Annuities have never been an easy sell for financial advisors. Until now.
Clients had to be convinced of the wisdom of investing a large sum of money and waiting decades for the payout. Advisors couldn’t consummate a sale unless they were licensed by the state where the potential sale was being made. And insurers typically buried advisors in a blizzard of paperwork filled with tiny type, boxes and blanks.
“Advisors often had to go back and forth so many times with changes, they would throw up their hands in frustration,” said Rich Romano, chief executive officer of FIDx, a privately held fintech company based in Berwyn, Penn.
Romano’s company built the intelligent software behind the Envestnet Insurance Exchange, a web platform giving financial advisors the ability to select, price, apply and get carrier approval.
The exchange is part of a larger wealth management ecosystem that Chicago-based Envestnet (2020 sales: $998.2 million) offers to some 100,000 registered investment advisors. More than a dozen insurers offer products on the Envestnet platform, including AIG, Prudential, TransAmerica, Allianz, Brighthouse Financial, Nationwide and Global Atlantic.
The FIDx-Envestnet setup is unique, said Paula Nelson, co-head and managing director of individual markets for Global Atlantic Financial Group, the first carrier to offers its products on the exchange when it first opened in 2018.
Investment and insurance products have historically relied on different sales, marketing and distribution channels. But financial services deregulation, coupled with networked communications, have dramatically reshaped the landscape, creating greater competition between both insurers and Wall Street firms.
Wealth managers have come to embrace the importance of using annuities to offer another source of portfolio income, shielding against the risk of market downdrafts. The problem, however, has been how to sell those products given the byzantine way insurance is sold in the United States. Carriers and agents must be licensed in every state where they wish to do business. At the same time, agents who typically sell insurance want a bigger piece of the investment management business. The two sides are converging.
The addition of annuities to the Envestnet platform marks an industry milestone, Nelson said.
“This is really about the industry collaborating to solve some of the pain points,” Nelson added. “We are beginning to see a convergence of sales organizations as we [insurers] move into the registered investment advisor space.”
Leading the transformation are fintechs like Envestnet. These firms are reshaping the financial service industry, putting pressure on how companies and advisors sell, package and deliver products.
Technology and artificial intelligence are increasingly being used to help make decisions and speed up processing. In the case of Envestnet, for example, the company uses AI to help advisors develop a comprehensive plan for a client’s portfolio, analyzing investment alternatives based on the client’s profile and other variables.
CNBC reports that fintech assets under management, estimated at $460 billion in 2020, are expected to top $1.2 trillion by 2024.
What’s behind the growth? Lower fees. Fintechs charge 0.25% to 0.50% of assets, compared with the typical 1%-2.5% charged by larger, more established firms.
Andrew Stavaridis, executive managing director at Envestnet, said the insurance exchange helps solve a long-standing problem of having two different sales channels – one group of advisors/agents selling insurance while another handled investments. This dichotomy made the planning process overly complex for advisors.
The Envestnet exchange creates a consistent, streamlined approach toward selling annuities, FIDx’s Romano said. Carriers can interact with advisors. And advisors get the tools they need to help clients make a decision about the insurance they are seeking to purchase.
The application process is simplified. Information entered into a client’s financial plan is automatically carried over to the insurance application. If an agent is not licensed to sell annuities, the application is outsourced to a central insurance desk that purchases the policy on the advisor’s behalf. The arrangement is compliant with state and federal laws, Romano said.
“The insurers like it, too,” Romano said. “They have had a tremendously difficult time penetrating this marketplace. Now, they have a platform that emphasizes the importance of annuities and it allows the insurers to service advisors with the products they need.”
This article originally appeared on Forbes.
