There is a new presence in the financial services world, and that presence is the Registered Investment Advisory firm, or RIA. A simple description of the RIA is that an RIA firm houses investment professionals who provide unbiased financial advice and guidance to individual investors, based upon the investor’s risk profile, age, level of sophistication, and overall goals. An RIA considers many different types of investment possibilities for their clients, including stocks, bonds, mutual funds, real estate, commodities, and yes, investment-oriented insurance products. In some cases, representatives of RIA firms, often referred to as Investment Advisor Representatives (or IARs), are given discretion to direct and execute financial transactions on behalf of their clients.
An RIA firm houses investment professionals who provide unbiased financial advice and guidance to individual investors.
RIAs (and their IARs) can be paid in a variety of ways, including via sales commissions, partial sales commission and partial fees, and fee-only structures, where compensation is not related to the sale of a specific product. Instead, under a fee-only arrangement, advisors are compensated for their overall expertise and investment knowledge, and not on a product-centric basis. The failed attempt by the Department of Labor to enact a Fiduciary Rule triggered significant interest in the fee-only RIA space. Many advisors who previously operated in a commissioned or-quasi-commissioned environment have moved to fee-only RIA firms.
The heightened interest in fee-only RIAs has garnered the attention of the life insurance industry, also. Such RIAs represent a potentially large source of additional business to life carriers. At the same time, developing a RIA strategy may be more of a defensive tactic than an offensive tactic, as some insurers are concerned about the loss of inforce and new business as a result of rapid expansion into RIAs by competitors. And then there is the “latest thing” factor. Independent, unbiased investment advice is a popular concept today – insurers want to participate in this new, emerging opportunity.
However, the fee-only RIA space must be considered from a realistic perspective. First, many fee-only advisors dislike annuity products and are skeptical of their true value. Some have been vocal opponents. Others believe they can achieve the same end result as annuity products using other tools with lower costs and more liquidity. Fortunately, there are still others that have experience with annuities, have open minds, or are willing to have the benefits of including annuities in their clients’ portfolios shown to them. Second, insurers must meet fee-only advisors where they live, rather than the other way around. This means that insurers must create the technology links to advisors’ platforms and create the kind of connectivity that allows an advisor to seamlessly incorporate annuities into the advisors’ existing tool box. This is not a short or inexpensive effort. Third, while competitive products are important to RIAs, they are presently not the most important competitive lever to pull. Products must demonstrably fit a true need or provide excess returns or safety advantages. Over time, I expect the discernment around products to increase, but today, key annuity offerings include variable annuities, hybrid VAs, Fixed Indexed Annuities, and some SPIAs. Life and health insurance products, even simple term insurance, are a future consideration for RIAs.
It would be easy to think of the RIA space as just another potentially attractive distribution channel. Unfortunately, I believe that would be short-sighted. The level of sophistication, capability, support, and competition in the fee-only RIA space is increasing, and will only grow in the future. The centers of influence leveraged by insurers to accelerate progress in the RIA space do differ from those in traditional insurance initiatives. For these reasons, an insurer pursuing a RIA strategy should think of it as a brand new business line, not simply a new distribution outlet.
