Insurance Fee Revenue Advisors are Missing

gfreeman@advis… |

fees-resized.jpgWhile fee-only advisors know they should be fully on top of their clients’ personal insurance issues, a much smaller number actually do this work. This represents one of the greatest lost opportunities we have seen in the otherwise excellent work performed by fee-only advisors. The failure to help clients navigate and manage their important insurance assets, can cost the clients and the advisor. From the clients’ perspective, great planning can be upended by insurance mistakes. And from the advisor’s perspective, you are not fully performing comprehensive planning – and – you are giving up a source of fully justified revenue. 

The revenue that advisors are missing is not commission income. That is something you carefully avoid. What we are talking about is the fees clients are willing to pay to assure that their insurance is being acquired, managed, and serviced correctly. If you are charging a fee for money under management, doesn’t the life insurance fall within the definition of a “Held-Away Asset”? If you are performing a critical service that actually differentiates you from other wealth managers, shouldn’t that effort be built into your fees in a way that the client has already accepted as reasonable? If you are advising clients on their outside 401(k)’s, you understand. 

Let’s take another look at the planning side of insurance. On the life insurance front, clients need to know how much is enough, how long coverage should remain in force, and what type of policy works the best for them. Once policies are acquired, clients need to know if that coverage is performing as planned and if it still fits their needs on a continuing basis. The one advisor best positioned to do this is the wealth manager. You need to protect your client from the guy at “Acme Mutual”, who is paid more to sell whole life and to sell unnecessary product features. Once a policy is sold to your client, the Acme Mutual agent also is paid to keep that coverage on the books, no matter if it is no longer needed or if the client’s financial situation changes. Even worse, the agent at Acme Mutual will rarely show more competitive products sold by other carriers. 

Long term care insurance and disability insurance have similar issues and naturally fit the same set of needs for accurate selection, maintenance and management. Those types of coverage require access to and knowledge of other carriers who may not even sell life insurance. Sure, Acme Mutual probably has its own long term care and disability policies, but it is rare that a carrier can win the spreadsheet wars for everything it sells. 

So, the question is how to fit the extra effort and care you can provide with your current fee schedule. To start, we need to quantify the work in order to know the fair level of fees. A strong advisor will likely need to be prepared to do any or all of the following: 


Determine insurance needs, both in terms of amount of coverage, type of policy, and duration 


Select the most competitive carriers, based on the needs just identified plus health issues 


Factor in all assumptions, carrier ratings, riders, and needed ease of underwriting 


Assure the proper implementation of the coverage, including selection of owners, beneficiaries, internal cash value allocations (if applicable), and planned premium pattern 


For policies that have been placed or are already owned by the client, set up a schedule of regular review, including reporting of values and modifications of projections due to rate changes 


As objectives change and as health changes, go back to the insurance to see if it is still meeting client needs 


Watch out for new products that could have more competitive pricing as well as carrier changes in rates or ratings 


Help clients make servicing changes (beneficiaries, premium changes, owners, etc). 


Help clients make claims when events occur 

But don’t throw up your hands and stop reading here. The good part is coming. 

This list may seem to be more work than you want to take on. Sadly, few clients ever have anyone to do this for them on a regular basis. Turnover at Acme Mutual is high and the number of “orphaned policies” is staggering. The need for this work cannot be overstated. And that’s where your opportunity lies. 

I said earlier that what you charge for this work really began with an estimate of the effort involved. Could you offer to do all of this work if you could not be paid? So, take another look at the 9-point list. What if you could outsource most of it? What if you could have an outside independent firm do all of the legwork, run down the numbers and quotes, and be the one who is stuck working through the phone tree and then left on hold when calling the carriers for information? Welcome to AdvisorServe. 

Our model is built on the idea of “Serve First”. We didn’t invent the idea, but Greg Freeman lived it for decades, beginning with a firm that fully implemented the concept. Serve First means that we serve our clients first, last and always, and the pay will take care of itself. You, the wealth manager, are our client. We are happy to do as much of the list as you want us to handle. You are free to limit your effort to the key client-facing issues, development of objectives, and selection of the best of the alternatives we present to you. The fact is that well over half of the services we perform for our advisors never result in a sale or any compensation for us. This has worked well for us so far, since we still receive sufficient revenue from the commissions that we can capture from the various carriers whenever sales occur. 

So now your true cost of delivering critical services is much lower. The time and resources required to fulfill your commitment to your clients is minimized, leaving the compensation under far less pressure. When done effectively, you should find your insurance fees have similar margins to your other Held- Away Asset fees, only on a smaller scale. One model we like is to base your fees on the cash values of your clients’ policies. This is especially helpful when clients own life insurance designed to generate tax free retirement income, cover the cost of long term care in the future, or fund long term estate tax oriented policies. In those situations you would have lamented seeing money under management diverted to insurance premiums. Now, it would remain under management. Cash value coverage often needs periodic review for the same allocation scrutiny as a client’s other investment assets. You should be paid for this effort. Of course, term insurance probably won’t fit here, but we can minimize your efforts so that extra compensation won’t be needed. 

A firm that fully implements this approach delivers a very valuable service to their clients, stands out above the other typical wealth managers, and even gets paid to do this! Most importantly, your clients will be well served and far less likely to ever consider moving to another firm. You will have lived up to a very high standard and have a process for which you can be very proud. 

Put life insurance in its proper place… on your fee schedule.