By Cyril Tuohy
For Northwestern Mutual, the venerable life and retirement giant, the era of the hard sell is out. This is the era of holistic planning, in which the client relationship trumps the bewildering array of features and a phalanx of products.
"You have to get off the selling of a product and get onto holistic financial security planning," said Steve Mannebach, vice president of field growth for Northwestern Mutual, in an interview with InsuranceNewsNet.
Americans need a plan, and want their concerns addressed. What they don't want is another supermarket shelf filled with complexity shouting for attention. For financial advisors who subscribe to the holistic planning model anchored in the relationship, Northwestern Mutual has some good news: the company is hiring right now.
With unemployment at 7.5 percent and thousands of military veterans coming back from Afghanistan, company recruitment managers said they have a deep pool of candidates from which to choose, and that the quality of the talent is high.
“We haven’t seen any correlation between our recruiting efforts and unemployment rates, but we are seeing much better quality recruits coming to the table,” Mannebach said.
Northwestern, which sells only through exclusive distribution arrangements with advisors, is going to need those talented recruits as the demand for financial planning increases and as the baby boom generation moves deeper into their retirement years.
Advisors, notorious for not planning their own successions despite getting paid to structure succession plans for others, have a two-fold task ahead of them. Advisors will have to plan the succession of all those baby boomer business owners looking to pass on their life’s work.
In addition, veteran Northwestern financial advisors – like advisors all over the country – are looking ahead to the day they must turn over their own books of business to younger advisors groomed to step in and continue the relationship.
With more than 1,100 financial advisors and 3,000 financial representative interns recruited nationwide since Jan. 1, Northwestern has hired more than 4,100 new sales pros out of 5,500-plus financial professionals slated for hiring in 2013, the company said in early July.
The effort is on track to surpass its largest recruiting goal in company history, but the company also knows that not every advisor will be an automatic fit. Recruiters will have to comb through 100 leads before they accept one advisor into the company's training program.
"We have a 100-to-1 lead-to-contract ratio," Mannebach said. Northwestern hopes to add 200 new financial advisors every year for the next 10 or 12 years, for a total of about 2,500 advisors.
Setting up business owners with the right advisor is more of an art form than a science, and it often comes down to chemistry among people and personalities.
Some clients don’t want to entrust their assets to the first young up-and-comer who walks through the door, no matter how well the advisor has performed. Other times, the young advisor isn’t the right fit to replace veteran advisor himself on the verge of retirement.
For many veteran advisors it will take as long as five to seven years to train someone they're comfortable with before the book of business is passed on, depending on the client's needs, the planning complexity involved, and the products the company can offer to fit the need.
Northwestern, which has been in business for 156 years, has retained the same distribution model of exclusive agents since it was founded, and company officials are confident they have developed the right strategy to distribute its life, retirement, disability, long-term care, and advisory and trust services.
Since advisors work 100 percent on commission, the company shoulders very little risk if and when new advisors don't make it through the training program, or if an advisor decides to leave the Northwestern fold a decade into a career and light out on his or her own.
For Northwestern it is the relationship, not the transaction, that matters most and the company is willing to lay the groundwork years before a relationship actually bears financial fruit.
"You can't drive product down somebody's throat," Mannebach said.
Never has that been more true than today, where automated underwriting and the Internet have helped turn thousands of financial industry products and services into a commodity, and in order to encourage the long-term relationship, the commission structure is built to encourage renewal business and pay out over a nine- or 10-year period with a "persistency fee" added, Mannebach said.
Some Northwestern agents may retain the relationship with a client through two, three or even four generations of agents. The McTigue family of advisors, for instance, is one of a handful of fourth-generation families working for Northwestern, Mannebach said.
The exclusive agency system is an efficient long-term model whereby successful financial advisers attract successful clients, and those clients are passed on. As a result the company’s lapse ratios are lower, and mortality experience lower than that of the competition, Mannebach also said.
The company's 2012 lapse ratio of 3.5 percent was significantly lower than the industry average of 5.9 percent, Mannebach said, citing LIMRA statistics. In other words, for every policy Northwestern Mutual sells, 96.5 percent of them will still be on the books 13 months later.
When the company pays a death claim, on average the policy has been in force for about 40 years. As policyholders tend to live longer, the overall cost of claims is lower. In January, the company said it expected to pay out dividends in excess of $5 billion in 2013, an increase of $65 million over 2012, according to the company’s annual report, and the highest projected payout in the company's history.
“The secret sauce is our exclusive distribution system,” said Mannebach, who also calls the distribution model “unique.” The result may be slow growth but it is a growth that is as assured as it is steady, and it compounds over time, he said.
“It’s a retention strategy so we retain the clients, and it’s also an expansion strategy,” said Mannebach, himself a former financial advisor.
While some industry statistics show that young financial advisors are not entering the business in large enough numbers to produce a net long-term gain, demand for their service remains high and is expected to rise.
And with corporate America rapidly moving to a defined contribution retirement model, and surveys showing that many Americans feel unprepared for retirement and underinsured for life insurance, the mission of the advisor built on a relationship is all but guaranteed, in the eyes of Northwestern Mutual.
As proof of the company's commitment to forming relationships, the company is also looking beyond its traditional base of white male legal and financial professionals to recruit more aggressively among women, Latinos, African-Americans and Asians as those demographic groups grow in numbers and in wealth.
“We’re willing to build relationships with people before we build wealth,” Mannebach said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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