Life insurance agents created the financial planning community, and sadly their own was damaged in the process. Can recent regulation spur a rebirth?
Needs-based selling, where an agent gathered pertinent client data, created a proposal, and presented a solution to the client’s problem, was the precursor to the financial planning process used by CFP® practitioners today.
When I entered the life insurance industry over twenty years ago, it was into a shifting tide. I was indoctrinated into the well-established client gathering and needs-based closing techniques that had been in use in some form for over 60 years. I owe my entire career to those who taught me their ways. The negotiation skills and daily habits I learned are completely transferable to what I do today as an investment adviser and financial planner.
There is a saying that life insurance is sold, not bought. It’s true. Human nature detests mortality, so life insurance agents fight an uphill battle in their quest to set an appointment and frame a discussion around a person’s death and its consequences. It is for this reason that traditionally, life insurance agents are considered some of the best, most skilled and highly-trained salespeople in the world. As proof, I have known many mediocre life agents who left the industry to become world class salespeople in other fields.
But soon after I entered the industry in the 1990’s, something started to change. It’s hard to understand how it started. Was it the lack of young talent in a career considered by some to be undistinguished? Did the big insurance companies lose interest in the expensive and difficult process of training new agents? Was it public sentiment or changing cultural norms, or was it the life insurance policies themselves that could not hold up to modern scrutiny in an age of demand for greater transparency?
Regardless of how or why, a chain of events occurred that left a deep gash. Today, it is very difficult to find a true-to-form life insurance agent. Earlier this month, MassMutual (previously Connecticut Mutual) closed its Fort Worth, Texas agency, where some of the greatest, most highly-regarded agents had been given their start. The agency-backed training grounds and grand associations of the industry are a shell of what they were when I entered the business.
From this void, life insurance agents started to turn into Registered Representatives with a commissionable investment product focus. The products they mostly sell now are not life insurance at all, rather they are variable annuities and loaded mutual funds. Instead of maintaining a separate and distinct identity as experts in the complex world of life insurance, agents became all things to all people. Now indistinguishable from the broker/dealer and bank reps who sell similar products, life insurance agents have lost their identity. I believe, more than anything else, this is what damaged their industry.
Proof of decay is found in the insurance company and agent association name changes that have occurred over the years. There are very few life insurance companies or associations left that have not removed or deemphasized the terms “life” and “insurance” in their names, and most agents have removed these terms completely from their job titles. One of the results has been consumer confusion.
This confusion has led to dissatisfaction and misunderstandings that became glaringly apparent during the Great Recession. The DOL’s new fiduciary rules are a direct response, and are intended to limit the use of high cost commissionable investment products like variable annuities within IRA’s. We can reasonably expect more regulation in the coming years that could result in the complete elimination of commissionable investment products.
I believe this is a good path with obvious benefits to consumers, but also possible benefits to the life insurance agent community. One of the most complex and specialized aspects of financial planning is determining a client’s need for life insurance, evaluating their existing policies, and finding the right additional coverage. As a financial planner, I can determine a client’s life insurance need very capably, but it’s hard to keep up with the nuances of the products themselves. I rely on life insurance agents to provide proposals, navigate the onerous underwriting process, and most importantly, handle the claim process when a client dies. Often I find myself bogged down in much of this because so few skilled life agents remain.
Impending regulations against commissionable investment products may force agents back into the role for which they are most suited. For most families, life insurance is the most important financial product they can own. Rarely does a new client come on board with adequate coverage already in place. We need highly skilled life insurance agents to fill this critical role in the financial planning process.
My hope is that the industry takes this recent regulatory action as an opportunity to get back to basics, and back to life insurance as their core competency and primary identity.