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The Independent Advisor: One Size Does Not Fit All

For many core financial products and services, independent distribution is the leading sales channel in the industry. It accounts for half of life insurance new annualized premium and 40 percent of annuity business written.

Independence is appealing to experienced financial professionals for a variety of reasons. Independent advisors have the autonomy to build their own practice and control their own business, the financial flexibility to charge for their services using the method that works best for them and their clients, the ability to build equity in their practice, and even to have a better work-life balance.

Having a better understanding of the practices of today’s independent financial professional (IFP) will help all the entities – manufacturers, intermediaries and the practitioners themselves – work more efficiently together. Manufacturers and intermediaries that understand the practices and preferences of their IFPs can build an appealing value proposition to attract and retain the business of top independents.

LIMRA IFP-practice-profile

Organizations that work with IFPs need to be sensitive to the fact that not all IFPs are alike. Investment-focused IFPs are slightly younger, make more money and have fewer clients than their insurance-focused counterparts (see Table 1). Almost half of investment-focused IFPs choose to focus on investment products because of a personal preference, even though the majority (91 percent) of this group has a life insurance license.

The study also noted that IFPs looking to place their fixed life and annuity business will constantly re-evaluate their carrier relationships, creating increased competition among those carriers.

Getting the IFP contracted initially is only the first step. IFPs place their life and annuity business with only half the insurance carriers with which they are contracted. Evidence shows that carriers can earn their loyalty though, as IFPs place more than half of their life and annuity business with just one carrier.

Carriers also must be aware that loyalty cannot be taken for granted. Almost half of IFPs stopped writing business with at least one carrier in the past two years – this is especially true of IFPs who focus on insurance products. The reason for dropping a particular carrier typically is due to the carrier’s having noncompetitive products. Other common reasons involve a carrier’s financial instability, the desire to reduce the number of companies with which they are contracted, and service and support issues.

Service models developed to support independent professionals cannot be one-size-fits-all. Just as their professional profiles differ by product focus, the services and support valued by IFPs vary tremendously depending on the products they offer.

Investment-focused IFPs are most interested in technology support to accompany their more transaction-oriented sales. To make their involved sales process more efficient, insurance-focused IFPs have a higher regard for new business processing support. To help run their complex business, balance-focused IFPs find practice development and coaching to be the most valuable support offering. Organizations wanting to earn IFP loyalty should tailor their service offerings to meet the demands of the specific type of IFPs they are targeting. With commoditization in some products and compensation, a focus on the services and support most valuable to IFPs can make all the difference.

Methodology: This article is based on a LIMRA and McKinsey & Co. joint study that looked at the practice of almost 2,000 financial professionals. This piece focuses on independent financial professionals – those with no primary affiliation or employment relationship with any one firm or company.

Donna B. Chaffin, MBA, FLMI, is associate research director, distribution research, with LIMRA. She is responsible for trending and topical research related to distributing financial products and services through broker/dealers and independent financial planners. Donna may be reached at [email protected] [email protected].

Emily Tracey, MBA, is analyst in the distribution research department at LIMRA. She is responsible for conducting research related to independent distribution intermediaries and monitoring trends as these channels evolve. Emily may be reached at [email protected] [email protected].

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