by Melissa Klein

In a bid to build its existing insurance business, New York-based financial services giant TIAA-CREF is reaching out to financial advisors.

The firm, formally known as Teachers Insurance and Annuity Association - College Retirement Equities Fund, which previously offered term insurance products, entered the permanent life insurance product market with universal life and variable universal life offerings in 2001.

Without an army of captive agents or selling agreements with broker/dealer firms, the firm has two avenues for growing its insurance business: marketing to its core customers, and building a distribution channel of CPAs and other fee-only advisors, explained Michael Lane, director of TIAA-CREF Advisor Services. While it is doing both, Lane said that the firm has seen tremendous interest in the latter option.

“CPAs typically don’t want to sell insurance because of the relationship risk,” noted Lane. The firm is proposing an alternative for fee-only CPAs and other advisors who don’t offer insurance but will send their clients down the street to a local insurance agent. TIAA-CREF will act as the agent on the advisor’s behalf.

Since TIAA-CREF doesn’t pay advisors commissions or referral fees, it is positioning itself as a way for advisors to help clients fulfill their insurance needs without any conflict of interest, perceived or otherwise.

While many CPA advisors charge a combination of both fees and commissions, there is a growing faction opting to be fee-only, based on their belief that accepting commissions from product providers creates a conflict, or at least the appearance of a conflict.

Since the majority of insurance products have acquisition costs built-in in the form of commissions, many advisors steer clear of recommending them, referring clients out for insurance. The thinking is that the more advisors send clients out of house, the more they risk losing control over the relationship. Likewise, the more services that they can provide directly or indirectly, the closer they keep the client.

The move also reiterates TIAA-CREF’s recent strategy of reaching out to the advisor community after all but ignoring that population for years. Over the past year and a half, the financial services concern has made a concerted effort to bring advisors, including CPAs, into the fold.

Back in January 2002, the firm formed an alliance with BAM Advisor Services, a CPA-run turnkey asset management provider based in St. Louis, to make TIAA-CREF products available to clients through its 95 affiliated CPA firms. In that instance, TIAA-CREF decided to work with advisors to keep pension money in in-house investments, rather than watch client money walk out the door with advisors when pension plan participants retired. TIAA-CREF is once again banking on the CPA advisor’s relationship with the client to keep client money in-house.

“The client has already hired the advisor. The advisor’s objective is to get the right solutions in the hands of the client to satisfy the needs of the [financial] plan,” said Brian Peterson, senior insurance consultant at TIAA-CREF Advisory Services. Peterson joined the firm in August from Met-Life company Paragon Life Insurance.

“We have a value proposition for the fee-only marketplace,” Peterson said. “We have a product built specially for that type of advisor. There’s no [advisor] compensation, so there’s no load in it to offset any compensation, and no surrender charges. That’s drastically different from what you’ll find in the open marketplace. We also have people who know life insurance who can evaluate the clients’ current contracts, and can help with the life insurance analysis instead of sending the client down the street to a local insurance agent.”

TIAA-CREF began working with advisors in insurance in January. According to Lane, the firm wrote about $135,000 in premiums in the first two months.

“We had great indications of success in the first quarter. We expect to see more CPAs come into the fold after tax season,” said Peterson. “My belief is that the industry will trend toward us and companies like us who build relationships with fee-based advisors.”

He added, “There’s an increased amount of pressure on life insurance companies to continue to make money and a lot of them are focused on their distribution. As compensation structures in the traditional market evolve, if and when [agents] are forced to disclose what they get paid, I think we’ll see a push toward lower load, lower fees, and different compensation structures that will look more like charging a fee than a commission.”

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