Windsor, Conn. and New York, N.Y. ; March 3, 2009 — A multi-faceted approach is the best way to enhance advisor performance, according to a major new study of distribution in the life insurance industry recently released by LIMRA and McKinsey & Company.
The study, conducted in the fall of 2008, surveyed more than 1,200 advisors across a broad range of distribution channels to identify the challenges facing the industry and practical steps that carriers can take to enhance productivity and retention.
Researchers found life insurance companies that recruit well-educated advisors, launch them into team-based practices, tailor support services to maximize their value, realign the role of sales managers to better meet advisor needs, and migrate experienced advisors to multi-advisor teams significantly improve advisor performance.
"Advisor-based distribution is under stress," said Vivek Agrawal of McKinsey, a member of the team that conducted the study. "The number of advisors has remained stagnant and their average age is on the rise. While advisor income has grown over the past four years, stagnant sales and the shift toward investment products, with their lower margins, have put pressure on carrier profitability."
"Our research with McKinsey pinpoints a number of concrete steps that companies can take to overcome these challenges and increase the success of their advisory distribution," said Pat Leary, LIMRA analyst and also a member of the research team. "Companies can use this information to enhance productivity and retention among financial advisors."
The LIMRA/McKinsey study identified five areas of critical importance:
- Education and the right experience matter when recruiting advisors. According to the study, advisors with a higher education (at least a Bachelor's or Master's degree) earn approximately 40 percent more than those without it. In addition, advisors with previous experience earn 40 percent more than those without experience in the first seven years of tenure. However, after seven years, those without previous experience (i.e. hired right from college) close that gap and earn a comparable amount. Interestingly, junior agents with previous sales experience on average underperform their peers.
- Launching advisors into team-based practices is by far the most important factor in their success. The LIMRA/McKinsey study reveals that advisors placed in team-based practices are 10 times as likely to succeed. This factor was the single most important predictor of advisor success, eclipsing even the impact of the individual's attitudes.
- Tailoring the services they offer advisors can help home offices achieve enhanced productivity and retention, as well as significant cost savings. The study identified areas where there is a mismatch between the support services provided by carriers and the services that advisors most value. Carriers should focus on strengthening their services associated with ease-of-doing-business, which have a high mutual value, and continue to offer specialist support free-of-charge. Right-sizing training and realigning field management support will help companies capture significant savings.
- Ensuring that field managers provide the support services that advisors value most improves a carrier's offering. According to the study, field managers are investing their time in those support services that advisors value least. In addition, field managers are underutilized, providing support to at most 40 percent of the advisors they serve. Carriers can improve the effectiveness of their field managers and improve advisor retention by helping managers to prioritize their time, drop under-valued services and emphasize high-value services.
- Migrating experienced advisors who have been operating as solo practitioners to multi-advisor teams can significantly increase the likelihood of their success. There are two major factors that drive the success of advisors: the amount of leverage in their practice and the number of clients they serve. The study shows that top-quartile producers earn two to three times their peers, and advisors are much more likely to be in this quartile if they tailor their operating model along these two dimensions. In particular, the likelihood of success grows with increasing leverage, either through the addition of staff or the formation of multi-advisor practices. Survey data reveals that multi-advisor practices are three-to-four times more likely to succeed than solo practices. Such practices create value by improving sales productivity as well as by creating economies-of-scale.
LIMRA International is a worldwide research, consulting and professional development organization that helps more than 850 insurance and financial services companies in 73 countries increase their marketing and distribution effectiveness.
McKinsey & Company is an international management consulting firm that helps leading corporations and organizations make distinctive, lasting and substantial improvements in their performance. With over 7,500 consultants deployed from some 90 offices in nearly 50 countries, McKinsey advises companies on strategic, operational, organizational and technological issues. In addition, the firm helps a diverse range of government institutions, public administrations and non-profit organizations with their management challenges.