Why Are So Many Insurance Agents Becoming Financial Planners?

Over the last seven years, many insurance agents have changed their insurance practice. They are now financial planners to compete with the planners from the likes of Morgan Stanley and Edward Jones. Many consumers wondered why the change occurred, but few have given the general public a straight answer.

The Graham Leach Bliley Act Changed the Financial Service Industry

In 1999, the Graham Leach Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, was passed by Congress. The enactment of the law allowed insurance companies, banks, and investment firms to compete and merge with one another. Prior to this law, banks had to be banks, investment firms had to be investment firms, and insurance companies had to be insurance companies. Today, some insurance companies, such as MetLife, own their own bank and sell investments. And, some investment firms, such as Charles Schwab, own a bank.

Insurance Agents Become Financial Planners

The insurance industry was forced to change. It could not afford to allow investment firms and banks to take away its existing insurance clients as well as its future prospects. Therefore, insurance agents were encouraged to become financial planners. In order to compete with investment firms and banks for insurance and investment clients, these insurance agents needed to pass the Series 6 and Series 63 to offer mutual funds and variable products (e.g. variable life insurance and variable annuities) or the Series 7, along with the Series 63, if they desired to sell stocks, bonds, mutual funds, options, variable products, etc. For those who desired to become investment advisors, in accordance with The Investment Advisors Act of 1940, they needed to pass the Series 65 and Series 6 or Series 7, if they had already passed the Series 63, or they could just take the Series 66, along with the Series 6 or 7, and not worry about the Series 63. Those who are considered investment advisors can charge individuals for the financial plans they create. I know this is a mouthful!

For some insurance agents, it was a tough transition to financial planning. On the other hand, other insurance agents saw this as a wonderful opportunity to service clients who were dissatisfied with their current financial planner or who never took the time to have a financial plan done for them. Luckily, I got to see the transformation of some agents to financial planners, on a daily basis, because I worked for several insurance companies that encouraged the transition during the period of 1999 to 2003.

Insurance Agents That Are Building Credibility Through Education

Some of these insurance agents that have become financial planners have sought to further educate themselves by taking exams to gain knowledge and to earn financial service industry designations. Many of you have heard of the following list of designations; some of your financial planners may have one or more of them:

· CFA

· CFP®

· ChFC®

While the above mentioned designations do not qualify a financial planner to be a financial and/or insurance expert, it does require an individual to do a lot of studying about various financial and insurance related topics. Also, from talking to several individuals that possess these financial service industry designations, not one of them claimed that getting the designation was easy.

Summary

Insurance agents needed to become financial planners in order to compete with bank and investment employees who had the ability to offer insurance products to the insurance companies’ existing clients. Otherwise, many insurance agents would be watching their insurance and annuity business walk right out the door to a local bank or to an established investment firm, such as Charles Schwab.

Some insurance agents have become investment advisors, so that they can charge for financial planning. In addition, insurance agents have passed financial service industry designations in order to increase their knowledge of the financial service industry, to improve their credibility among potential clients and to earn more money.