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State Farm Builds with Wealth Services

Whether State Farm Life Insurance Company of Bloomington, Ill. can parlay its success as a property and casualty insurance company into creating a strong asset management business is unclear, but the company's announcement that it will offer wealth management services is a move in that direction, according to industry observers.

"It's a strategy that many of their competitors have taken in transitioning to financial service products," said Dennis Galant, a consultant with Cerulli Associates of Boston. "Of course with insurers, their knowledge of life products bodes well with estate planning. The high-net-worth tends to be a natural fit."

Although the high-net-worth market is an expanding market, State Farm is a late entrant to what is an extremely competitive market, he said.

State Farm will offer wealth management services later this year through a partnership with Phoenix Home Life Insurance Company of Hartford, Conn., State Farm announced late last month. The deal is part of a larger effort to become a leader in the financial services industry, said Murray Payne, a spokesperson for State Farm. The introduction of a new series of retail mutual funds was part of that plan and offering wealth management services is a logical next step, he said.

The partnership will allow State Farm to appeal to its nearly 1.8 million clients with a net worth of $1 million or more, excluding primary residences, Payne said. Phoenix Home Life is an ideal partner because it is a leading provider of high-net-worth products, he said.

A pilot program will be introduced in two parts of the country in July, he said. The program will be designed so Phoenix Home Life will provide assistance to State Farm agents who want to offer clients estate, retirement and business planning and charitable giving services, he said. State Farm has 16,000 agents throughout the U.S. and the firm began offering 10 retail mutual funds last month. (MFMN 8/7/2000)

The partnership could result in a new line of State Farm products, but details need to be worked out, Payne said.

State Farm's move into wealth management could be motivated by a desire to protect its existing client base, Galant said.

"In some ways, it could be a defensive move," he said. "Everyone is evolving into a full financial service provider offering investment services, tax planning, insurance or protection-type capabilities." The competition's ability to provide a multitude of insurance and financial services products threatened to lure away State Farm's clients, he said.

"It's a retention strategy and a way to keep the competitors at bay," he said.

A diverse product line is fundamental to winning a larger portion of the high-net-worth marketplace, said Galant.

"I think the key to servicing the affluent is to offer a full range of products and services ... to provide all of your clients' needs to hopefully garner a larger share of their wallet," he said.

By partnering with Phoenix Home Life, State Farm can focus on educating its agents on how to sell wealth management products and services, allowing Phoenix to focus on product and service design, said Russ Alan Prince, president of Prince & Associates of Shelton, Conn. Estate planning and high-net-worth products are complicated so the success of the new service will depend on a sales force that is knowledgeable about the wealth management products, he said.