Times are changing
February 23, 2010 by Matthew J. Rettick
Published 2/2/2010
The financial services industry has experienced its share of changes in recent years, and more specifically, the insurance industry. In light of recent events, these changes are merely the beginning of what could be coming in the near future. Advisors need to adapt to meet the challenges of this new era, to deliver a full spectrum of products and services, to reinvent themselves and the industry, and to better serve families who desperately need the wisdom and counsel of a “True Advisor” partnership.
The wave of change
This wave of change began in August 2005 with the NASD’s “Notice to Members” 05-50. In the brief report issued by the NASD (now FINRA) regarding the notice, they said it “… addresses the responsibility of firms to supervise the sale by their associated persons of equity-indexed annuities (EIAs) that are not registered under the federal securities laws.” The Notice suggested that broker-dealers supervise the sale of all unregistered fixed indexed annuities, completely revising their treatment, making them more like a security than an insurance product.
Following the notice, there was an increase in advisor scrutiny by a number of state departments of securities, with accusations that advisors were providing investment advice without the appropriate licenses or registrations. In September 2007, the SEC, in conjunction with NASAA, held its 2nd Annual Senior’s Summit, where the financial seminar sales and marketing practices of advisors came under fire. Broker-dealers friendly to fixed indexed annuity (FIA) insurance products started to become more difficult to find. Adding insult to injury, in April 2008, “Dateline NBC” ran an exposé on annuity sales people and their practices, showcasing insurance advisors selling insurance products in a negative light.
Most recently, the SEC’s Proposed Rule 151A is an effort to reorganize the regulation of FIAs and categorize all fixed indexed annuities as registered securities due to the product’s correlation to market performance as a method for crediting an account. Under this proposed rule, which is now scheduled to become effective Jan. 12, 2013, certain indexed annuities would be classified as securities and would fall under the same regulatory rules. FINRA and the SEC would have authority over the sales of FIAs and the advisors representing the product would be required to have a securities license and operate under the supervision of a broker-dealer. While the jury is still out on the outcome of this proposition, the proposed reregulation of the industry’s flagship product has left many insurance-licensed advisors in a tailspin, trying to decide how to move forward.
Trouble on Main Street
It’s not just insurance professionals who have had challenges in the last few years. For Americans, 2008 and 2009 were years marked with double-digit market losses in account values, plunging real estate values, nationwide bank failures, controversial corporate bailouts, unprecedented government spending, and more.
Only to add to the severity of the economic crisis, the greed and corruption of America’s business leaders, CEOs, politicians and financial managers, to name a few, came to the forefront, all negatively impacting the financial security and confidence of Main Street America. Consumers have lost substantial portions of their investment and retirement portfolios, leaving many to feel misled by their financial advisors and feel as if they were stolen from, lied to, abandoned, denounced and left to fend for themselves.
Bernie Madoff and other Ponzi-type schemes came to the forefront in recent years, with 2009 experiencing nearly four times as many Ponzi scheme collapses compared to the year before. These investment scandals cheated investors out of billions of dollars collectively, predominately in the name of greed and desperation.
The scandals dealt a hard blow to our industry and while it has become apparent that change needs to occur, some within the industry are exhausting their energy fighting proposed change rather than recognizing the need for improvement. While the proposed re-regulation of insurance products is a bit excessive, the underlying message is credible: Something needs to change.
American consumers need to have trust in their financial advisor, and advisors need to be thoroughly qualified to handle a client’s financial accounts in their entirety. Advisors handling a client’s financial future, including retirement, need to be qualified, educated and must understand there are consequences for their actions. For example, they need to understand how liquidating an account to place funds in another could potentially be helpful or harmful to the clients they serve. After all, as a retirement advisor, they are holding someone’s financial future in their hands and just one bad financial decision could have a lasting impact.
Change can be exciting and invigorating, but it can also be intimidating and potentially cause distress, especially if it impacts your livelihood. Advisors who are intimidated by change may feel that way because they are not sure of what change means for them and their practice and they are unsure of how to react. Instead of being afraid of change, and fighting it, I propose that advisors embrace change and learn how to thrive in a new environment. With change comes opportunity, and while evolving your practice or getting new licenses may seem a bit daunting, consider this an opportunity to both master your trade in its entirety and better serve your clients.
Changing our industry reputation
The first step to take is to win back the trust of consumers. Consumers have lost confidence in the financial industry and its advisors. There is no one-size-fits-all solution for clients, and although FIAs provide a number of benefits, as advisors, it is important to recognize the need for other services and products in order to build a comprehensive financial plan that works in today’s fluid environment.
A comprehensive plan may include income planning, insurance and financial planning, retirement planning, investment advice, estate and legacy planning, asset protection, tax efficiency strategies and long-term care planning, using securities products, managed money and insurance solutions. An advisor who has the ability to offer multiple solutions can provide clients unbiased, all-inclusive client-specific recommendations, producing absolute financial solutions and security when addressing a client’s total financial well-being.
The client would be properly served, satisfied and financially prepared, thinking highly of the advisor who helped them achieve peace of mind.
Becoming a True Advisor
A True Advisor is someone who acts as a consultant, guide and counselor and always has the best interest of his client in mind. By becoming a True Advisor, you can help change the paradigm within the industry and gather the tools you need to grow your practice, no matter the results of industry change. Adjusting the way you think and operate within the industry by daring to become a True Advisor will help to welcome a new era for the financial industry where advisors are a trusted resource for their clients, not just another financial representative. A True Advisor is licensed to provide all financial services and advice, believes in ongoing education and always strives to do best for the client.
By becoming comprehensive in your offerings and licenses, you would have the ability to provide full disclosure and transparency to your clients regarding all proposed strategies, solutions, recommendations and compensation structures. This will make your clients feel more at ease and comfortable with their decision in making and keeping you as their advisor.
Understanding the full universe of financial products allows for greater flexibility in building a comprehensive plan that is tailored to fit a client’s specific short-term and long-term financial needs and goals. A True Advisor is a trusted advisor who can advise on potential problems before they become a problem because they have the licenses, skills and know-how to comprehensively advise.
Moving ahead with confidence
As an advisor who embraces change, you won’t have to be as concerned about government re-regulation or other occurrences that impact the industry. If you understand and use all disciplines available to you within the financial industry, a change in one won’t affect you as greatly, you have more than one resource to work with.
In this new era in the financial services industry, advisors who chose to be ethical and dedicated can thrive during difficult economic times. Consumers can rely on True Advisors to offer the information they need to make better financial decisions. As an advisor, you must commit to change and realize empowerment begins with educating yourself and your clients on all the options available. Offering a broad selection of solutions can lead to better results, for both you and your clients.
Change can be good if you learn to embrace it. Commit to being part of the evolution and solution to the financial industry’s greatest problem and embrace the vision for a new era. Become the comprehensive go-to resource consumers can rely on to help them make informed, intelligent decisions.
We may not know what changes are coming in 2010, but if you’re ready and willing to adapt and become a True Advisor, you will not only survive, but thrive, in this new and critical era in financial services. And more importantly, you’ll be better able to really serve the needs of America’s families in these challenging times.
Accomplished advisor, author, presenter and mentor Matthew J. Rettick is president and founder of insurance marketing organization, Covenant Reliance Producers (CRP), and co-founder of Producers Equity Group (PEG), a financial holding company that offers independent financial advisors insurance, securities and managed money solutions from one entity. To learn more about PEG, visit www.ProducersEquity.com or call (877) 620-4401.
