For RIAs, A Vexing Insurance Dilemma

A large majority of registered investment advisors (RIAs) offer clients insurance planning. But nearly half of all RIAs refer their insurance business to an outside insurance agent or specialist, a new benchmarking survey has found.

While 88 percent of RIA respondents said they offer insurance planning in some form, 49 percent refer the insurance piece to insurance professionals, the survey found.

In addition, 70 percent of RIAs agree insurance is key to a holistic financial plan, but only 25 percent of RIAs offer clients a range of insurance products, according to the “RIA Insurance Planning Benchmarking Survey.”

DPL Financial Partners, a company that helps insurers develop fee-based products to distribute through the RIA channel, published the survey based on data from 118 RIAs.

A Problematic Division

This division underscores how much RIAs would like to take control of and benefit from the insurance piece of a client portfolio. Yet feel they cannot do so because there are not enough fee-based insurance and annuity products to properly fit a need, said David Lau, CEO of DPL Financial Partners.

The upshot leads to an awkward outcome in which the fee-based or fee-only RIAs are paid a fee to manage assets through a holistic lens, but send the client to a commission-based agent down the street to manage the insurance part of the portfolio.

The RIA, or asset manager, has little or no say over what an insurance agent will recommend and cedes control of the insurance relationship.

“It’s problematic all around,” said Lau, former chief operating officer of Jefferson National.

RIAs who do offer insurance solutions tend to work with a limited set of products, which may not be in the best interest of a client, he said.

Many RIAs like insurance products for principal protection, and they report a continued reliance on insurance products.

For example, 43 percent of respondents said they increased the scope of their insurance activities in the past two years, and 53 percent said their insurance activity either remained the same or increased, the survey found.

Only 4 percent of respondents said they had cut back on their insurance activities.

Bridging the Gap

Among RIAs who offer insurance products, term life is the most popular with 75 percent of RIAs offering term, the survey found.

The release of scores of fee-based products over the past 18 months is designed to appeal to RIAs. Meanwhile, RIAs have been moving, or “rescuing,” clients out of higher priced commission-based variable annuities and into fee-based VAs, which cost less, Lau said.

Average mortality and expense charges on a commission-based VA is 135 basis points compared to a charge of 20 to 30 basis points for a fee-based VA.

The early salvo of fee-based products will slowly give way in the coming months to newer, more refined fee-based products better suited to RIAs as insurers and actuaries incorporate feedback from the sales force in the field, he said.

Commission-based insurance and annuity products will remain, but RIAs should have a lot more to choose from in terms of fee-based choices since there is plenty of opportunity for growth in the RIA channel, Lau said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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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].