Windsor, Conn., and New York, N.Y.; Nov. 13, 2012 — The economics of financial advisory distribution face numerous challenges, but pockets of opportunity remain, according to a major new study of experienced financial advisors, released today by LIMRA and McKinsey & Company.
"The current economic environment is generating strong headwinds for financial advisory sales forces," said Prashant Gandhi of McKinsey, a leader of the team that conducted the study. "Our study provides new insights into the factors that drive advisor productivity and helps organizations better target their services for advisors."
"Shrinking distribution and increasing distribution costs have been significant challenges to insurers' ability to reach their targeted markets," said Patrick Leary of LIMRA, leader of the LIMRA team that conducted the study. "This study reveals the issues most important to advisors and offers approaches to improve productivity and ways in which they can best support advisors to achieve their strategic goals."
The LIMRA/McKinsey study provides critical insights across a number of dimensions that impact the success of advisory sales forces:
- Sales capacity is one of the most significant issues impacting distribution. Across most channels, the majority of experienced advisors are over 50 and have more than 25 years of experience. This is especially true for independent insurance agents and registered investment advisors (RIAs). Of those advisors who are within 10 years of retiring or selling their practices, more than half have no succession plan. Advisor satisfaction is significantly higher for all independent channels, with affiliated advisors more likely to leave their firms within the next three years.
- Growth opportunities are the most important factor in advisors' selection of a firm and are twice as important as compensation.
- The most productive advisors utilize four best practices, including teaming, client specialization, retirement planning and knowledge of life events.
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The percentage of advisors teaming with others has grown since 2008, primarily as a result of their desire for growth and increased productivity. Forty-three percent of advisors specialize in a client segment, most typically by affluence or occupation. While most advisors have not provided their clients with formal retirement plans, those who have are 15 percent more productive. Knowledge of life events also correlates with higher productivity, but many advisors fail to leverage this information.
- Advisors, especially those who are most productive, are selling a larger share of investments and advisory solutions, relative to insurance.
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Investment products account for a growing share of revenues for career and independent insurance agents (30 percent in 2012 versus 23 percent in 2004), as these advisors focus on providing more holistic solutions for their clients. Investment products are also taking share from insurance products as a percentage of gross revenues for investment-focused advisors (80 percent in 2012 versus 75 percent in 2004).
- Financial services organizations have increased the services they offer to affiliated advisors by 40 percent over the past 10 years, but many of these services are not valued or are poorly delivered. In particular, in-person sales support and marketing services are not valued by many of the advisors who receive them. Organizations should evaluate how to better tailor their services to advisors' specific needs.
- Advisors are reducing the number of insurance carriers they do business with and place approximately 50 percent of their insurance with their top carrier. They frequently switch insurance carriers, due primarily to non-competitive products, concerns about carrier stability, or poor service. This presents an opportunity for third parties to provide targeted services to independent advisors who value the support.
- Advisors are keen to introduce new technologies to their practices. The use of Skype/video technology will quadruple over the next four years, while the use of social media will more than double.
The study, conducted in the spring and summer of 2012, surveyed nearly 2,000 experienced financial advisors (with three or more years of tenure) across multiple distribution channels, including insurance companies, broker-dealers, banks and RIAs. The results of the study will help financial services companies provide the products, services and support that will maximize advisor productivity and strengthen relationships with their most productive advisors.
Catherine Theroux, LIMRA, (860) 285-7787, email@example.com
Allison Cooke Kellogg, McKinsey, (212)351-0746, firstname.lastname@example.org
LIMRA, a worldwide research, consulting and professional development organization, is the trusted source of industry knowledge, helping more than 850 insurance and financial services companies in 73 countries increase their marketing and distribution effectiveness. Visit LIMRA at www.limra.com
About McKinsey & Co.
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, operations, 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.