% vs 48.1% last year. On the flip side, managed products, both proprietary and third-party, plummeted to 13.1% from 30% and to 11.3% from 22.4%, respectively.

“My hunch is that there was a big shift to money market products. [And] I suspect most of the proprietary funds that companies have are not money market funds; they are specialty investments,” suggests insurance industry consultant Byren Innes, senior vice president and a director with Toronto-based NewLink Group Inc. “That switch, basically from third-party to traditional manufactured funds, is because clients are looking for a safe place to park their money and get back in later at some point down the road.”

Innes isn’t alone in his observations. Vicken Kazazian, senior vice president of the career sales force at Waterloo, Ont.-based Sun Life Financial (Canada) Inc., has also noticed the trend toward safer products. It began when the insurer launched a seg fund with a GMWB in 2007 and has only increased during the recession.

“[We] have seen a shift to both seg fund deposit maturity and death benefit guarantees, particularly retirement income guarantees from the SunWise Elite Plus GMWB,” says Kazazian. “This trend has shown up especially since market volatility increased.”

Not only that, he adds, Sun Life has also “seen an increase in sales for our guaranteed investment products, such as guaranteed investment certificates and accumulation annuities, since the market volatility increased.”

Lucilla Watson, assistant vice president of wealth and estate planning with Guelph, Ont.-based Co-operators Group Ltd., says the trend toward safer products boils down to changing perceptions about the market.

“I think people tend to be riskier when the markets are going up,” she says. “Part of the demand for [these safer products] stems from having seen five years of very good growth in markets up to 2008. Now, people have seen five or six years of growth taken away in a few months.”

Co-operators has ensured that its advisors have an arsenal of safer products for their clients, including tax-free savings accounts and seg funds with 100% principal protection. And although Co-operators advisors ranked their firm a middle-of-the-pack 8.2 for the quality of its product offering, they say they are quite pleased with what they can offer clients.

Says a Co-operators advisor in British Columbia: “I really like what they have, and I’m happy with the seg funds.”

Meanwhile, advisors with Winnipeg-based Great-West Life Assurance Co. felt their firm could do more to put a greater variety of products on the shelf — especially those with a safety component.

“They are slow with coming up with products such as seg funds,” says a GWL advisor in Ontario. Adds a colleague in the same province: “They’re reactive, not proactive. And they don’t have enough selection.”

It’s for these reasons that GWL advisors gave their firm the lowest rating in the quality of firm’s product offering category — at 7.9, vs 8.4 last year.

Meanwhile, Toronto-based PPI Financial Group Inc. was rated a survey-best 9.5 in the same category. Although the specialized MGA has no seg funds developed in-house, it focuses on “designing propriety products and unique products for estate planning,” says Jim Burton, the firm’s chairman and CEO.

One of PPI’s most successful products has been an insurance policy geared toward entrepreneurs or anyone who holds a major stake in a company. A boon for the specialized MGA during the recession has been selling products that provide those who are insured with the money to pay capital gains taxes in the case of death, as well as giving them the funds to buy out their partner in an existing shareholders’ agreement in case of the partner’s death or disability.

@page_break@”When times are good, clients can be casual about their estate planning, and say, ‘Oh, well, if something happens to me, I can go to the bank and borrow money’ or “If I don’t have my shareholders’ fund agreement, I can always issue equity’,” says Burton. “Well, now you can’t as easily go to the market or to the bank, so people are much more aware of the fact they need insurance.”

It’s true the recession has made insuring against the risk of death a greater necessity; however, clients are only doing so at the bare minimum cost, says Innes. It’s for this reason that clients are choosing term life over permanent or universal life products. In fact, the average annualized first-year commissions for life products experienced the sharpest decline in this year’s Report Card as they fell by 68% to $92,296, down from $284,847 in 2008.

Think of the shift to term life products like buying a house, says Innes: “You know the right thing for you to do is to buy a nice big house because you have a family; but because the market’s uncertain, you figure you’ll just keep renting until things get better. The shift here is the same. Term products only cover pure risk and are inexpensive, while permanent or universal life policies are costlier, with associated investments that have been hit. So, clients are saying, ‘Rather than making the big purchase of permanent insurance today, I’m just going to buy term insurance for now until the world gets back to normal’.” IE