| By Jason Cunningham May 5, 2009 - 3:46:04 AM | |
Twenty years ago, it was not uncommon for an insurance agent to sell only insurance. Today, many insurance agents are more than insurance salespeople. Therefore, do not be surprised to find an insurance agent that discusses banking, investments, and insurance with you. Times have changed!
Why the Change in Insurance Agents?
In the last twenty years, the investing habits of many American households have changed. When many employers switched from defined benefits plans to defined contribution plans in the 1980’s, employees of these companies became largely responsible for funding their retirement needs. By the end of the 1980’s, the growth of the 401(k) had exploded because many companies did not want to guarantee a retirement income for their employees. Therefore, the employees had to become investment savvy.
Fortunately, insurance companies understood why employers moved from guaranteed pensions to defined contribution plans. Many companies felt handcuffed by guaranteed pensions, for money had to be set aside to fund individual’s retirements. The defined contribution plan, such as the 401(k), eliminated much of the financial burden that a guaranteed pension caused. In many defined contribution plans, companies will match a small percentage of the employees’ contribution to a defined contribution plan. From the employers’ perspective, a 2 to 3 percent contribution match to a working employees’ retirement account is cheaper than a guaranteed pension (i.e. $3,000 to $4,500 per month at retirement).
In 1999, Congress passed the Financial Service Modernization Act. The law changed how we view the financial service industry. As a result of the Financial Service Modernization Act, banks, insurance companies, and security firms became fierce competitors for the same clients. Insurance companies such as American Express and MetLife encouraged their insurance agents to become financial planners. Why would an individual need an insurance agent and financial planner? Some insurance agents did not change their insurance practice. However, many insurance agents not only became financial planners, but also these insurance agents became investment gurus in the community. These financial planners became responsible for helping their clients to choose investment options to fund a 401(k), a 401(k) rollover, and an IRA account. At that time, I had just started working in the financial service industry. Today, it is not uncommon to find a financial planner running around with a Blackberry, even though the financial planner works for an insurance company entity. Times have changed!
Analysis
Today’s insurance agent is responsible for selling more than insurance. Many of these agents now run financial planning practices. The Financial Service Modernization Act and the growth of the 401(k) and other defined contribution plans have played a major role in the transformation of today’s insurance agent.
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