Insurance Channel Shows Strong AUM Growth

By Linda Koco

The insurance channel had the greatest percentage rise in assets under management between 2008 and 2013, although insurance also had the smallest slice of the overall AUM pie, according to Boston-based Cerulli Associates.

This was at a time when the overall financial advisor industry experienced nearly 13 percent growth in assets, though with fewer hands on deck, according to the first quarter 2015 issue of The Cerulli Edge - Advisor Edition.

The industry headcount shrank by 1.9 percent to a little more than 287,000 for seven advisory channels, the researchers said, noting that a big piece of that decline, 0.7 percent, was due to MetLife’s dropping 2,100 advisors.

The seven advisor categories examined in the report include insurance, bank, wirehouses, regionals, independent broker-dealer (IBD), registered investment adviser (RIA), and dually registered (i.e., registered with both the Securities and Exchange Commission and with the Financial Industry Regulatory Authority).

The study showed that insurance channel advisors delivered a five-year compound annual growth rate (CAGR) for assets under management (AUM) at a chart-topping 17.3 percent for the period of 2008-2013. (The CAGR represents the growth rate that would have occurred if AUM growth had been the same in each year specified; it is a key metric in trends analysis, used for smoothing.)

However, in terms of AUM, financial advisors in the insurance channel lagged the AUM tallies of the six other channels, and by a wide margin. So did the insurance channel’s average advisor AUM.

The investment markets rose throughout the year, so the industrywide gain in AUM reflected that growth as well. But the insurance channels’ growth outpaced the other channels, and that’s what industry observers will be looking at.

Breaking it down

Although the financial advisory industry did see total assets reach $14 trillion, the seven channels did not contribute equally to that figure.

For instance, the channels experiencing the strongest growth as measured by five-year CAGR for AUM were the insurance channel (at 17.3 percent), the RIA channel (at 14.5 percent) and the dually-registered channel (at 14.4 percent).

By comparison, the five-year CAGR for AUM for the financial advisory industry overall, including all seven channels, was a considerably lower 9.4 percent. And three of the seven channels — IBD (8.7 percent), wirehouse (8.4 percent), and banks (-0.4 percent) — came in under that. The regionals came in only a hair above the industry average (at 10 percent).

Although insurance advisors had the highest percentage of gain, the channel’s total AUM for 2013 was at the bottom of the heap, with a market share of just 3.6 percent.

That comparatively low AUM figure is despite the fact that the insurance channel had the most advisors — nearly 75,000 strong — and the highest market share of advisors (26 percent) in 2013.

Given that AUM is a key measure of performance, the message behind the insurance AUM number is that insurance firms have some building to do if they want their financial advisors to gain a larger competitive profile in the financial advisory industry.

Even banks came in higher with a 5.2 percent share of AUM.

The AUM star

The star in the AUM category was the wirehouse channel, which comprises the four big firms (Morgan Stanley, Merrill Lynch, Wells Fargo and UBS).

This channel closed 2013 at 42.1 percent, clobbering all the other channels.

The wirehouses are now “well positioned with the largest and most productive advisor forces,” according to the Cerulli researchers.

But the “newer-comers” — the independents in the RIA and the dual-registered channels — are clearly on a growth track, and so is the insurance channel, at least as measured by the five-year CAGR for AUM. So the king has some challengers nipping at its heels.

This raises some questions about what the advisory future might hold. In 2013, the growth rate for the wirehouse advisors was, as the researchers put it, “less robust” than that for wirehouses. If that continues, and if competing channels stay on the growth path, more significant financial advisory shifts could be in the offing.

Key trends

The Cerulli study reviews some trends that could have bearing on this future. One is the nearly 2 percent decline in number of advisors overall in 2013, along with the planned retirement of 25 percent of all advisors in the next 10 years. The question for all channels is, how will these retirements affect the advisory business, and its customers?

In the insurance channel, 4 percent of advisors said they plan to “retire or leave the industry” in the next five years, not too radical. But 15 percent plan to retire or leave in five to 10 years. That makes for 20 percent intending to be gone in 10 years.

At wirehouses, an eye-popping 35 percent plan to be gone in 10 years. In 2013, these advisors numbered 47,400.

In the independent channels, 30 percent of RIAs and 24 percent of dually-registereds plan to be gone in 10 years. As of 2013, those channels had 28,500 and 24,800 advisors respectively, the study showed.

In the IBD channel, which at 67,300 had the most advisors next to the insurance channel, 25 percent plan to be gone in 10 years. The regionals can expect departures of 20 percent, and the banks, 14 percent, in 10 years.

How can the independent channels deal with this issue? “Hire junior advisors,” Cerulli suggested, noting that some of them can be groomed to be the “future replacement advisors,” or at least a “future succession option.”

A ray of light is that because of efforts under way, advisor headcount may actually increase by 1 percent annually going forward, said Kenton Shirk, associate director, in a statement.

Another trend bearing on the advisory future has to do with aging clients, a topic that often gets overlooked amid industry concern about aging advisors. According to Cerulli, 44 percent of today’s clients at advisory firms are already over age 60.

Firms need to find ways to “replenish these ranks with younger investors in active earning mode,” the researchers said. Perhaps this is where the younger, junior advisors might help. The younger advisors “may better connect with investors who are in their same age bracket,” the researchers said, and they may be better able to “navigate the relationship dynamics” of the younger generation.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].