Customers are changing. They’re more savvy, technological, higher in debt and commercial-weary than they’ve ever been. And herein lies the challenge for financial advisors.
The number of financial products expands almost daily. New technology now allows financial advisors to reach wider markets. The blurring of lines between product categories allows clients and advisors alike to think now in broader terms. And a decade of unprecedented prosperity has helped create a more confident, more demanding, marketplace. Success in the new market landscape requires a completely new set of prospecting skills and tools. Or does it?
Despite market changes, advisors continue to rely heavily on their existing client base and on referrals. But they still see involvement in community activities as one of the best ways to reach potential customers.
“The life insurance business hasn’t changed dramatically in the 30 years that I’ve been in it,” says Jeffrey Caufield, CLU, ChFC, an independent agent in Louisville, Ky. “The product has changed dramatically. The companies have changed dramatically. But how you market it and sell it really has not changed that much.”
Caufield relies on existing customers and referrals for his business. His client list now stretches into second and third generations. His son has now joined the agency and is working with some of the agency’s younger customers.
Samuel Bernstein, president of Bernstein Insurance Services in Los Angeles, agrees that the sales process has not much altered in the wake of new market growth. Bernstein says that the provision of good service has enabled his firm to retain about 97 percent of its long-term clients over the last 26 years.
“We still do some public relations,” Bernstein says. “We still do some direct mail pieces, mostly whatever we can do to keep and maintain relationships and build new ones.” Bernstein, who does a large life insurance business, works with 31 insurance companies. His firm also deals in disability, mutual funds, estate planning and business insurance.
Ephraim Calbert, a regional vice president with Primerica Financial Services in Phoenix, says Primerica’s business is based entirely on referrals. Primerica, which is part of Citigroup, markets the products of a number of Citigroup companies. “We have a basic business philosophy,” Calbert says. “If it’s not right for the consumer, if it’s not right for the company, we’re not going to do it. So for us, prospecting is easy.”
A new environment
Bruce Sham, sales manager for Phoenix Financial Associates in Philadelphia, says advisors must embrace the new environment. He says his firm’s business has changed more in the last five years than it had in the previous 20 years. “There’s no manual anymore,” he says. “As agents we now have to recognize that we may not be getting commissions for the rest of our lives. We may be getting fees instead. And that’s a whole different mindset.”
Caufield, who has been licensed for securities since 1974, says he is selling more equities-driven products than ever before. He says Kentucky, the South and the Midwest have been behind the East and West Coasts in their acceptance of new products. But he notes that his customers are becoming more receptive to the trend toward equities. People who had never previously invested in securities now ask about them as vehicles for their children’s education funds and their own life insurance cash values, he says.
Caufield uses the internet as a resource rather than as a prospecting or selling tool. He finds it useful for obtaining information such as mutual fund performance histories. But he has no plans to create a website, and he sees neither the internet nor mass mailings as part of his marketing strategy.
Rather, he tries to talk by telephone with each of his customers every year or two to ask if their situations might have changed and whether he can help.
“I prefer to deal with a clientele that wants advice,” he says. “I prefer not to deal with the people who just want to buy their insurance through the mail, over the internet, or in the bank where they have their checking account.”
Dick Murray, CLU, a State Farm agent in the Milwaukee suburb of Elm Grove, tries to get to know his clients and their families. Murray, who deals largely in life insurance, regards people skills as important. His agency has offered long-term care insurance for some time, and it began selling mutual funds last March. Murray also says State Farm plans to roll out its virtual bank this year.
It is important to cross-sell to existing customers and to look for new clients, Murray adds. “But my personal philosophy has always been that your current folks are your best people to work with, and ultimately you will get other folks from them.”
Murray works hard to keep established customers from feeling they are being taken for granted. He stays in regular contact with his clients and lets them know what products are available. “We go through a dozen households a week,” he says, “sending them postcards and calling them alphabetically. We try to go through our book of business about every two years.”
Murray’s agency could be more diligent, he says, in using referrals to pursue new prospects. In his agency, a new customer is typically signed up for either automobile or homeowner’s insurance. “And, depending on where they are, it will lead to other things.”
As products continue to develop in range and complexity, advisors will need more knowledge to sell them. “I don’t know how everybody is going to keep up in this business,” Murray says. “With changes going on, having skills and learning things are going to be very important. There is so much competition, it’s difficult just to keep up with the products, the licensing and the continuing education requirements.”
Agents have to be aware of compliance issues, he says, particularly as these issues carry over from the securities side to the life insurance area. He is confident, however, that the growing knowledge base of clients can create opportunities for alert advisors.
