As the number of RIAs soars,
insurance specialists are designing businesses to serve their clients.
Most fee-only financial advisors refuse to offer insurance coverage to their clients because they don't want to get their hands dirty with commissions. For instance Todd Brand, president of Brand Asset Management Group in St. Louis, says, "We are a fee-only firm and fairly fiercely so. We used to offer insurance back in the 1980s. But when you become fee-only, it drives you away from insurance."
Still, like other fee-only advisors, Brand didn't much like the alternative: referring clients to a local insurance agent. Nor did Patti Houlihan, president of Houlihan Financial in Reston, Va. Houlihan, who taught certified financial planner review courses in insurance for five years, knew how to evaluate a client's need. But she ended up referring clients to an agent anyway because she wasn't licensed to sell insurance-and didn't want to be. "But I always felt the client was being overcharged and I wasn't sure he was getting the right coverage," she says.
Both Brand and Houlihan-and several other fee-only planners-now work with Brian Peterson, who evaluates their clients' risk management needs for an hourly fee and then, if necessary, shops the market for the best product and offers the client four proposals along with his recommendation. "Brian is a fiduciary," Houlihan says. "Brian is the bees knees. I don't have to keep up with the daily changes in the insurance marketplace. He takes care of that for me, and I completely trust him."
Peterson, 37, who has spent 15 years in the insurance industry, was hired by Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) four years ago to help fee-only financial advisors use the company's no-load insurance products. In that role, Peterson evaluated clients' needs and helped find the right insurance policy, even if TIAA-CREF didn't have that product available. By working with Peterson, Houlihan was able to include no-load insurance placement in her 1% fee, which also includes expense ratios on mutual funds and the like. She felt confident her clients were getting both the best product and the best price. Although TIAA-CREF's product line was limited "the products they had were priced well," says Brand, who also worked with Peterson at TIAA-CREF.
But in 2005, TIAA-CREF decided to move its product marketing in a different direction, bringing in Ben Baldwin, a well-known variable life agent with the Equitable and a certified financial planner, to redesign the product. By this time, Peterson had been transferred to Charlotte, N.C. Throughout his career, Peterson had been trying to move closer to a no-load model, which he believed to be the best deal for the consumer. He had started his career with a traditional insurance company, then moved to Paragon Life Insurance in St. Louis to help build a low-load variable product to be delivered through broker-dealers. He considered the move to TIAA-CREF to be a significant one because he would be helping advisors deliver a no-load product. "But they decided to go a different route," he says. (As we went to press, Bob Veres provided details on the new TIAA-CREF no-load variable universal life product in his monthly newsletter, Inside Information. More about that later.)
Peterson believed the relationships he'd built with independent advisors were valuable assets. "I took five years worth of notes and said: 'How could I use this?'" He decided to start his own company, Next-Gen Advisor, to work with fee-only advisors the way he'd initially done at TIAA-CREF. He quickly signed up firms like Evensky & Katz in Coral Gables, Fla., and Sullivan, Bruyette, Speros & Blayney in McLean, Va., as well as Brand and Houlihan. Peterson charges a consulting fee of $175 an hour to evaluate a client's needs. If he is asked to find the best policy for that client, he searches the market and brings back four proposals along with his recommendation. He is not legally allowed to rebate, so Peterson offsets the commission with his fee income.
When Peterson was mulling over how to set up his business, he looked at Glenn Daily, a fee-only consultant in New York; Peter Katt, a fee-only insurance consultant in Mattawan, Mich.; and others who provide advice but do not sell product. He talked with the fee-only financial planners he knew. They said: "That's great to have you give us your input. But we still need to have it implemented. That's the missing piece."
Peterson does no direct marketing. All of his business is done through financial advisors. Many advisors keep him on an annual retainer to handle all the firm's insurance placement. Peterson says advisors who use his company, Next-Gen, shift all the administrative stuff onto him as well as the liability that goes with it.
Peterson felt frustrated by his inability to accomplish more at TIAA-CREF. That company, which was designed to serve employees in the nonprofit sector, chiefly teachers and college professors, had a long-standing reputation for quality and fairness. But when the company decided to open its products to the public, there were some stumbling blocks. The insurance product in particular offered challenges. "They were set up as a direct provider," Peterson says. "There was no compensation to anyone built in."
After all, wasn't that the point? But the product itself was not competitive in the marketplace. "Why would an advisor pay more for a TIAA-CREF product just to have a 'no-load'?" he asks. Nor did he have the full range of products to offer. TIAA-CREF had no long-term care, disability, guaranteed universal life. So Peterson had some trouble building relationships with advisors. "Why would an advisor build a relationship with someone who couldn't answer all these needs?" Peterson says.
Meanwhile TIAA-CREF developed its new product, called Intelligent Life, stripping out many expenses from traditional policies and adding just 95 basis points a year on the first $100,000 of account value to be paid by the policyholder, Bret Benham, vice president for individual protection products at TIAA-CREF, told Veres.
The word on the street was that TIAA-CREF planned to market its new product through insurance agents with a mature book of underperforming policies that could be switched to Intelligent Life with a 1035 exchange. The agent would be offered an annual assets-under-management fee on the cash value transferred. I called TIAA-CREF to ask about that.
Benham responded with this statement: "Our products are distributed through TIAA-CREF channels to participants, referred to us by registered investment advisors and in some instances 'high-end insurance agents' who have a diversified book of business that includes commission life insurance products and assets under management."
After reading about the new policy, Houlihan was excited by some of its features, particularly the fact that the life policies could be downloaded into PortfolioCenter and Advent and that, thanks to a partnership with McCamish Systems in Atlanta, TIAA-CREF can allow the money to be managed collectively as an asset by planners. "The way some fee-only planners will see that is that they've just picked up another $1 million in assets under management," when the policy is downloaded, she said. "Do I think the fee-only world could embrace this? Yes."
Houlihan says she also likes the way the level-premium works. Is she ready to evaluate the policy? Nope. "That's Brian's job," Houlihan says. "The reason I love having Brian is that I don't have to be the specialist in this. He can look at everything out there and charge a fee."
But a universal product is not right for everyone. "If you have a client who wants no risk whatever, you don't want a universal policy," she said. "But if I had a client where this policy made sense, I would call Brian because he is my insurance intermediary."
Houlihan has a "good feeling about Ben Baldwin and TIAA-CREF so I have an open mind," she says. "This business is all about relationships."
Mary Rowland has been a business and
personal finance journalist for 30 years, a half dozen of them as a
weekly columnist for the Sunday New York Times. She wrote a column
called "Practice Points" for Bloomberg Wealth Manager for six years.
She speaks regularly about money and values. Her six books include two
written for financial advisors: Best Practices, and In Search of the