As RIAs kick stockbroker butt, old-line insurers like Nationwide are taking the RIA fee-based and open-architecture model seriously -- because they have to -- and target the $2 trillion fixed-income aspect of RIA portfolios.

December 5, 2018 — 8:40 PM UTC by Oisin Breen

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Brooke's Note: It is surprising on one level just how much RIAs cringe at the word "annuities." After all, no other product short of an old-line defined benefit program provides the kind of sleep-at-night income security of one of these much maligned products. The problem, of course, is that the price has simply been too high and sometimes way, way too high. And though the benefits of annuities are supposed to span years or decades, the advisors who deliver them pay attention to the clients, notoriously, only until the ink is dry on the contract. The contract is often an object lesson in small print and the widow who buys it has as much chance of winning as playing the slots in Vegas. We have been told for at least the past 15 years that all this was changing. For RIA journalists, it was Lucy with the football, though firms like Ameritas and Jefferson National carved out respectable niches. Now a prolonged new push (led by Jefferson National alums at DPL), new signings and a new tone from the protagonists are giving Jan Stenerud new confidence that the ball will stay still for a kick. It can't hurt that the aging bull market is making every RIA wish, on some level, it had more client assets in annuities right about now. "It's not easy to design and implement an income strategy for a client, and I think they see bringing insurance into the fold as a way to enhance their value proposition to their client," says Corey Walther, senior vice president of distribution and relationship management at Allianz. Very true.

The life insurance and annuity industry is making its biggest-ever press to conscript a whole new kind of sales force -- RIAs -- to sell its complicated products after brokers failed to drive new growth.

Most recently, between June and August, Allianz Life closed deals to sell its insurance and annuity wares through three separate RIA-focused resellers, DPL, RetireOne, and most notably, Envestnet, which joined the insurance reselling game in May.

Minneapolis-based Allianz also signed a data-agreement with RIA software stalwart Orion Advisor Services, and invested in 401(k) robo-TAMP Vestwell.

But it's not just Allianz that is taking steps to raise its RIA profile.

Edward Mercier
Edward Mercier: Insurance company distribution in traditional channels has flattened or contracted in some cases, so they're hungry for new distribution.

On Apr. 25 San Carlos, Calif.-based up-market robo-advisor Personal Capital agreed to manage the technology side of a deal to assign investment options built by $551 billion AUM (as of Sept. 13) New York insurer Alliance Bernstein through Lincolnshire, IL.-based benefits giant Alight Solutions, which has a number of Fortune 500 firms on its books. 

Nationwide is giving Jefferson National a needed boost by lending its top-tier brand. See: Nationwide buys Jefferson National under purported DOL duress but 'good private equity' and good planning may rule the day 

Even Vanguard Group is making a play.

Meanwhile, DPL Financial Partners is making its own play from Louisville, Ky. to upend the whole category by creating a supermarket of vetted no-load products from multiple providers.

"I don’t believe any of these moves independently are major. What is major are the moves as a collective. Allianz is clearly placing a lot of focus on becoming a big player in the RIA space," says David Lau, founder and CEO of DPL. He is former chief operating officer of Jefferson National, a pioneer in RIA annuities.

Lau adds that it's not as if the insurers are pro-commission, given that they don't receive them under most circumstances -- the broker does.

Fierce skepticism

Nevertheless, as intense as the activity is, the skepticism is just as fierce. The question is whether the non-sales model of RIAs can be conscripted and reshaped into eager insurance resellers of a sold-not-bought product -- a la many wirehouse brokers.

Insurance wholesalers just have a fundamentally different approach to how they sell products, and it grates with RIAs, giving them a reputation of being "notorious" to establish a relationship with, writes Bozeman, Mont.-based XY Planning Network founder Michael Kitces, on his popular Nerd's Eye View Blog.

RIAs have mistrusted annuity providers in the past.