“I have heard a couple of people say that one of the real problems is too many people have too much information and don’t know what to do with it,” Murray says. “They need some advice. That’s where I think we’re going to be.”
David Nicholson, with the independent agency of Trautman, Perrin & Hale, Portland, Ore., says the existence of newer business channels has put even more value on using referrals to attract business. His firm’s 72-year history works to its advantage in procuring referrals.
Nicholson says people are now so inundated with electronic sales that the whole process has become wearisome. This situation can create problems for small firms such as his, which avoid using the hard sell. “People are so sick of the new ways that they won’t even listen to the old,” Nicholson complains.
The internet will play an increasingly important role in generating new business and in servicing existing business, Nicholson says. “It is a huge resource. Advisors who learn how to use this technology will possess a vital skill.”
Nicholson says his firm’s product line is “ultra-preferred.” Like other long-established firms, it is dealing with third-generation customers. These younger clients are increasingly knowledgeable about financial matters, he says. “They know what they need, and it’s more of a facilitation process than having to prove to them they need the product. They know they need the product.”
Securities salespeople and other specialists who are now moving into insurance sales are bringing welcome skills with them, he says. “What is coming out is a more rounded agent.”
Nicholson regards continuing education as extremely important. “Every year policies change,” he says. “Every year rules change. Every year in the state of Oregon, insurance agents are required to complete 24 credit hours of continuing education.”
He cites his own professional growth to illustrate the changes in the market. He is licensed to sell and service personal lines insurance in 18 states, and says this kind of reach is important for insurance companies with broad geographical markets. “If somebody calls me from Idaho, I can set up a policy,” he adds.
Bruce Sham tries to keep his own sales skills sharp by attending meetings and participating in study groups with other Phoenix Financial sales managers across the country. Phoenix has offices in 32 states. Sham says that stockbrokers can bring valuable market knowledge, but they often lack such basic selling skills as how to schedule face-to-face appointments, how to relate to different types of people, how to make presentations, and how to close. It’s vital for the person making the sale to be able to make a quick psychological assessment of the prospect, he says. “That is something I was taught back in the ’70s, and I still use it today.”
Sham describes Phoenix Financial as a wealth management firm rather than an agency. Phoenix also serves as a distribution center for Phoenix Mutual. Phoenix offers a full product line, from traditional insurance products to an array of variable products, he says. The firm’s agents are licensed either Series 6 and 63, or Series 7. “We have relationships with the houses where we can actually manage portfolios,” he says. “We have a broker-dealer, and they can charge fees through a registered investment advisory firm. So we have really made the transition.”
Phoenix’s clientele are “people who are typically upwardly mobile, growing in their fields, $80,000 and up in income,” he says. Clients may own their own businesses and may be the beneficiaries of estates.
Phoenix Financial’s goal is to become the client’s central resource for financial services. And, as a well-established firm, it has a loyal client base. Not only does this profile bring continuing business from one generation to the next, but Sham and his team have access to all of the life policies the insurer has sold over the years. This data provides valuable leads for the sale of other products.
Sham, who has recently hired a marketing specialist, says the firm is now approaching its customers to let them know what investment products are available. The agency will focus on clients who might also have existing relationships with other financial advisors. While many people are aware that the market has changed, a lot of customers still have the traditional mindset: You get your insurance from an insurance broker and your investments from a stockbroker.
Sham’s strategy in trying to win all of a client’s business is to emphasize the strength of Phoenix Financial’s relationship with the client. He figures he has an advantage, since a client’s dealings with his stockbroker are unlikely to have been marked by a great deal of personal interaction.
Sham never criticizes his competitors, he says. For one thing, the client may be perfectly happy with his relationship with his stock-broker. But maybe, the customer hasn’t heard from his stockbroker in five years, or maybe his investments are not diversified, or maybe his assets have not been allocated properly. Sham simply asks for the chance to describe the services and products he offers. “I can do asset allocation and help them analyze their portfolio, show them some historical performance and help make recommendations on moving forward.”
Jeffrey Caufield does not try to compete with stockbrokers. But he does try to compete with banks. He says the greatest weakness of banks is their inability to provide continuous personal contact between those who sell the insurance and investments and those who buy them. All too often, he says, a customer will return to a bank branch several months after buying a mutual fund and find that the person with whom he dealt has been transferred to another branch or has left the bank. “They provide no long-term human relationship to the client,” he says.
This approach varies with the size of the client’s portfolio. For a customer with $150,000 invested, for example, he is likely to bring in a professional money manager from outside his firm. For a customer with $500,000, Sham would go to another source of expertise. “I don’t profess to be able to do it all myself,” he says.
