Insurance advisors saw the investment component of their businesses grow significantly last year, but that trend appears to be reversing in 2016. Advisors are once again focusing primarily on their core competency – traditional insurance products.

The results of Investment Executive‘s (IE) Insurance Advisors’ Report Card show that the average insurance advisor is shifting away from investment products, such as mutual funds and segregated funds, and toward traditional life insurance products and living benefits.

For example, the average advisor in this year’s survey year reported average investment assets under management (AUM) of $18.4 million, down from $25 million in 2015. This notable drop in average AUM is evident within the overall advisor population surveyed this year, as well as when that population is segmented into the top 20% of advisors (as measured by AUM/client household) and the remaining 80% of advisors.

The shift to devoting more time and effort on core life insurance business may reflect, to some extent, inherent volatility in the data on insurance reps’ investment businesses, given the relatively small sample sizes – particularly for the segmented data.

However, these trends also may stem from the heightened volatility that has gripped financial markets over the past year, leading both clients and advisors to place greater emphasis on insurance.

A possible third factor contributing to smaller investment books may be changes in the advisor population itself, which appears to be somewhat younger overall than the group who participated in last year’s survey.

The average age of those surveyed this year has dropped to 49.4 from 51.0 in last year’s survey. This decline indicates that although the overall population of advisors remains on the older side, there has been some infusion of younger advisors – at least, in terms of those responding to the survey – over the past year.

Accompanying this decline in average age is a corresponding drop in average tenure in the industry. The average rep reports that he or she has been in the business for 19.2 years, down from 21.9 years in 2015.

This length of tenure means that the reps participating in the survey have had less time, on average, to build up the investment side of their books. And given that a greater proportion of survey participants haven’t been in the business a long as those in last year’s survey, this also may affect their ability to grow their investment assets.

However, this decline in average age and industry experience – along with investment AUM – does not appear to be having an impact on the size of the client rosters. In fact, the average rep reported a modest increase in his or her client roster to 593.9 client households from 585.8 in 2015.

The combination of an increase in the average rep’s number of client households with the drop in average investment AUM also results in a dip in average productivity – to $73,291 from $74,527, as measured by AUM/client household.

Of course, investment AUM and productivity are not the key metrics for most insurance advisors. That fact is increasingly evident in this year’s survey, which shows that the investment side of most reps’ business is becoming less important in terms of the revenue that advisors generate.

For example, the average rep reported that the proportion of his or her revenue derived from fees and asset-based sources is down to 12.9% from 20.5% year-over-year.

Instead, traditional insurance revenue sources – including first-year commissions and renewals – are on the upswing. First-year commissions remained the largest single source of advisors’ revenue, at 56.4% vs 52.3% last year. Renewals also grew, with the contribution from this revenue source rising to 26.0% this year from 21.5% in 2015.

Moreover, the rise in first-year commissions was driven by a surge in sales of life products and living benefits products. Case in point: average first-year commissions for life insurance products in this year’s survey was $160,085, up from $117,750 last year. In addition, average first-year commissions from the sale of living benefits products more than doubled to $61,970 this year from $28,714 in 2015.

At the same time, advisors reported that their first-year commissions from the sales of seg funds declined to $59,048 from $65,218 last year – adding to the evidence that suggests investments have become less important to the average advisor over the past year, even when those investments are considered insurance products.

This finding that reps have been spending less time selling investments and more time on core insurance products is supported by the data on insurance product distribution. Insurance advisors reported that seg funds made up 18.5% of the average book this year, down from 22.7% last year.

The proportions of the average book accounted for by other products, such as term life insurance and permanent life insurance, were either stable or up slightly this year compared with 2015. Term and permanent life remained neck and neck as the product categories that represent the largest share of the average book, at 29.0% and 27.8%, respectively.

Meanwhile, living benefits products had the largest uptick in market share this year. They now represent 16.7% of the average advisor’s book, up from 14.6% in 2015.

Within the living benefits category, there was a modest shift over the past year in favour of critical illness (CI) products at the expense of disability products. CI now comprises 53.8% of the average advisor’s living benefits business, up from 50.7% last year. At the same time, disability products’ share of book dropped to 40.9% this year from 44.6% last year.

There also was a shift in product mix within the permanent life category. Advisors reported that they are making greater use of both universal life products and term-100 products at the expense of whole life products. Last year, whole life accounted for 49.5% of the average advisor’s permanent life business.

This year, that percentage was down to 40.2%, with universal life jumping to 44.5% from 39.9% in 2015, and term-100 increasing to 14.3% from 10.6% last year.

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