Life insurance and annuities have long been the
mystery man of financial services: a dangerous, unseen mystery, like a
murky whirlpool that can quickly pull you down into the depths of the
sea. Recently though, the water has began to clear. Life vests are
beginning to float on the surface to rescue the drowning.
This is good news for financial advisors who are eager to offer life insurance products that they can understand rather than referring clients out to a "trusted life insurance agent," without really knowing what the client is getting.
Readers of this magazine are familiar with the work of Glenn Daily, a fee-only insurance consultant in New York, who helps advisors and their clients find the best policy for a flat consulting fee, as well as Peter Katt, who does the same kind of work from Mattawan, Mich. Neither Daily nor Katt is licensed to sell insurance, something that is a matter of principal to both.
In the May issue, we ran a column about Brian Peterson of Next-Gen Advisor who once worked with fee-only advisors as an employee of TIAA-CREF, helping that company to expand sales into the fee-only world. Peterson now does the same thing on his own, working as a fiduciary to help financial advisors and their clients find the best insurance policy. Meanwhile, TIAA-CREF has also moved forward in the no-load market, developing a product with the help of Ben Baldwin, a well-known variable life agent with the Equitable and a certified financial planner licensee, to redesign the TIAA-CREF policy.
All of this is really good news for both advisors and their clients-for all consumers, really. Even better news is that I received several phone calls and e-mails as a result of that column, most of them to inform me of other companies that are making innovations in the distribution system for insurance products.
The distribution system is the major problem with insurance, because it adds too much to the cost of the product. This system has been carefully built to train lifetime agents to believe they are messengers of God, bringing salvation to families in the event the breadwinner dies. They have all the horrible tragedy stories to show what happened to Mrs. So-and-So when her husband died, leaving her and the kids without insurance benefits. Never mind that this working-dad-stay-at-home-wife model of the family all but disappeared in the 1960s.
But back to my story: I remember when life insurance executives might whisper-after several martinis-that yes, the distribution system was expensive, and yes, it was a problem. But don't tell the agents! So I was heartened by the news of all these fissures in the life insurance monolith, which I take as a sign that it really will bust open if we show a little patience. After all, that's what happened in the mutual fund industry: The move to no-load funds brought the birth of Morningstar Inc. and an unbiased analysis tool that was instrumental in the huge growth in the market for objective financial advisors.
One of the e-mails I got came from Ameritas Advisor Services, which introduced a no-load Acacia term policy on June 20, according to Mitchell Politzer, president and chief executive officer of First Ameritas Life Insurance Corp. of New York, a subsidiary of Ameritas Life Insurance Corp., which is a UNIFI company. (Unfortunately, the names and relationships between financial service companies are not getting any simpler.) Politzer also serves as chief executive with oversight of the Ameritas Direct business for UNIFI.
I had not caught up with Ameritas Direct since Don Reiser and his wife, Gay, took care of marketing the company-and did a fine job of it-when Ameritas offered one of the few low-load products available anywhere. Now that the Reisers have been retired for three years, it seemed a good time to check in and get an update.
In 2005, Ameritas commissioned a study with the Spectrum Group. This study found that about 70% of individuals with investable assets go to a financial advisor for help with investment decisions. The survey aimed at gaining insight into the needs of advisors for insurance products, including annuities.
In its introduction, the report says this: "Today, affluent investors are looking for one advisor to provide them with a multitude of services. This report will highlight the importance of having access to annuities and insurance products for advisors." The study found that more than 25% of the advisors "are forced to refer away clients that want annuities and a third refer away those who need insurance." One-third of the advisors who refer out insurance business do it despite concerns that the provider they recommend will compete with them for their client.
Ameritas aims to circumvent this problem by working directly with the advisor-with no middleman. As part of this strategy, Ameritas Direct became Ameritas Advisor Services in June 2007, dedicated to providing life insurance policies and annuities to the clients of fee-only financial advisors by working with the advisors.
The advisor need not be licensed because "our folks are licensed," Politzer says. "We review policies and do the 1035 exchange" and deliver on other services, he says, adding, "The difference is not just the product but the services we provide to advisors."
Advisors use Ameritas products in one of two ways: Either they charge their clients a fee or they use the assets under management model.
None of the Ameritas products carry commissions or contain any obstacle to replacing the product at any time if the policyholder finds a more attractive policy, because the full cash value belongs to the policyholder rather than to the company. That feature alone could win me over. I can't count the hours I've spent listening to explanations from both advocates and critics of traditional policies as to where all that money goes after the policyholder pays the premium. I still don't know.
This strategy seems similar to what TIAA-CREF was doing through Brian Peterson, to what Peterson now does on his own, to the product that TIAA-CREF has recently developed and, of course, the service that experts like Daily and Katt have been offering all along. The exciting part is that more companies and people seem to be developing the courage to go against the grain.
Politzer joined Ameritas in 1999 with 20 years of experience in insurance marketing and corporate consulting. He was president, managing director and co-founder of Baker, Rakich, Shipley & Politzer, a corporate strategy, marketing research and executive development consulting firm with a focus in the financial services sector. He directed consulting projects for clients including Prudential, Cigna, New York Life, McGraw-Hill, State Farm, Ameritas and Unity Mutual Life Insurance Co., a mutual based in Syracuse, N.Y.
Politzer recommended to Unity Mutual that it open a non-New York stock company, because as a mutual company it couldn't raise capital. The company asked him to run the stock company, which he did. Unity provides "final expense" coverage to senior citizens. He also consulted with Ameritas and was asked to join that company in 1999.
Politzer expects 2007 to be an interesting year for insurance companies in New York, as it is the first year of Elliott Spitzer's term as governor. Mutual fund and insurance companies learned to be wary of Spitzer when he was attorney general of New York, a job he finished at the end of 2006. Spitzer attacked financial services companies-particularly mutual funds and insurance companies-challenging such things as undisclosed fees, after-hours trading, soft dollars and other activities that Spitzer believed were negatives for consumers.
Politzer says he is optimistic about Spitzer. "His early moves are encouraging," Politzer says, like appointing Eric Dinallo as insurance commissioner, which Politzer called "very smart." Politzer says that Spitzer's organization is focused on why insurance companies have one license for 49 of the states and then a different license for New York. "The starting point is to make insurance products in New York more competitive and better for the consumer," he says. "I am impressed with the honesty and integrity" of this administration.
What all of this suggests is that more and better opportunities are becoming available for independent advisors who want to structure their businesses in various ways, rather than offering a one-size-fits-all menu. Viable products and services are now available in the insurance industry. Don't be afraid to get acquainted with them.
Mary Rowland can be reached at firstname.lastname@example.org. She has been a business and personal finance journalist for 30 years.