Retail Banks
Full-Service Brokers
Discount Brokers, Online Financial Services Companies, & No-Load Mutual Fund Companies
Independent Advisors
Life Insurance Agents, CPAs, & Lawyers
Boutique & Upscale Firms

Retail Banks

Some banks have amassed significant personal trust assets of over $100 billion, but there is a long list of criticisms of traditional bank trust departments including high fees, limited investment choice, poor investment performance, poor service, communication problems, personnel turnover, lack of face-to-face service, and difficulty in understanding statements.

While a lot of bank relationships with insurance companies have been established, life insurance sales have been slower than one would expect. When asked, only 25% of banks consider their insurance sales program successful. Banks account for 1.5% of all insurance sales versus 13% of mutual fund and variable annuities sales, and 28% of fixed annuities sales. The primary US bank insurance activities have been the distribution of annuities, credit life, and direct marketing insurance. Banks are failing to incorporate successful sales tactics used to sell other financial services like investments. Only three of twenty common promotional activities are used by banks, and only 18% provide referral compensation. The combination of these factors explains the reasons why banks have not been successful with insurance sales.

Full-Service Brokers

Banks are experiencing difficulty keeping up with changing market conditions thereby providing an opening for brokerage firms. Bank trust departments traditionally relied on inherited wealth to drive their trust operations, but the source of wealth is changing. Many banks have been slow in coordinating the various departments involved in asset management. Mergers disrupt long-standing relationships between upscale customers and personal trust officers. These factors create two distinct advantages for brokerage firms. First, an increasing amount of US wealth involves “first generation” money; the emerging affluent crowd is heavily populated by entrepreneurial business owners and corporate executives. Second, younger consumers prefer integrated and automated services and view regional brokerage offices as a reasonable substitute for bank branches.

Brokerage firms have gained much of the institutional and personal trust business lost by the banks. In 1991, brokerage firms accounted for only 5% of the personal and institutional trust market share. However, these firms have steadily captured assets, primarily at the expense of the banks, and now have one-third of the personal and institutional trust market share.

The number of non-bank trust companies has increased five fold in recent years as independent trust companies have emerged and more broker/dealers are integrating services. In 1998, there were only 117 non-bank companies offering trust services to consumers. In only five years, the number of non-bank trust companies grew nearly five fold to 564 companies.

Insurance companies view full-service brokers as a potentially new distribution channel as well. As insurance, brokerage, and banking firms continue to evolve into a more holistic financial services industry, brokers are becoming a more important link in the distribution chain for insurance products. Brokers realize that preserving assets is important to their clients and insurance is becoming an integral aspect of both asset accumulation and estate protection. However, less than 5% of brokers have sold life insurance products, while nearly 40% of them have sold annuity products. Insurance companies want to see more brokers selling life insurance and feel the opportunity exists for this to happen.

Discount Brokers, Online Financial Services, & No-Load Mutual Fund Companies

Direct sales of life insurance are growing rapidly, but many of the traditional full-serve players seem to be letting it go. Across all financial services, consumers are expressing a willingness to deal with a variety of providers on the web. Web sites are starting to pop up offering consumer insurance products especially designed for distribution over the web. However, direct no-load sales of policies still don’t exceed 4% of the overall market.

Independent Advisors

To gain a better understanding of the demand amongst independent advisors for trust services and to gain a better feel for how independent advisors handle trust services, Tiburon performed dozens of telephone interviews with independent advisors across several broker/dealers and custodians. The interviews revealed that demand is greatest for living trusts among independent advisors, followed by demand for corporate trustee services.

Independent reps sell a wide variety of non-annuity insurance products; almost all reps sell term life insurance. Specifically, amongst independent reps participating in Tiburon’s Independent Rep Best Practices Survey, 83% sell term life insurance. Other non-annuity insurance products sold by independent reps include long-term care 62%, disability 49%, survivorship 39%, health insurance 38%, and property & casualty 5%.

Many independent broker/dealers utilize an independent general agent for insurance sales support. Specifically, 42% of independent broker/dealers utilize an independent general agent for insurance sales support. The remaining 58% of independent broker/dealers utilize internal sales support for insurance sales support.

Life Insurance Agents, CPAs, & Lawyers

Many insurance manufacturers are abandoning their captive agents. The number of full time career agents has decreased quite significantly. Since 1983, this number has decreased by almost one quarter, or 22%. Career agency sales have declined and insurance companies have abandoned them because they are perceived to be inefficient, expensive, confusing, and difficult to manage. After insurance companies opened up their distribution channels via the independent insurance brokerage system, many career agents left to create their own independent shops. Unlike captive agents, or telephone or direct response representatives, independent insurance agents represent a number of companies and can research these companies’ products to find the right combination for their clients. For example, Ameriprise (American Express) advisors complain about their limited product range, low commissions, and some sour relationships with IDS Life. John Hancock has created a stand-alone distribution organization, Signator Financial Network. The new system lets the insurer’s 3,000 agents sell non-proprietary investment and insurance products along with its own John Hancock brand products. Even the exceptions, Northwestern Mutual Life, New York Life, and Mass Mutual, allow their agents to sell up to 40% non-proprietary products. In the P&C industry, however, firms like State Farm and Allstate still require 100% proprietary sales.

Independent agents & insurance producer groups are growing in prevalence. Although producer groups are in their infancy, their emergence may potentially be a realignment in the distribution of financial services. Independent shops realized that by pooling production and funding a central support office, they had increased buying power. Examples of independent producer groups include M Financial Group, Partners Financial, and the Hemisphere Group.

Boutique & Upscale Firms

Most of the well-established trust companies offer bundled models, with a few exceptions. Both Northern Trust and Bessemer Trust have stuck to their knittings and offer only bundled trust services to their extremely high net worth clients. US Trust and Wilmington Trust, on the other hand, have both entered the directed trust business. US Trust, due to its acquisition by Charles Schwab, is now providing Schwab fee-only financial advisors access to unbundled trust services. Wilmington Trust, on the other hand, has been one of the earliest providers of unbundled trust services to the independent advisor market.