Advice to advisers: Don't give away insurance business

Aug 8, 2005 @ 12:01 am

By Gary S. Mogel

NEW YORK - Fee-only financial advisers are leaving money on the table when they refer clients to agents instead of handling the business themselves, says the head of a life insurer specializing in no-load insurance products.

No-load products currently account for about 2% of the life insurance market, but that figure will grow substantially in the next few years, said Mitch Politzer, chief executive of Ameritas Direct in Houston, a division of Lincoln, Neb.-based Ameritas Life Insurance Co.

He is exhorting advisers to keep their clients' insurance in-house by using no-load policies and annuities.

TIAA-CREF Life Insurance Co. in New York and the United Services Automobile Association in San Antonio are among the other major no-load companies, according to Glenn Daily, a fee-based insurance and annuity consultant in New York who often recommends no-load products.

Money is in subaccounts

"For the most part, advisers have been approaching insurance by referring clients away because they don't feel familiar enough with insurance concepts," Mr. Politzer said.

Also, many advisers -proud of their "fee only" moniker - don't want to sully their practices by accepting life insurance commissions, he added.

"The adviser can make money from the no-load products, which don't pay commissions, by managing the subaccount assets - including trading and asset allocation - in the variable life insurance and annuity products," Mr. Politzer said. "They can increase fees, because they will be managing more assets, and can also charge for providing insurance planning advice."

Meanwhile, the insurance company handles all of the back-office functions, and the insurer has licensed representatives on staff to recommend and service products, he added.

Low Load Insurance Services Inc. in Tampa, Fla., which bills itself as "the adviser's insurance adviser," offers fee-only advisers access to several no-load insurance companies for life, long-term-care and disability insurance, and annuities.

Some advisers see no problem with combining fee-only and commission arrangements with clients, and prefer to educate themselves about insurance rather than use insurer-provided expertise.

"Advisers are either investment first and insurance second or insurance first and investment second," said Richard Dragotta, managing partner of Integra Investment Service LLC in Rutherford, N.J., which manages about $100 million. "Some of the former will refer insurance business to experts, depending on their comfort level with what the client needs."

"If you disclose to a client how you're compensated, I don't see any problem with accepting fees for financial planning business and commissions for insurance business," he added. "As a true financial planner, you don't have to actually get the insurance quote, but you have to have the insurance knowledge."

Providing a resource

"Our clients are fee-only advisers who are not licensed as insurance agents and not interested in receiving compensation from an insurance company," said Judith Maurer, president of Low Load. "But the advisers need a resource to obtain insurance products for their clients, and that's what we provide."

Her firm places business with several no-load insurers, including Security Life of Denver Insurance Co., part of Amsterdam, Netherlands-based ING Groep NV.

"I sometimes recommend no-load products, but advisers should look at all the options, including the commission-based products," Mr. Daily said. "Sometimes the product that pays a full commission is the most appropriate one for the client. Also keep in mind that the so-called 'no load' products are really 'low load,' as front-end loads include other expenses besides commission."

He noted that some insurers, such as The Northwestern Mutual Life Insurance Co. in Milwaukee, The Guardian Life Insurance Company of America in New York and Pacific Life Insurance Co. in Newport Beach, Calif., while not no-load companies, will write policies at reduced commissions. First Colony Insurance Co. in Richmond, Va., is another insurer willing to "dial down" commissions, said Low Load's Ms. Maurer.

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