John Lefferts' Blog

Thursday, March 26, 2015

The Battle Cry of the Not So Quiet Company

The news this week about life insurer Northwest Mutual acquiring online financial planning firm LearnVest caught many in the industry by surprise. Up to now, the whole argument about who will survive the uber competitive and evolving financial services landscape has been framed as the independent RIA versus the “stockbroker”. So when a life insurance company crashes the party, it’s met with disbelief and confusionas if to say “How dare a life insurance company encroach on OUR domain!” In Bob Veres Inside Information newsletter (which I’ve been subscribed to since the 90’s) this month, he cited the current fractured financial planning community as being made up of tribes. I agree with Bob that the financial planning industry is made up of numerous “tribes” with varying backgrounds and disciplines. But he goes on to specifically exclude “Wall Street and the top sales agents among the independent broker-dealers and insurance companies” from the tribal nation. This is where I disagree.
Our business has its roots in silo’s predicated on what products were 
being manufactured, sold and thus, regulated separately. It was once a simple business. The stockbroker regulated by what is now FINRA sold only stocks and bonds, the investment advisor regulated by the SEC gave only advice and the insurance agent regulated by the states sold only life insurance and related products. Yes, today we still see vestiges of the old world disciplines, but they are a dying breed. As Illustrated in the chart below, the solo single discipline practitioner is being replaced by the muti-disciplined ensemble team. And this is happening in the wires, independents and insurance companies alike. Despite the current matrix of duplicate and often triplicate overlapping regulations, the business is harmonizing organically. Whether regulations catch up to this reality is another discussion altogether, but inertia is on the side of it happening regardless. This is why it is so laughable to me when I read the financial media narrowly defining the argument as stockbroker (do they even exist today?) versus RIA when they essentially perform the same service and are both compensated largely by fees.
So what about the life insurance interloper? Did LifeVest “sell out” to the quiet company as some have indicated? Without knowing the details of the transaction, on the surface it looks like a good move. In this Forbes article the LearnVest CEO is quoted “This propels the vision. They have tremendous scale. We are going to take the innovative technology that has made LearnVest so special and we are going to be able to help scale it rapidly to another 4.2 million households. Not overnight but very quickly.” She also pointed out that Northwestern Mutual delivered 400,000 financial plans last year. “We can help them do that faster, stronger and to more households.”…Say what? An insurance company is doing financial planning and wants to do more? They can’t do that…can they?
I suppose the life insurance industry still has some work to get past the dated image portrayed in the movie Groundhog Day. The product peddler, while still alive in certain spots, is being replaced by technology enabled broad based financial advisors who happen to be affiliated with an insurance manufacturer. With all roads pointing towards practitioners who give personalized investment advice soon to be held to a fiduciary standard, the differentiator for every discipline will no longer be products offered or how one is compensated. (Though the fee only crowd still crow that they are unconflicted by their comp…yeah right). It won’t be what you offer, but how you offer it that sets one apart from the others. This is why NW Mutual is smart with this acquisition. They are getting ahead of the curve by integrating a technology based financial planning platform to lever their existing relationships and provide a value added service. They have to do it for defensive reasons to retain their field force and potentially adhere to a fiduciary standard and for offensive reasons to increase new lines of revenue should the proprietary advantage be taken away. I expect to see more insurance companies who retain a field force do the same. (PS-This should cause some large B/D’s and/or RIA’s to also get defensive and extend their core offering to include life insurance rather than being the one off it is today)
Just because one tribe speaks a different language than another tribe doesn’t mean they’re not all part of the same tribal nation. Life insurance practitioners are often best suited to extend into comprehensive financial planning since it is a natural extension of the process driven needs based approach they’ve been using for years. It’s time that Wall Street and RIA tribes recognize this. The “Quiet Company” has just made this evident to the tribal nation with this not so quiet battle cry.
All the other chiefs and tribes have accepted the Great Law of Peace. They now live in peace with one another. -Hiawatha