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Service Called Key to Asset Retention

CHICAGO - If fund and insurance companies want to hold onto customers' money, they need to amply compensate wholesalers, internal salespeople and customer phone representatives.

That was the overriding message delivered at a conference on asset retention that Info-one, a consulting firm in Campbell, Calif. sponsored here late last month.

What motivates mutual fund and annuity salespeople is monetary sales and retention incentives, executives said. A mutual fund or insurance company must not forget to compensate a customer service rep, captive salesperson, wholesaler or broker not only for bringing in new business but also for saving an account that the firm might have lost, executives said. Firms should also consider some form of compensation for internal exchanges between two investment products within a firm, executives said.

"Compensate your career agents and your telephone sales reps on every event such as moving from an annuity to a mutual fund and vice versa, or upon the death of an annuitant, if they are able to retain the living beneficiary spouse as a customer," said Hugh McHaffie, senior vice president for annuity product development and management with New England Financial of Boston.

"With sponsored death benefits, if you don't try to convince the surviving partner to keep the contract, you are missing the boat," said Paul LeFevre, chief operating officer of Keyport Life Insurance Company of Boston.

Insurers and fund companies have tended to favor loads and up-front commissions, but that no longer helps investment firms' revenues, McHaffie and other speakers said. Asset-based compensation is a far more effective way of preserving assets, McHaffie and others said.

Setting up a trailing fee on an insurance product is another method of ensuring that the broker who originally sold the product will try to keep the customer happy, said Richard Reilly, president of Allmerica Financial Life Insurance and Annuity Company of Worcester, Mass.

"Pay the ransom," Reilly said.

"Pay your brokers to be true partners," said James Doyle, vice president for professional services of Info-One. "Otherwise, they will be your worst enemy going down the road."

After built-in incentive plans, having a culture that caters to customer needs is the most important determinant of retention levels, executives said. The fund and annuity industries have never been more competitive so investment firms should do all they can to cater to their existing customer base, executives said.

Offering strongly-performing, low-cost products to customers is a third crucial component of asset retention, speakers said.

Aetna Financial Services of Hartford has retained policies worth $1 billion through an aggressive, two-year old retention plan, said Chris Zweigle, vice president of investor service for Aetna. The 35 people in Aetna's customer call center take a total of 15,000 to 16,000 phone calls a month and have a monthly quota of selling 25 new policies and retaining 35 old ones, Zweigle said.

Until recently, fund and annuity firms have overlooked the importance of retaining the assets they have on the books and have instead concentrated on attracting new customers, said Thomas West, vice chairman of Info-one.

Three new customers are needed to make up for every customer an insurance company loses, West said. That is because long-term customers build up more assets and therefore are more valuable to companies. Insurers have been overlooking the importance of retaining business, he said. One-third to two-thirds of all variable annuity sales are annuity contract transfers from competing insurance companies, not new money coming into the industry, West said.

"Most investment companies are profitable today because of their block of old business," West said. "The loss of a customer is a very expensive proposition. Restless money reached epidemic proportions in 1999 and is a blight on the financial landscape. These are astonishing statistics. The insurance companies and mutual fund companies are suffering."

For every $1 billion of assets that an insurance firm loses, it will have to spend $115 million to regain the business, West said.

It is far more efficient for an investment firm to protect existing business, McHaffie said.

Investment companies today must think of innovative methods of serving their customers. A prescription drug discount card that Keyport offers to customers of its fixed annuities, who tend to be older, is an example of such an innovative approach, LeFevre said. New England Financial has retained a great many customers representing lucrative assets through this simple, yet greatly appreciated service, McHaffie said.

Insurance companies are in the difficult position of often having to rely on outside brokers and financial planners to manage their customers' accounts, speakers said. Speakers debated whose customer a policyholder really is. Many participants said the insurance distributor controls the customer relationship.

To overcome this, insurance companies should try to cooperate with their distributors and avoid encroaching on their territory by, for example, not issuing letters to their customers on their own, speakers said.

Still, companies should learn as much as they can about their customers to tailor products and services to them, said McHaffie.

Asset retention really comes down to a very simple proposition, said Robert Spector, a former executive with Nordstrom, the luxury department store chain of Seattle. Spector is also the author of a book on customer service.

"Customer service is simple, basic stuff: Do whatever it takes to take care of the customer and keep the customer," Spector said.

If an investment company is public, the company should heed this advice, Spector said. A public investment firm should not try to please its shareholders at the expense of its customers, Spector said. If it does, its business will suffer, he said.

No product is really more intangible than an investment product before it is redeemed, Spector said. As a result, an investment company's relationship to its customers is extremely important, he said. That relationship can be protected by "giving the people on the frontlines the freedom to make intelligent decisions" to enhance customer service, Spector said.

"You are not in the financial service business" Spector said "You are in the customer service business."