NEW YORK - Insurance brokers that specialize in long-term-care coverage increasingly are seeking to partner with financial advisers, according to industry observers.
Such relationships - which often involve a fifty-fifty commission split or other compensation sharing between broker and adviser - usually are best for small independent advisers that aren't "fee only," said Tom Riekse Jr., executive vice president of LTCI Partners LLC in Madison, Wis. Fee-only advisers instead can refer clients to LTC brokers, he added.
Advisers at wirehouses and broker-dealers that don't allow compensation sharing have access to LTC products from wholesalers or directly from insurers, and the large independent-advisory firms often develop in-house LTC specialists, Mr. Riekse said. "I think that the relationship is a natural for financial advisers and long-term-care specialists," said Dan Taylor, founder of AdvisorFreedom, a Charlotte, N.C., adviser consulting business.
LTC product complexity increases the desirability of having specialists in the adviser's corner.
"The long-term-care industry from a product standpoint will be going through tremendous evolution in the next few years as we see improvements on existing products and more hybrids with annuities, life insurance and long-term care," Mr. Taylor said. "It's a huge leverage capability to have a specialist in one's repertoire."
Specialist LTC brokers offer not only compensation sharing but expertise in insurance compliance issues and a "passion for the product," Mr. Riekse said.
Keith Singer, an adviser in Fort Lauderdale, Fla., who manages $35 million in client assets, uses LTC specialist broker Gelbwaks Insurance Services Inc. in Plantation, Fla. Rather than split the compensation, he gets the entire commission, and Gelbwaks receives an override from the insurer.
"I can go through my broker-dealer - which has selling agreements with LTC insurers - and I also have an independent relationship with general agent U.S. Brokerage Services Ltd." in Wantagh, N.Y., said Frank Congemi, a financial planner in the Forest Hills section of Queens, N.Y., who manages $60 million.
He doesn't split commissions but rather maintains a cross-referral relationship with the agent.
A adviser in Maryland with $20 million in client assets, who asked not to be identified, sells LTC insurance directly to clients, rather than use a middleman. "We accept fees for financial planning and commissions for insurance and make those arrangements clear to clients," he said.
As a fee-only adviser, Chris Cooper, principal of an eponymous advisory firm in Toledo, Ohio, that manages $165 million, doesn't accept commissions from LTC brokers. After informing clients of their LTC options, he obtains insurance proposals from brokers and helps the client decide which one to choose.
Newman Financial Services
LLC in Minneapolis has developed
"professional-partnership programs" designed to help accountants, attorneys and financial advisers provide LTC products to their clients.
"It's up to the advisers whether they want to be there every step of the way while a Newman partner explains LTC to their client, or simply refer the client over here," said Pam Krejce, administrative assistant for the program.
Typically, there is a fifty-fifty commission split with the adviser, but that can change based on negotiation between the Newman partner and the adviser, she added. There is no formal contract; each situation is handled on a case-by-case basis, Ms. Krejce noted.
Problems that advisers should watch out for when placing LTC insurance include damaging the relationship with a client who is rejected for coverage, and misunderstandings over commissions.
About 30% of LTC insurance applications are turned down during the insurer's underwriting, and that can harm the adviser's standing with a client, Mr. Riekse pointed out. A specialist who represents multiple insurers with varying underwriting standards can help avoid that dilemma, he noted.
Advisers can sidestep commission problems by explaining to the client how the compensation arrangement works, Mr. Riekse said. The insurance application normally lists the adviser and LTC broker as "co-producers," but some clients may not understand that that means the commission is being shared, he noted.