You already expect to buy stocks, bonds, and mutual funds from the same company. Why not life insurance?
Providing a full suite of financial products is nothing new for full-service brokers. Merrill Lynch (NYSE: MER ) recently sold its life insurance unit to Aegon (NYSE: AEG ) , forming a strategic alliance to provide insurance products to Merrill's customers. Morgan Stanley (NYSE: MS ) works with Allstate (NYSE: ALL ) to provide life insurance, and with other insurers to provide long-term care and disability insurance.
Yet discount brokers have been slower to add insurance to their product offerings. While Charles Schwab (Nasdaq: SCHW ) essentially acts as a conduit for other insurance companies to sell life insurance to clients, Fidelity sells policies through its own life insurance affiliate. Meanwhile, Vanguard offered term life for a while, but it stopped selling insurance in 2005. And other discount brokers like TD Ameritrade (Nasdaq: AMTD ) and E*Trade Financial (Nasdaq: ETFC ) have yet to offer life insurance.
A good idea?
For full-service brokers, offering insurance is a natural next step beyond selling stocks and mutual funds. By reaching out to work with a client's entire financial situation, full-service brokers try to differentiate themselves from discount brokers and justify higher commissions and other costs.
Discount brokers, on the other hand, face challenges in selling insurance. While higher-end discounters like Schwab and Fidelity have a sales force in place to support insurance sales, others have focused more on customer service, investment product offerings, and website features. As one analyst who follows Vanguard put it, "insurance is sold. ... Vanguard is not geared to selling."
From a customer perspective, insurance from your broker is a double-edged sword. On one hand, having access to inexpensive life insurance options keeps you from having to find an outside insurance agent or contact insurance companies directly. It also lets you track your insurance along with your investments, and it may make it easier to pay premiums and carry out other administrative tasks.
Yet one major question remains: Does your broker offer the best insurance? While any broker gives you access to the same stocks, and most have a wide variety of mutual funds to choose from, they won't necessarily offer you the best insurance deal. If you're looking for simple term insurance, you might get better prices elsewhere. And if you want more sophisticated policies, you might not even be able to find the particular features you want, should your broker offer a limited selection of insurance products.
More importantly, discount brokers need to realize that many investors use them in part to avoid the constant sales pitches they got from full-service brokers. If some discounters push too hard, they may find their customers moving further down the line, to competitors who'll essentially leave them alone.
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