In a world where financial advisors routinely hear the praises of specialization — either by developing a tax specialty, digging deep into estate planning minutiae or developing a long-term care planning shop — it’s easy to overlook the advantages of diversification.

In some quarters, you’d even think that diversification had been given up for dead, but you’d be wrong.

Banks and thrifts are rapidly embracing the diversification mantra, which means that life insurance and annuities are up against stiff competition from fee-based services, mutual funds, stocks and bonds, even market-linked certificates of deposit.

By now, banks have received the message: protection products are a slow-growth animal, particularly in an era of low interest rates. Banks, saddled with heavy regulatory burdens, need to push their reps to sell a broader mix of products.

“Banks are trying to be broader, not just an annuity shop, so that’s taking volume away from annuities,” Scott Stathis, managing director of Bank Insurance & Securities Research Associates (BISRA), said in an interview with InsuranceNewsNet.

Particularly in an era when carriers have saddled their variable annuities (VAs) with higher fees, trimmed benefits, restricted distribution arrangements and generally lowered their exposure, what incentives do banks and their financial advisors have to sell them?

At the end of last year, carriers were “offloading risk from carriers to contract owners,” according to Frank O’Connor, product manager for insurance solutions with Morningstar, in a report to clients summarizing the state of the market at the end of 2013.

For banks, the most profitable opportunities lie with retirement, money management and life-stage planning services, which they offer through subsidiaries and affiliates in addition to their bread and butter federally-insured deposit accounts.

What’s in it for banks? A diversified revenue stream, for sure, but banks crave the lower volatility that comes with fee-based business.

It’s no surprise, then, that in the past five years protection products as a percentage of the annual revenue mix in the bank channel have declined while fee-based products and services have increased, according to BISRA data.

Fixed annuities, VAs and life insurance contributed 46 percent of annual revenue mix to the bank channel in 2013, down 9 percentage points from 55 percent in 2009, according to BISRA’s Annual Benchmarking Study.

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Managed money accounts — where investors place their funds in the hands of a qualified investment professional for a fee — contributed 29 percent of the bank channel’s annual revenue mix in 2013, up from 17 percent in 2009, the study also found.

“It used to be all annuity business, but now it’s more about the advisory business and more about the alternative investments and market-linked CDs,” Stathis said.

Banks, which compete with independent broker/dealers and captive insurance agents as distribution channels for insurance carriers, intend to boost the number of products sold by their consultants in 2014, the BISRA survey found.

Nearly one out of two (46 percent) of banks said they would increase the number of products sold by their consultants this year, compared to only 3 percent of banks who said they would decrease the product set sold by advisors.

Fee-based, not commission-based, products and services are the bank channel darlings. But what does diversification bring to the bank-affiliated advisors responsible for selling protection and investment products via the bank channel?

Higher overall sales and more income, no doubt.

Financial consultants who derive more than 50 percent of their annual revenue from expanded product sales generate $652,846 on average, or nearly twice the average total annual productivity of sales representatives with less than 25 percent of revenue from expanded products, according to the BISRA/LPL Investment Program Optimization Study.

Similarly, investment programs that derive more than half their revenue from an expanded product set have grown revenue at more than twice the rate of investment programs with narrower product sets over a five-year period ending in 2013, the BISRA/LPL survey found.

Managed money accounts generated $266 per $1 million of retail deposits last year, an increase of 21 percent over 2012, according to BISRA’s Monthly Monitor survey.

Revenues generated from other bank-channel product categories -- mutual funds, stocks and bonds, annuities, life insurance, CDs and trailers -- declined last year from the previous year, the survey found.

American International Group, Jackson National, Pacific Life, Forethought, Symetra, Lincoln Financial, Nationwide, Great American, Aegon and Prudential are among the top sellers of annuities through the bank channel, according to BISRA.

is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at

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