Several issues at play in the insurance industry have implications for insurance advisors and clients alike, including aging demographics, the evolution of advice and greater oversight of managing general agencies (MGAs).
“Nobody’s recruiting [younger insurance advisors] anymore,” said Melissa Harrell, principal of McRae Wealth Management in Winnipeg. Captive shops are focusing on attracting mid-career advisors. “It’s up to independent advisors to recruit new agents,” she said.
Harrell has hired university students for summer jobs such as updating the firm’s client relationship management system. A couple of students ended up staying in the industry, she said.
On the other side of the equation is lack of succession planning, which means client service could worsen dramatically when an advisor retires or dies.
“The quality of service that people are demanding now is no longer transactional life insurance sales, where you sell them a term-10 policy and contact them in nine years,” Harrell said. Instead, “it’s the ongoing conversation, and it’s ‘How does this life insurance or disability or critical illness incorporate into my whole plan?’”
The Independent Financial Brokers of Canada (IFB) has advocated for regulators to issue guidance concerning succession planning. Advisors and MGAs should have succession plans, said Susan Allemang, director of policy and regulatory affairs with the IFB in Mississauga, Ont. “It’s part of fair treatment of customers,” she said. “Clients should be looked after all along the business or policy cycle.”
After more than two decades selling insurance and investments, Ken Doll, principal of Wealth Architects Inc. in Calgary, began focusing on planning six years ago to better meet client needs. (Doll, a representative of insurance advisors to the Alberta Insurance Council, spoke to Investment Executive as an advisor.) He noted that retiring baby boomers have driven demand for planning, and advisors with planning expertise can differentiate themselves.
Planning is “client-driven [and] value-added for advisors looking to stand out, and I think it’s coming down the pipe,” Doll said, referring to the potential for planning-related information to become an increasing part of know-your-client requirements on the investment side.
Doll expects advice will evolve further as advisors continue seeking relationships with professionals in areas such as accounting and law. “We’ll see added services,” he said.
A team approach often is required to serve clients well, Harrell said. Independent solo advisors will partner to create mini offices, she said, or a financial planner may seek out an insurance specialist. She contracts out portfolio management. “We can’t do it all,” she said.
Still, Harrell prefers being in control of her business. Once you go independent “you don’t go back,” she said. “There is so much flexibility to operate the way you see fit.”
But there’s also “a lot of accountability and responsibility for making sure you operate appropriately,” she said.
Doll noted the challenges for independent advisors: “You have to be your own tech person, do your own marketing [and] compliance — and somewhere in there you have to do some business and try to make a few bucks.”
Harrell said she gets support from other advisors, meeting with them to discuss email encryption, for example, or whether they use a certain MGA.
“The network of independent financial advisors — we’re stronger when we talk to each other,” she said.
Regulatory change
Ontario plans to improve conduct and client treatment in the wake of supervisory reviews that found an array of weaknesses, including gaps in the roles and responsibilities shared among insurers, MGAs and insurance advisors.
Later this year, the province will consult on a new rule for MGAs. The consultation comes amid ongoing industry consolidation.
Some MGAs are “becoming pretty large, complex organizations,” Allemang said. While certain stakeholders may be worried that the industry is moving to a dealer model, she’s not convinced that’s the trend, although it’s “definitely something to keep an eye on.”
A trend that has definitely emerged is licensing requirements for MGAs so that they have reporting obligations. “Some of that has to do with oversight” or compliance with contracts with insurers, Allemang said.
Insurers and MGAs are “reconsidering their [oversight] roles because the regulators are putting a lot more pressure on them,” Allemang said. Regulatory harmonization is required, she added, to avoid piecemeal approaches to insurance advisor and MGA oversight.
Harrell said clients require “sophisticated” advisors for complicated products such as permanent life insurance. Those products should be sold by credentialed, tenured advisors, she said.
“[Clients] don’t need complex universal life in a lower-income situation,” Doll said.
He suggested several areas for regulatory improvement, including multi-level marketing; the sale of unsuitable products, which indicates a training gap; and compensation models such as upfront commissions, which, he said, can result in less ongoing service.
This article appears in the May issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.