Insurance agents, now more than ever, are considering the advantages of the fee-based investment management business, especially high-end agents with affluent clientele who view their books of business as potential gold mines for investment services.

In a survey of 494 high-end insurance agents (generating $100,000 or more in first-year life insurance commissions in each of the last five years), 57.1 percent expressed considerable interest in becoming actively involved in the fee-based investment management.

Furthermore, younger insurance agents are even more excited about fee-based investment management than older agents. (See Exhibit 1.) Agents up to aged 45 are much more interested (84.4 percent) than agents over 45 (35.5 percent). Younger agents tend to be more comfortable with the nature of investments.

For insurance agents, the attraction of fee-based investment management is four-fold. (See Exhibit 2.) The reason most are interested in fee-based investment management is the perceived profitability of the business.

Another major reason for the interest among high-end insurance agents is that fee-based investment management is a service that is in demand from their affluent clients. In some respects, providing fee-based investment management services is a defensive move. To compete with stock brokers, banks and independent investment advisers that are offering insurance products to their affluent clients, agents must similarly offer a broader spectrum of financial services.

As noted, many high-end insurance agents (81.2 percent) already have a well-developed affluent clientele that can be leveraged. Adding fee-based investment management services enables them to generate more revenue from current well-to-do clients which is considerably easier than looking for new affluent clients who need insurance products.

Finally, the majority of high-end insurance agents (71.3 percent) are attracted to the annuity nature of the fee-based investment management business. For the most part, life insurance products are front-loaded. This necessitates that insurance agents must always be looking for new sales. Clearly, having a steady stream of revenue can be very attractive.

The problem faced by many agents is how to enter and work in the fee-based investment management business. Of the 282 high-end insurance agents very interested in becoming fee-based investment advisers, 67.4 percent are very concerned about the steps needed to incorporate fee-based investment management services into their current practice.

One approach is to work through their primary insurance company. Insurance companies have broker/dealers and are gearing up to accommodate successful insurance agents interested in providing fee-based investment management services.

Another option is to affiliate with a producer group or insurance brokerage network that is able to deliver the same support services. For the most part, however, few of these arrangements are equipped to assist high-end insurance agents in becoming fee-based investment advisers. But, as more and more high-end insurance agents move into the money management field, producer groups and insurance brokerage networks will be able to accommodate them.

Another option is for insurance agents to become independent, in which case, they can affiliate with a broker/dealer or a service firm such as Fidelity Investment Adviser Group. Insurance agents, even so-called captive agents have the ability to place business most anywhere.

More than ever before, the insurance industry, with respect to the affluent, exhibits a distinct break between the manufacturers of product (i.e. insurers) and distributors (i.e. agents).

This industry dynamic does not work well for the insurers when it comes to the fee-based investment management business. High-end insurance agents are accustomed to getting the highest possible commission pay-outs. This becomes a problem if the ability to be an investment adviser is tied to general agency system. In this scenario, the general agents would receive some of the compensation. The question high-end insurance agents are raising is, What value does the insurance company provide?

Insurance companies are becoming increasingly sensitive to the desire of insurance agents to be fee-based investment advisers. Most have broker/dealers and a significant number have their own investment management units. These insurers are looking to empower high-end insurance agents who are interested in providing fee-based investment management services to affluent individuals.

To date, the focus of these insurers has been on providing the opportunity to sell variable products, mutual funds, wrap accounts and similar investment products. However, with the trend decidedly in favor of fee-based investment management, a number of insurers are taking steps to assist insurance agents work in this manner. Some of the support services currently being provided or on the drawing board include:

Arranging for the insurance agent to become a registered investment adviser.

Handling the on-going paper work associated with being a registered investment adviser.

Assisting in dealing with compliance issues.

Providing a range of investment vehicles.

Arranging for advanced training.

Providing marketing support.

In the near future, insurance companies, producer groups and insurance brokerage networks, as well as the free standing broker/dealers and service firms, all will be focusing their efforts on winning the business of high-end agents who are in or are entering the fee-based investment management business. The high-end insurance agents will be the benefactors of the competition for their business. Concurrently, the companies, producer groups, or insurance networks that provide the greatest value to insurance agents will win their business.

Mr. Prince is principal of Prince & Associates, a Stratford, Conn. research and consulting firm.

Reproduced from National Underwriter Life & Health/Financial Services Edition, September, 30 1996.

All rights reserved.