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Is insurance ‘the wave of the future’ for advisors?

Non-commission insurance products may be the “wave of the future” for financial advisors, says NAPFA chairman Stephen Craffen.

Recommending insurance products or agents would allow advisors to work with clients “traditionally associated with brokers” and open up an “untapped market” for insurance companies, says Craffen, a partner at Stonegate Wealth Management in Oakland, New Jersey.

NAPFA has been facilitating programs around the topic for over a year and drawing standing room only crowds, according to CEO Geoffrey Brown.

Insurance has been tainted by “misconceptions” about products and structures companies have offered in the past and advisors appear eager to understand how the industry has evolved, Brown says.

Advisors may eventually vet insurance agents for clients, according to Craffen. But he also envisioned the possibility of a “direct to advisor channel” from manufacturers, eliminating contact with existing insurance agents.

NAPFA - Brown and Craffen

In a joint interview with Financial Planning, Brown and Craffen also expressed the organization’s disappointment with the SEC’s Regulation Best Interest, a rule proposal intended update standards of conduct for brokers. It’s come under withering criticism from investor advocacy and other groups that also supported the now defunct Department of Labor fiduciary rule.

The proposed SEC rule is “woefully underwhelming,” according to Brown. “It does not reflect what we would have hoped to have seen.”

NAPFA members were particularly unhappy with the rule’s “false equivalency” between standards for brokers and independent advisors, according to Brown and Craffen. While NAPFA had no problem with separate channels, “consumers need to be able to distinguish between the two,” Brown explained.

Michael Kitces' proposal that RIAs pay a custody fee has not caught fire with NAPFA members.

But NAPFA members were not similarly engaged in another industry controversy, the executives said. The recent proposal by Michael Kitces that RIAs pay a custody fee has not aroused much interest among members, Brown says.

Kitces has argued that custodians and RIAs are “increasingly in conflict with one another” because custodians make their money by collecting fees from an advisor’s clients, while advisors are (or should be) looking for ways to minimize the amount of those fees.

A fee would correct a custodial business model that is “fundamentally misaligned” with advisors and provide greater transparency for clients, according to Kitces. But that argument has not caught fire with NAPFA members, who have other priorities when it comes to “areas where consumers may be harmed,” Brown says.

Cybersecurity, on the other hand, is a top of mind issue for members, according to the executives.

Advisors are scrambling to come up with solutions and are beginning to get questions about cybersecurity from clients, they report.

“I think none of us knows how to address it properly,” Craffen says.

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