Sham does not see the internet as a threat to his business. A couple of years ago, he recalls, a lot of agents were worried about the possible effect of the web. His strategy is to let his clients know he can duplicate whatever they can get from the internet while providing a personal service they won’t get online. He also informs his customers that those wonderful life insurance rates they see quoted on the web are for physically perfect specimens, and, just maybe, they themselves might have to pay higher premiums.
Some people, however, may be happy to buy online without using an agent. “If you’re the kind of person who doesn’t want that personal relationship, then you are going to use that medium,” he says. “I still feel that most people want to talk to a living person.”
Ephraim Calbert is also critical of internet sales. “If I’ve got to do it over the internet, why does it cost me the same as it costs someone who has a full service representative or broker there doing a lot of the legwork and understanding and staying on top of things?” he asks.
Samuel Bernstein says the internet has had only a limited effect on his business. He regards internet business as “mostly term insurance, very low end. We are mostly in the medium- to high-net-worth individual.”
The internet is useful in recruiting, however, and Sham has been able to attract resumes from people who fit his profile: three to five years in the business; licensed; able to demonstrate a pattern of success; and financially stable, with a record of community involvement.
Working the split
The new market environment has improved chances for split-commission work as advisors, accountants and lawyers direct their clients to each other. Sham describes split-commission work as a “tremendous resource” for building business. He actively pursues arrangements with casualty firms, lawyers and accountants. He also visits an accounting firm twice a month to meet directly with its clients.
The amount of the commission that Sham offers an accountant depends on the level of the accountant’s involvement. If the accountant was involved half the time, he would get 50 percent. If he merely provided a name, he would likely get 25 percent. “Accountants are now selling our products, so they might as well do it through me,” he says, with pride.
Jeffrey Caufield has referral relationships with accountants and lawyers, but they do not involve fee splitting. He doesn’t welcome split-fee work. An accountant selling the products an insurance agent sells would have a conflict of interest because the accountant would stand to earn a fee for professional advice and a commission for the sale.
Caufield gives as an example the case of the long-time client for whom he recommended a retirement plan. The client’s response was to run it by his accountant. The accountant’s response was to grab the business. The client eventually shifted the plan to Caufield because the accountant provided poor service.
Samuel Bernstein’s firm works with accountants and attorneys, and much of the contact consists of educating these professionals about new insurance products and ideas. But he does not split fees, and his firm does not work with accountants who collect fees for selling life insurance.
Bernstein has thought about creating a website, but he is put off by the difficulties. “If you establish a website, you need to service anybody that might call in from 50 states,” he says. “And getting licensed in 50 states is a hassle. Plus [internet customers are] probably not the kind of clients we want.”
Dick Murray says State Farm’s network of agents is useful in replacing the inevitable small numbers of clients who leave the insurer every year. A State Farm customer who has moved to Murray’s area from another state will often look first for another State Farm agent. And while State Farm doles out internet inquiries to its agents, Murray does not expect the internet to ever become his primary source of business.
A helpful hand
Caufield says he would like to see a more positive regulatory climate toward the use of annuities in retirement plans. Consolidation among underwriters can cause some problems for independent agents, he says, and if a company he sells for is absorbed by another, the enlarged entity may cut off the flow of information. This handicaps the agent in his attempt to service the business he has already sold.
Bruce Sham says regulation and compliance are becoming bigger issues nowadays. He will not even send out a letter without having the legal department look at it. Even his stationery is checked every quarter. “They are really doing me a favor,” he says of the compliance people, “because they’re protecting me. I’ve never been sued.”
Some stabilization within the market will happen over the next five years, he says, and advisors who refuse to seek relationships with banks and accountants will not survive. Many will opt for early retirement, and the traditional practice among agents of relying on renewals as a security blanket for their wives is no longer true.
In the future, Sham says, the ability to keep renewable business will depend on the possession of a securities license. Phoenix Financial is now fostering mentoring relationships among its older and younger agents to allow for the eventual sale of practices, he says. “I would hope that other agencies are addressing it. It’s critical.”
Looking ahead, Dick Murray expects the requirements for factfinding to be significantly greater, and most sales will still be with individuals, “even if it’s not face to face. We will have to run a totally different agency in some ways,” he says.
“In other ways, it will be almost exactly the same,” Murray says, “but you will have to fine-tune your skills. You will have to have good staff people, and you will have to treat each household differently.”
Robert O’Connor is a London-based free-lance writer and a frequent contributor to Advisor Today.