The managing general agency channel is well established in the delivery of insurance, but its role as a conduit for wealth management products is strengthening, according to Investor Economics.
In its Retail Brokerage Report published in late 2008, one of Investor Economics' (IE) key findings was that MGAs are significantly growing their wealth product business through the sale of life-related wealth offerings such as segregated funds, guaranteed withdrawal benefits and annuities and by "tapping into and-or partnering with mutual fund advisors and dealers."
Eighteen MGAs, a dozen insurers and some associations and other stakeholders participated in IE's research for this report. Investor Economics shared the report with The Insurance and Investment Journal for use in this Special Report on MGAs section. It is the first time the full report has been provided to a media outlet.
The market crisis of fall 2008 did not diminish the shift to wealth products, said IE during an interview with The Insurance and Investment Journal. Goshka Folda, Senior Managing Director, of IE and Guy Armstrong, Senior Analyst, said that to the contrary, the market crisis and the recession that followed helped to accelerate this trend.
"Many, many insurance advisors and MGAs felt that there was a unique opportunity to capture the clients that traditionally would have gone to an MFDA (Mutual Fund Dealers Association) or IIROC (Investment Industry Organization of Canada) firm or even a bank because they have access to wealth management products that have risk management features, i.e., segregated funds and GMWBs, which sold incredibly well throughout the down cycle," Ms. Folda explains.
Two years after the market crisis, the conditions are still favourable for this trend, she adds. "You're still facing a customer that is risk averse, that is generally more conservative, that is older, inevitably...so when you translate that into the idea that risk management is important, I think that creates a very good opportunity." As of July 2010, the MGA channel accounted for 30% of total segregated fund sales (see inset table).
Mr. Armstrong adds that insurance advisors sales savvy also explains the strength of their wealth sales during the down cycle. "The market will take a dip and all of the sudden the insurance sales will shoot up. There's an opportunity and they say ‘If I can't sell this, I'm going to sell that.'"
John Hamilton, President of MGA Financial Horizons Group, says he has definitely seen an acceleration in wealth business since the market crisis. "There hasn't even been a dip in sales. We've had steady, consistent growth and in 2009 and we had a significant increase in GICs (includes sales of guaranteed investment certificates and guaranteed investment annuities) as well."
Mr. Hamilton says his MGA saw GIC production double in 2009 compared to 2008. "What's happening in 2010 is that seg funds, GMWB sales, continue to be strong and the GICs continue to be strong. We're actually ahead of our 2009 pace in 2010."
Have product redesigns of seg funds and guaranteed withdrawal benefit (GWB) products affected sales? "It's affected which company sales are going to," observes Mr. Hamilton. "Manulife was certainly the leader, but they have had a major change in product. Our numbers with them are off and it's just been picked up by other companies because not everyone has made those changes. Desjardins was strong for awhile and now they've made some changes. So, the broker seems to move around where it's best for their client, which is what they should be doing."
Paul Brown, President and CEO of Worldsource Insurance Network, says in 2010 "Our growth and our revenue is about 40% over last year for wealth management products, which includes segregated funds (including GWBs), annuities and GICs and GIAs. Wealth management, in the last few years, has grown quite dramatically."
Mr. Brown says a couple of factors are behind this growth, including the advent of the GWB product, as well as advisors migrating back to using their insurance license to sell investments, versus mutual funds (MFDA) registration. "This is primarily because they want to be regulated in a principles-based environment as opposed to a rules-based environment," he says.
In addition, "just plain demand from the consumer" has driven GWB sales, Mr. Brown adds.
Does he think product redesigns will affect those sales? "Absolutely. One of the reasons that I think our results were so great is that there was somewhat of a fire sale on existing products that had very attractive features." Many times in his more than 20 year career, Mr. Brown says, "I've seen that where a product is going to be repriced, there's a huge spike in sales."
Ken Rousselle, President of Daystar Financial Group, also saw this trend. Last year sales of guaranteed withdrawal benefits products were strong and "We see a downward trend back now that the products have all been repriced. Most of the insurance companies have changed their product design and/or price. There's not as much of it being sold this year as in the past."
He agrees that last year there was a rush to get clients into GWBs before product and pricing changes came into effect. "Advisors, when they see a good product that can meet their clients' needs, they're going to sell it and they did a very good job of it last year."
With the changes in product design, he says GWBs are not as attractive as before...maturity resets have been changed, the pricing has gone up considerably in terms of the MERs."
Mr. Rouselle isn't pessimistic, however, about the future of wealth products in the insurance market. "Segregated funds in general will always have a need in the marketplace and advisors that are life licensed will always sell segregated funds as a wealth product." He adds that there will always be new designs and some will attract more money at certain times than others.
"In terms, of the GMWB, do I think there will still be a market for it? Yes, but not to the extent that there was." He adds that the attractiveness of the previous versions of this product brought in new market entrants, such as mutual fund advisors who were interested in selling these products to their clients. "Once the product isn't as attractive as it was in the past, you will see those people stop selling it."
Doug Paul, Executive Vice-President, Sales and Marketing, Transamerica Life Canada says, "The MGAs have definitely seen segregated funds become a bigger part of their business." He also accounts for this change by the introduction of guaranteed withdrawal benefit products. Transamerica offers its own GWB offering called Five for Life.
Mr. Paul thinks GWBs have reinvigorated many advisors' interest in the sale of life insurance investment products because they offer a long-term financial planning solution. "That fits into the wheelhouse of the typical life advisor" so this product has renewed their interest in adding wealth management to their life insurance business.
Does he think that changes will continue in insurers' wealth product lines? Mr. Paul says he does expect changes to these products in the future, "but I don't think that you could say, in any way, that this would reduce interest in segregated funds. There's still huge values to estate planning in these products."
Focus on life products
Mr. Armstrong points out that although Investor Economics research in the MGA sector showed a strong trend in wealth management, there are still a number of MGAs who prefer to focus on their core business of life insurance.
"Some very successful firms view their primary objective is to deliver life products and they felt that is where they belonged and they were very successful at doing that. In fact, some voiced some concern with the growing infatuation of the wealth side of the business." The worry is related to servicing of in force life business. "I think there is some concern...that agents should be keeping a closer eye on that particular ball and not be losing sight of that...and some believe the growing focus on wealth is taking part of the focus off that."