If you’re a financial advisor licensed to sell mutual funds or securities, adding insurance to your practice can provide an essential tool to assess and address clients’ total risk profiles – and help you boost your bottom line.
“Advisors who bring insurance into their practices do a better job for their clients because it provides a ‘one-stop shop’ for [clients] and it’s integrated into part of [advisors’] whole wealth[-management] strategy,” says George Hartman, president and chief executive officer at Market Logics Inc. in Toronto.
Through the investments side of the financial advice business, advisors help their clients build their retirement savings, pay down their mortgages or provide for the children’s education. But just as important is the other half of the equation – risk management, which is usually accomplished through insurance.
And just as advisors have a detailed process to choose the right investments to meet their clients’ needs, they also must go through a similarly rigorous process to determine what kinds of insurance will be most beneficial to clients.
To do that, advisors must conduct an annual needs analysis in which they delve into their clients’ risk-management profile and determine the financial impact on both clients and their families if they were to become unemployed, sick, disabled or if they die.
Having these discussions isn’t easy, though, so advisors should ask clients about the issues that matter most to them. During that meeting, advisors should take copious notes so they can determine and suggest the right insurance products for clients, suggests Jeanette Brox, senior financial consultant at Investors Group Inc. in Toronto.
“Ask [clients] if there is anything that keeps them up at night,” she says. “Then, the stories will start, and that’s the opening [you need] to discuss all kinds of insurance.”
Life insurance is a mainstay for many people because of its versatility, such as helping out beneficiaries and reducing taxes on death. A big plus is that life insurance benefits are generally received tax-free.
Nevertheless, statistics indicate that people have a greater chance of becoming critically ill before the age of 65 than they do of dying, so living benefits insurance also should be a major part of an advisor’s offerings, Ms. Brox says.
Critical illness (CI) insurance pays out a lump-sum cash payment in the event of a life-altering illness and can be used to reduce debt or replace lost income. Many times, the amount of CI depends on clients’ health concerns relating to past and current family illnesses. Many of Ms. Brox’s clients have enough CI insurance to cover them for at least a year.
And depending on the age of the client, disability insurance may also be essential – particularly for those who are self-employed.
Then, there are some Canadians, especially those in the burgeoning 80-plus age group, who are becoming more and concerned about the financial strain that becoming incapacitated could cause for both them and their children. So, they’re turning to long-term care insurance.
Still, insurance of any kind is not simple to sell and must be included as part of a larger package that also incorporates a financial or investment plan, says Brian Laundry, president of BL Financial Consulting in Burlington, Ont.
“If you treat [insurance] like a commodity and you sell it like a commodity, you’re going to lose. It’s not a transaction,” Mr. Laundry says. “I haven’t sold an insurance policy in several years that hasn’t been in conjunction with a financial or retirement plan.”
Richard Burjoski, vice-president, wealth relations, with Toronto-based managing general agency (MGA) PPI Management Inc., helps securities- and mutual fund-licensed advisors introduce insurance products into their practices. He says that many of these advisors aren’t keen on learning the insurance ropes themselves, so they’ll either hire an insurance specialist to work full-time in their offices or deal with an external insurance specialist.
When these advisors deal with PPI, the MGA ensures advisors are aware of all the compliance regulations they need to follow – and the importance of having good practices in place – when dealing with insurance, Mr. Burjoski says.
“We try to build some core behaviours with advisors so that their clients see them as their insurance solution when they need insurance work or a policy reviewed,” he says.
Making the effort to include insurance in your practice can ensure your clients stay loyal to you and avoid searching for a different advisor if they’re looking for someone to provide them with insurance in addition to their investments, Mr. Burjoski says. Furthermore, he says he believes including both investments and insurance in a practice can protect advisors from litigation because it ensures advisors do a fulsome job for their clients.
Similarly, Mr. Hartman says that building insurance into your mutual fund or securities practice can also be a lucrative business that can provide a total risk-management package for advisors themselves, not just for their clients.
Namely, he suggests insurance is a good alternative revenue source for advisors – especially during times of major market meltdowns, such as 2008-09, when assets under management at many advisors’ practices declined precipitously. At that time, many advisors were able to fall back on their insurance business to carry their practices through until markets rebounded.
“There were a number of advisors who weren’t that active in [insurance],” Mr. Hartman says, “who became and have remained very active because they recognize its value.”