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:
- 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).
- 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.