Will Insurance Exchanges for RIAs Become the Next Big Thing? Prudential, Nationwide & Others Think Definitely

Envestnet is integrating insurance-based retirement solutions into its platform. With investors demanding 360-degree financial execution, we can’t fault the timing. In fact we’re following suit.

When opportunity knocks, it’s often because long-standing barriers are ready to fall. Survivors in the wealth management business have seen the walls come down again and again.

Now that I’ve seen Envestnet’s Insurance Exchange in action, I’m seeing huge cracks form in one of the biggest industry walls of all: the one separating the investment portfolio from insurance-based products.

A few months from now, advisors will be able to integrate annuity contracts from six leading carriers into their normal workflow. The products are right there on the screen, plugged into client views.

It’s not just a passive aggregated peek either. All the tools are there to build insurance into the IPS, make recommendations and make the transactions.

As long as the advisor in question has the certifications (the platform checks with the carrier), there’s no structural distinction between mutual funds and annuities beyond their intrinsic performance profiles and pricing.

The wall has come down. And with it gone, it’s clear which way the industry wind is blowing.

Say hello to the Annuity Channel

We started preparing our new Annuity Channel before we even got back from Envestnet’s annual Advisor Summit. From now on, that’s where you’ll find weekly coverage of that end of the marketplace and how it fits into a larger client financial plan.

A lot of advisors have spent their entire career ignoring anything related to insurance. Some are still nursing a standing grudge against annuities that’s rooted in a previous generation of expensive products and broken promises.

We get that. Insurance has always been a parallel world, with its own byzantine set of regulations and licensing requirements. Investment-oriented advisors who crossed over were a rarefied crowd.

But technology like the Insurance Exchange makes recommendations across the border easy. Anyone with the licenses can push the buttons. And if you don’t have the licenses, there’s no reason not to find a friend who does.

And there’s never been an intrinsic reason why some products were off limits. It’s just how the larger industry evolved, with a wall between equity and risk management.

For now, the wall is still in place until comprehensive insurance reform happens. (Some day it will.) Advisors who can see both sides at once have a distinct competitive advantage.

Think of your clients last year. Those who depend on current investment performance to pay the bills got a little nervous: how bad would the correction get? How long would they need to “stay the course?”

The problem with investment markets, of course, is that nobody can predict with 100% certainty what the answers will be. You can provide statistical confidence and a reasonable margin of error, but the gap between sure and “almost” sure is psychologically enormous.

Annuities have survived for generations because they can guarantee cash coming in on a predictable schedule. Sometimes the checks get bigger, but it would take a catastrophic carrier failure to take them off the table.

You know all of this. It’s every message the insurance industry has ever broadcast. What’s changing is that the modern wealth manager recognizes that eliminating basic income risk is a valuable component of any satisfying financial plan.

Clients will pay for confidence. That’s always been true. Give them that confidence on even a sliver of their overall portfolio and they’ll be far more comfortable chasing the efficient frontier everywhere else.

Their outcomes improve. Better outcomes feed strong referrals as well as more money to pass on to the heirs, which in turn produces wealthier second-generation clients. In the meantime, they’re lower maintenance. Less worry, less testing the risk tolerance.

It's why Envestnet now focuses on "financial wellness" as the success criterion. Absolute numbers are hollow. A good night's sleep is gold.

Part of the 360-degree view

Having cracked the regulatory code here, a platform like Envestnet can now theoretically support the whole range of risk management products, from life insurance through property to supplemental healthcare.

I suspect other networks will line up. If people like Orion and Vestmark weren’t already looking to build insurance (not to mention banking) into their TAMPs, this announcement raises the competitive heat.

In the foreseeable future, an advisor simply logs in to see the aggregate client footprint, weighing the odds of something going wrong against the cost of protecting against it.

The portfolio and the coverage profile communicate with each other as well as the bank balances that reflect cash flow and credit. For the advisor, it’s the dream of aggregation realized in an actionable way at last: if you see something, you can propose a solution instead of sit passively on the sidelines.

The client appreciates that. And the person who can provide that full-spectrum financial view is the true “advisor,” the professional they call first and fire last.

We’ve talked a lot over the years about the matrix approach to wealth management where a family maintains relationships with lawyers, portfolio managers, accountants, trustees, bankers and yes, insurance agents. 

That’s as true now as it ever was. But what’s shifting is that the investment advisor has a chance now to grab the leadership role as first among equals, directing the others to step in when needed.

When the aggregate view says it’s time to lock in a little more current income, it’s time to call the annuity sales desk or, if you have the licenses, do it yourself. 

There’s revenue in that transaction for someone. Maybe you share it, maybe you keep it. The point is that you’re always part of the conversation.

The accountant doesn’t have that access. The lawyer can’t do it. Bankers would love to do it, but they don’t have the technology. (Remember, Envestnet owns Yodlee, which sees into the banks. It doesn’t go both ways.)

Conventional insurance agents definitely don’t have the ability (or the motive) to integrate their recommendations into an investment portfolio. 

Someone with the 360-degree view has to be the leader. If that’s not you, it’s some other advisor who can see all the financial parts moving through an investor’s life.

One stat I heard at the conference last week: 65% of clients will leave you if you don’t provide an integrated experience. That means a holistic view of their financial position as well as the ability to read their reports on their phones.

They’re tired of jumping over walls and checking multiple sites to get all the data. They want it all from one source.

Big players in the insurance space can see the cracks in that wall. Allianz, Brighthouse, Global Atlantic, Jackson National, Nationwide and Prudential are already working together on the platform.

And while I could obviously talk about this for days, I think this is enough for now. We see the writing on the wall. We’ll be talking a lot more about annuities and insurance products here.

After all, it’s important to your client outcomes and it should be important to you. Welcome to the Annuities Channel. Let's build a saner future.


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