"As an RIA, when wholesalers come at us with product ideas, we act as gatekeepers to fend them off ... I don’t want [their] money for my next client event where I get to present a new product and a sales idea that [they] gave me ... The entire traditional approach to wholesaling, I think, is in the process of breaking down," he asserts. 

It's true that right now, RIAs see insurance products as complex and "opaque," "where consumers have no idea how much they cost," says David Lau, CEO and founder of Louisville, KY-based RIA insurance distributor DPL Financial Partners, via email.

"As many [insurers] tell me, their biggest issue in the RIA channel is the name on their business cards," he writes. 

Insurers will need to learn how to speak RIA, if they want to tap into the $4 trillion market they serve, and they will, since it continues to outpace other markets, says Edward Mercier, president of Louisville, Ky.-based RIA insurance distributor RetireOne. "[But] wholesale, rapid adoption [is] unlikely ... until enough advisors have used and vetted them and become peer advocates."

The products insurers intend to tempt RIAs to sell include fixed annuities, which guarantee an income for a set number of years, regardless of market volatility, principal protection insurance, which ensures an investor at least recoups their initial investment, tax-defferred annuities that allow saving without immediate taxation, life insurance and health insurance.

The penny drops

Perhaps the most important thing insurers need to do to crack the RIA market is making sure their packaging makes sense, says Aaron Schumm, CEO of 401(k) robo-TAMP Vestwell, via email.

"A product that has attributes such as: fee-only, no surrender fees, and [is] portable, can help with traction in the RIA market ... [and] ultimately, annuities are a product that's sold, not bought ... [so] the packaging has to help sell it while [it's] in the hands of the advisor."

This isn't quite the case, says Aaron Klein, CEO of Auburn, Calif.-based risk management and model manager marketplace vendor Riskalyze, via email.

Aaron Schumm
Aaron Schumm: Corey [Walther] is dead on, with this being a long-term plan. It's definitely the right time to bring change to the industry.

"[This] idea that annuities and insurance products are 'old school brokerage' and not designed for the fiduciary world is a dramatic oversimplification. [But] breaking through that perception and giving fiduciary RIAs access to these tools in a way that fits their business model makes a ton of sense."

Yet, for decades, fee-based products in the insurance arena have been a "Waiting for Godot" category with only a handful of stalwarts making a go of it, including Lincoln, Neb.-based Ameritas, Louisville, Ky.'s Jefferson National -- now owned by Columbus, Ohio's Nationwide -- and more recently DPL.

Things are changing, says Corey Walther, senior vice president of distribution and relationship management at Allianz, the $136 billion AUM subsidiary of $2.2 trillion Allianz SE.

Allianz first developed fee-based offerings between 2009 and 2011, and it's absolutely right to say fee-based insurance products are essential for RIAs, he explains. "[But] now there's a much larger proliferation of fee-based annuities and that allows [insurers] to better align with RIAs, [because] even if they were interested in an annuity, if it was commission-only it felt like a mismatch."

It's not easy to design and implement an income strategy for a client, and they see bringing insurance into the fold as a way to enhance their value proposition to their client, Walther says. 

It might have taken a while for the penny to drop, but insurers really have gotten the point, says Mercier. “Old doesn’t mean dead … [and now] they're learning how to tailor their solutions.”

Insurers are listening, its true, but plenty of progress remains to be made, says Schumm. "The "old-line" firm may [still] have one or two products they want to include as part of their "core," but overall, they're looking for flexibility and open architecture."

RIAs may also be feeling the pressure to give insurance a second look, since the heat is on to serve as real wealth managers, and insurance, if used properly, is a way to mitigate risk in certain circumstances.

Indeed, even RIA software vendors have had to go back to school, says Lau. "You're not only seeing carriers focus on the RIA space, you're seeing the big technology providers like Orion, Envestnet, MoneyGuidePro and others build supporting technology for insurance," he notes.

On Sept. 12, MoneyGuidePro launched the fifth iteration of its software, and lauded the introduction of a life insurance needs analysis tool that introduces insurance-linked scenarios into the planning process.

