The financial landscape is constantly changing, and it’s not just clients that must keep up with this upheaval.
A recent report from the Life Insurance Management Research Association (LIMRA) highlighted a number of changes on the horizon for insurance producers. The question for these professionals is how they plan to meet these challenges.
A change in standards
As professionals well know, not all specialists in the industry are held to the same standard. While some advisors may be held accountable under the fiduciary standard, others may only need to meet the requirements under the suitability standard.
However, many believe fiduciary standards will soon become the norm for all producers.
“Certain regulators and consumer advocates would like to hold agents and advisors currently operating under a suitability standard to a more stringent fiduciary standard,” LIMRA stated. “Seventy-five percent of insurance professionals feel that this is likely to happen within the next five years.”
While some professionals see such a change as an unnecessary regulatory burden – 4 in 10 say it would negatively impact their business – it would be wise for producers to prepare themselves for such a development.
Lifting the veil on commissions
Another likely development concerns how insurance professionals are paid.
LIMRA reported that 74 percent of insurance professionals believe commission disclosure will be mandatory in the next five years. Three in 10 professionals believe this will negatively impact their business.
“Price is only a consideration in the absence of value,” one independent insurance professional told LIMRA. “Therefore, viable solutions in the eyes of a client are worth the cost. However, if disclosed compensation is deemed to be excessive in the eyes of a client, they may choose to take the professional advice given and search for cheaper solutions through commoditized sources.”
With this in mind, it’s more important than ever for producers to show clients their value and also focus on relationship-building. Clients who recognize the advantages of working with a producer, and also feel a sense of loyalty, are less likely to take advice and run.
Meanwhile, some industry observers fear commissions may be banned altogether in the U.S. However, the number of individuals who believe this is likely is much smaller, with only 12 percent of insurance professionals saying it’s likely to occur in the next five years.
Another factor for insurance professionals to keep in mind is the changing demographics of the U.S. population.
“Generation Y is now a primary market for financial services and protection products,” LIMRA stated. “Generation X and Baby Boomers are saving for and moving into retirement. The nation’s cultural diversity has increased.”
Four in 10 professionals say this is a positive development for their business, and with changing demographics expanding the need for a wide range of products, it’s easy to see why.
Producers would be wise to ensure their services cater to a variety of client types, especially as more people reach the age where retirement and estate planning become more important.
In addition to life insurance, products like long-term care coverage and fixed annuities will become more viable for clients to consider.
Customization remains king
No matter what developments are on the horizon, one thing to remember is that consumers still place high value on products and services that are tailored to their specific needs.
Building trust is one factor financial services professionals continue to struggle with, according to the 2014 Edelman Trust Barometer.
“Despite slight improvements in trust levels compared to five years ago, the demand for structural and regulatory reform in the industry remains high across the globe, and the need to rebuild trust through performance is increasingly apparent,” Edelman stated in a release.
The best way for producers to accomplish this is to engage with consumers and convey a thorough understanding of what matters to them. Fortunately, the products and services producers provide are right in line with what most consumers care about: financial stability and security for loved ones.