Estimated Time to Read: 4 Minutes
For some Advisors, they started in this business selling insurance products. For others, they never felt the need to and figured out a solution only when needed. But no matter which side of the spectrum you find yourself closer to, it is hard for anyone to deny the benefits insurance can provide or the solutions they bring to the client planning process. When an advisor transitions to an Independent RIA, they are left to find solutions for annuity and life insurance products, just like they would for investment platforms and reporting tools. The good news is they have many options, it is just how they choose to gain access to those products for customers.
The options are growing as insurance and technology companies follow the trends and continue to invest into making it easier to partner with the growing RIA space. Today’s post is about how an RIA can access insurance solutions and why it is worth considering having a strategy.
If you lead with Financial Planning, as many RIAs do, having an Insurance strategy is a must. Insurance discussions often prompt crucial conversations about long-term security and risk, and equip an advisor with more tools to address a client's specific needs, like lifetime retirement income, death benefit guarantees, tax deferral, or legacy planning.
Integrating insurance as a service can be seen as a competitive advantage. It enables you to be in control of the client experience and be in charge of their overall plan. As client expectations grow you are better positioned to become a “one-stop-shop.” On the other side of the coin, client’s become instantly “stickier” as well.
Finally, RIAs can get the potential for new revenue sources and to help drive top-line growth for RIAs. To collect their revenue, an RIA has options, some of which are dependent licensing and how the RIA delivers the service (more on that below). Ultimately, RIAs can treat insurance as an asset class and charge their typical AUM fee against the cash value of the product, such as indexed or variable annuities and variable universal life insurance. RIAs may also choose to use a retainer model, charge hourly fees or include it as part of their planning fees for the work that they do. For insurance products that don’t carry a cash balance, RIAs may choose to offer these as an added service without adding a separate fee.
Fixed Insurance products, such as fixed annuities, life insurance, and disability insurance, generally only require an insurance license. A Series 7 license and a broker-dealer affiliation are not required.
Variable Insurance products, such as variable annuities and variable life insurance, generally require a securities license, typically a Series 7, in addition to an insurance license. Some fee-based variable annuities are available today (which would require an insurance license-only), however these currently represent a very small percentage of the variable annuity market.
To offer variable products, an RIA is typically affiliated with a broker-dealer, or work with a company that can supply a broker-dealer. For example, some insurance partners will supply a broker-dealer for advisors to use, or some can act as the broker-dealer or "advisor of record" on the insurance contract. In these cases, the advisor acts as a limited power of attorney on the contracts, and does not need a Series 6, 63, or 7 license.
**Please contact your CCO to ensure you understand all requirements.
An RIA that offers insurance "In-House" is taking on all aspects of the insurance process, from product research to product selection to policy implementation, and is directly responsible for all of these functions. You must affiliate with a broker dealer, maintain license requirements and disclosures, and invest time and money into building expertise, the staff, and solutions that your clients require.
The primary advantage of handling insurance in-house is maintaining complete control over the process. The RIA can ensure that insurance recommendations align perfectly with their overall financial and product strategies, and that they can manage the entire client experience. If executed well, new client policy onboarding and implementation is more efficient. Finally, with complete control also comes the potential to capture all revenue generated from the sale of insurance products, whether through commissions or fees.
But as the saying goes, with great control also comes great responsibility… The RIA is responsible for ensuring that all insurance activities comply with regulatory requirements. This includes maintaining fiduciary standards, disclosing conflicts of interest, and keeping up with changes in regulations.
Oftentimes, when insurance is not an essential part of an RIA’s value proposition, a partner may make sense. RIA’s may even consider a hybrid approach, where they handle certain types of insurance products in-house (where they have expertise) but partner with a third-party insurance partner for others. There are varying levels so let’s dive in.
Partnering with an Insurance Distribution Partner involves outsourcing some or all of the insurance-related tasks to a third-party organization. Platforms can offer licensing support, or even act as the agent of record if the RIA does not have the necessary insurance or securities license. They also can provide compliance support as well.
A key benefit is an expanded set of products that comes with specialized knowledge and experience alongside strategic partners that can assist with product research, analysis, and comparisons. An RIA can choose “how” they partner with the platform, meaning the insurance partner can be completely behind the scenes, or be brought in as a “subject-matter-expert” and participate in client reviews. Importantly, the administrative burden of application processing and underwriting assistance is outsourced, allowing you and your staff to focus on the client.
The costs vary by platform and insurance type, but ultimately the RIA may have to share some of the revenue with the partner. Please reach out to the tru team to discuss more.