An inflection point

The fact is although every party will have their own reasons to look at the RIA-insurer relationship again, insurers simply had "no choice." They're "following the money to the RIA segment," says Eric Clarke, CEO of Omaha, Neb.-based Orion, via email.

Aaron Klein
Aaron Klein: A big part of what Allianz is doing is simply investing in the direction the industry is going ... [and] Envestnet gets to sit in the middle and earn the distribution value of those transactions.

“All of the sudden Allianz, who once was best known for annuity sales, has an entire business unit led by Robert DeChellis, focused on RIA Practice Management,” says Lau. 

It's not just the money, or even RIA success that's pushing the insurers to attempt to make real inroads in the wealth management space; the DOL rule, even though it's been overturned, has "let the toothpaste out of the tube,"  Lau says.

"[It] awakened carriers to the change that's coming to the insurance industry … fiduciaries are coming to insurance, and soon it will no longer be acceptable to have opaque products where consumers have no idea how much they cost,” he adds. 

It's a market-wide shift that's been a long time coming, Walther agrees. 

Between 2009 and 2011, Walther was involved in an earlier attempt by Allianz' to gain RIA marketshare when the firm launched fee-based offerings that failed to gain mainstream traction.

The last time Allianz tried this, it was dipping it's toe in the water, but the technology and interest weren't quite there, but now it is -- it's all in, says Walther.

Robert DeChellis
Robert DeChellis has spent twelve years at Allianz, and is president and chief strategist of its strategic business unit, Allianz Exchange.

"I see things, this time around, that make this an inflection point … this confluence of consumer demand, technology, and fee compression at RIAs … With respect to Orion, Envestnet and others, these are major initiatives and investments that we're making towards our commitment to supporting RIAs … Now is the time to expand.”

Rare opportunity

Should Allianz and others succeed in breaking into an industry that tends to have little awareness of their brands, there's an "enormous" opportunity at hand, says Lau.

"Insurance solutions make the most sense as part of what's traditionally the fixed income allocation for a client ... [This] opens half of that $4 trillion RIA market up as pretty much virgin territory for insurance carriers who can build low-cost, transparent products."

But it's not just insurers who aim to make a killing, if only they can find the right way to sell their wares.

The $2.6 billion market-cap Chicago-based RIA software and outsourcing giant Envestnet plans to make waves with its May announced Insurance Exchange, a direct-to-RIA insurance marketplace. Built by Villanova, Pa.-based Fiduciary Exchange, it puts products like Allianz's in front of RIAs, and even helps chaperone the uninitiated with "guidance."

Jud Bergman
Envestnet's Insurance platform is another piece in the puzzle as the firm pursues an all-in-one "wellness" strategy, driven by CEO Jud Bergman (pictured).

Indeed, the trend of consolidation that sees all roads lead to RIAs is only going to be good for Envestnet, CEO Jud Bergman told investors in the firm's Aug. 7 earnings call.

"Whether it's in the registered investment advisor channel or the broker dealer channel or the insurance channel, [it] has on balance favored us, because of our leading market share position," he says. 

Bergman's right that Envestnet stand to win here; there's an opportunity to create a "fiduciary buffer" that gives all RIAs, big or small, equal access to insurance products by commoditizing the annuity market, says Klein.

"If 10% of Envestnet’s fiduciary RIA clients start putting annuity products through this marketplace into 10% of their client accounts, that’s some pretty great icing on the Envestnet cake."

Unlike DPL and RetireOne, which only offer a limited number of Allianz' products, Envestnet will offer the insurer's entire portfolio of annuities, inclusive of fee and commission-based products.

Allianz, which employs 2,200 people in the US alone, is not the only insurer to have publicly signed on with Envestnet. NYC-based Global Atlantic Financial Group, a 2013 Goldman Sachs insurance spin-off with $4.1 billion in assets under its management, was the first to join.


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Diligence Guy said:

December 6, 2018 — 7:54 PM UTC

Swap out alternatives for annuities, change the cast of characters, and you basically have another article ready to go. It’s the same story.

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