In Practice November 14, 2012

What Drives Adviser Productivity?

The economics of financial advisory distribution face numerous challenges, but pockets of opportunity remain, a survey found.
Reported by

LIMRA and McKinsey & Company, in a study of experienced financial advisers, looked into a number of factors that impact the success of advisory sales forces.

Some of the study’s findings are:

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  • Sales capacity is one of the most significant issues impacting distribution. Across most channels, the majority of experienced advisers are over 50 and have more than 25 years of experience. This is especially true for independent insurance agents and registered investment advisers (RIAs). Of those advisers who are within 10 years of retiring or selling their practices, more than half have no succession plan. Adviser satisfaction is significantly higher for all independent channels, with affiliated advisers more likely to leave their firms within the next three years.
  • Growth opportunities are the most important factor in advisers’ selection of a firm and are twice as important as compensation.
  • The most productive advisers utilize four best practices, including teaming, client specialization, retirement planning and knowledge of life events. The percentage of advisers teaming with others has grown since 2008, primarily as a result of their desire for growth and increased productivity. Forty-three percent of advisers specialize in a client segment, most typically by affluence or occupation. While most advisers have not provided their clients with formal retirement plans, those who have are 15% more productive. Knowledge of life events also correlates with higher productivity, but many advisers fail to leverage this information.
  • Advisers, especially those who are most productive, are selling a larger share of investments and advisory solutions, relative to insurance. Investment products account for a growing share of revenues for career and independent insurance agents (30% in 2012 vs. 23% in 2004), as these advisers focus on providing more holistic solutions for their clients. Investment products are also taking share from insurance products as a percentage of gross revenues for investment-focused advisers (80% in 2012 vs. 75% in 2004).

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  • Financial services organizations have increased the services they offer to affiliated advisers by 40% over the past 10 years, but many of these services are not valued or are poorly delivered. In particular, in-person sales support and marketing services are not valued by many of the advisers who receive them. Organizations should evaluate how to better tailor their services to advisers’ specific needs.
  • Advisers are reducing the number of insurance carriers they do business with and place approximately 50% of their insurance with their top carrier. They frequently switch insurance carriers, primarily because of non-competitive products, concerns about carrier stability, or poor service. This presents an opportunity for third parties to provide targeted services to independent advisers who value the support.
  • Advisers are keen to introduce new technologies to their practices. The use of Skype/video technology will quadruple over the next four years, while the use of social media will more than double.

“The current economic environment is generating strong headwinds for financial advisory sales forces,” said Prashant Gandhi of McKinsey. “Our study provides new insights into the factors that drive adviser productivity and helps organizations better target their services for advisers.”

“Shrinking distribution and increasing distribution costs have been significant challenges to insurers’ ability to reach their targeted markets,” said Patrick Leary of LIMRA, leader of the LIMRA team that conducted the study. “This study reveals the issues most important to advisers and offers approaches to improve productivity and ways in which they can best support advisers to achieve their strategic goals.”

The study was conducted in the spring and summer of 2012, surveying nearly 2,000 experienced financial advisers (with three or more years of tenure) across multiple distribution channels, including insurance companies, broker/dealers, banks and RIAs.

 

 

Deals & People November 14, 2012

LPL Financial Adds Level Four Group

Level Four Group, an independent adviser group, has affiliated with the LPL Financial broker/dealer and hybrid registered investment advisory (RIA) platforms. 
Reported by

Level Four Group will utilize the LPL Financial RIA platform as its principal custodian through its independent RIA firm, Level Four Advisory Services LLC. As part of this move, Level Four, which has close to $1 billion in client assets, is transitioning approximately 50 licensed independent advisers.

The wealth management industry is going through a period of significant change, including the trend of financial advisers increasingly seeking independence and the growing movement, already dominant in many countries throughout the world, toward providing financial advice on a fee-for-service basis, said Jake Tomes, chief executive of Level Four.

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“We believe more of our advice will be priced on an hourly basis, on a project basis, or as part of a package of services,” Tomes said. “This shift also parallels a movement toward providing clients with a comprehensive suite of services, as in a family-office environment, wherein the client can receive not only wealth management but tax, estate planning, insurance and other financial consulting services.” 

Level Four has established systems that position the firm to grow in this new industry landscape, Tomes said. “Our transfer to LPL Financial will be instrumental in attracting talented independent advisers who share our vision for growth and who wish to advance their own practices to the next level,” he said. “Viewed within this context, LPL Financial, in our opinion, is simply the strongest independent broker/dealer.  Its tools and resources provide independent advisers with the quality support they need, while its powerful brand image is also a potent draw for its platform. At the same time, LPL Financial offers Level Four the flexibility we require to accommodate both our business model and the spectrum of independent adviser models that we support.”

“We are delighted to welcome a large, successful and sophisticated independent adviser group such as Level Four Group and its affiliated advisers to the LPL Financial broker/dealer and hybrid RIA platforms,” said Bill Morrissey, executive vice president of business development at LPL Financial. “We look forward to helping Level Four Group reinforce its position as an emerging industry leader, and align our resources around the firm’s unique business model within the advisory space.”

Level Four Group, in Plano, Texas, provides business development and operational support to accounting firms and financial professionals seeking to create a holistic financial services offering. More information is available at www.levelfourgroup.com.

LPL Financial LLC is an independent broker/dealer with headquarters in Boston; Charlotte, North Carolina; and San Diego, California; and a wholly owned subsidiary of LPL Financial Holdings Inc.

 

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