Financial Crisis Prompts Investors to Seek More Products with Risk-Protection Components

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As one-year anniversary of Dodd-Frank approaches, NAIFA members are surveyed on clients’ attitudes toward investment; implementation of an SEC rule on standard of care

Middle-income clients of financial advisors have become more interested in products with risk-protection components in the wake of the economic recession, according to a new survey of members of the National Association of Insurance and Financial Advisors. The trend is particularly pronounced among investors nearing retirement age, with more than eight of 10 advisors surveyed saying clients in this group are seeking products that will protect their investment principal in the event of a down market.

According to the survey of 914 NAIFA members, 84 percent say clients nearing retirement age are more interested in products with risk-protection components, while 57 percent say clients under the age of 40 are more interested in those types of products. When asked if the financial crisis has affected the types of products and services their clients are looking for, just 7 percent said the crisis has had no impact on the investment choices of clients nearing retirement age, while 28 percent said it has not affected the choices of clients under age 40.

“Risk management products like annuities have surged in popularity, particularly among older Americans,” said NAIFA President Terry K. Headley. “Clients are more interested than ever in protecting their nest eggs, ensuring that they can retire when they want and guaranteeing a lifetime income.”

The survey also found that four in 10 advisors (44 percent) said their typical client nearing retirement age has less than $500 a month to invest. Of clients nearing retirement age, advisors said the following:

  •     35 percent said these clients typically invest $101-$500 a month.
  •     6 percent said they typically invest $51-$100 a month.
  •     3 percent said they typically invest $50 a month.
  •     All told, 71 percent of NAIFA members said their typical client nearing retirement age invests less than $12,000 in a year (or less than $1,000 per month).

Nearly nine in ten advisors (86 percent) said their clients under the age of 40 have less than $500 a month to invest, according to the survey. Of clients under the age of 40, advisors said the following:

  •     50 percent said these clients typically invest $101-$500 a month.
  •     28 percent said they typically invest $51-$100 a month.
  •     8 percent said they typically invest less than $50 a month.
  •     Most advisors (94 percent) said their typical client under the age of 40 has less than $12,000 a year to invest in their future.

“It is not surprising that most of our members’ clients have less than $12,000 a year to invest,” Headley said. “Many of our members are community-based small business owners who provide affordable insurance and financial services to the middle-income market.” (According to a LIMRA study of NAIFA members, 58 percent of members’ clients have household incomes of less than $100,000, while just 11 percent have household incomes of more than $250,000.)

“These are regular Americans who are working hard to put aside funds to invest for the future financial security of their families,” Headley said. “NAIFA members provide these smaller investors with a place to turn for affordable financial products, services and advice.”

Only 7 percent of advisors said the financial crisis has had no impact on the investing habits of their clients nearing retirement age; 8 percent said these clients generally are no longer interested in investment products.

Attitudes on Fiduciary Duty Studied

Headley said that as the SEC examines how financial regulations are working to protect the investing public, “we need to be aware of the impact a universal fiduciary duty would have on our members’ ability to continue to serve the middle market. Further regulation could increase costs or force more NAIFA members to no longer provide financial products and advice, which would limit the number of consumers who can benefit from our services.”

According to the survey, seven out of 10 NAIFA members with an opinion said a regulation holding registered representatives to a fiduciary standard would not result in those advisors doing a better job for their clients. This reinforces data from the LIMRA survey of NAIFA members in which just one out of five said there would be a “practical difference” in how they would interact with their clients if they were under a legal fiduciary standard.

Meanwhile, 70 percent of NAIFA members said they did not believe clients would abandon advisors working under the suitability standard of care if the clients had a better understanding that those advisors were not bound by a fiduciary duty. An additional 14 percent said they were not sure.

“Clients aren’t concerned about whatever standard of care might be imposed by regulators or legislators,” said Headley. “They want a trustworthy advisor who responds promptly to their concerns and offers a high level of service along with quality products. An imposed universal fiduciary standard that increases costs and eliminates the ability of investors to choose how, and from whom, they receive financial products, advice and services would not be in the best interests of consumers.”

About NAIFA: NAIFA comprises nearly 600 state and local associations representing the interests of approximately 200,000 agents and their associates nationwide. NAIFA members focus their practices on one or more of the following: life insurance and annuities, health insurance and employee benefits, multiline, and financial advising and investments. The Association’s mission is to advocate for a positive legislative and regulatory environment, enhance business and professional skills, and promote the ethical conduct of its members.

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Mark Briscoe
NAIFA
703-770-8111
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Sheila Owens
NAIFA
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