An “Opportunity For Improvement” In Independent Distribution

I have written before about my son, Matthew, who is the most creative kid I have ever seen. So, I will start this column with a quick story about Matthew. A couple of years ago he and his older brother were sent home from school to do a fundraising project where they would have to go to our friends and the neighbors to get funds. If they raised a bunch of money, they each got prizes. The more that they raised, the better prizes they got. The prizes got progressively larger. To oversimplify, if they each raised $50 worth of items, they each got a book or something. However, if one of them raised $100 in funds, he got a bicycle. As I, Seth, and Matthew were looking at the sheet with the various prizes and thresholds, I noticed Matthew was thinking about it hard. He then proposed a plan. He proposed to Seth that they both sell individually, but they both should put all of the sales on Matthew’s fundraising ledger. Smart kid. However, I shut down that idea. I said, “So what if every family in your school did that Matthew? The school wouldn’t be able to afford all the bicycles and you would be left with a balloon or something.” More on this in a bit.

After being in the business for over 20-years I have been fortunate to travel the world and develop friendships that are multiples of what I ever had prior to being in the business. I have friends that are agents, friends that are competing marketing organizations, and friends that are in the carrier world. This business has been great to me and there is no better business on Earth than the independent distribution of financial services.

I emphasize the above “Independent Distribution” because in this day and age when consumers can search online for the “cheapest” or “best“ products, the chances are that we in independent distribution have those products or equivalent products available for our clients. As I like to say, we are never “out producted.” Conversely, if we were stuck to one product offering, if that product offering was not in the top three or five, we would have a difficult time. In independent distribution, we all—agents, BGAs, and IMOs—have choice and options! So, I love this industry, I love the independent channel, and I will probably continue to work in this industry until I leave this world. I don’t think I could have more fun in retirement than what I’m having now!

With that said, if you know me you know that I shoot straight if I believe something in my heart, even if it will not earn me friends. If you gave me a choice, I would rather be trusted than liked. Although both would be nice!

So, in the vein of shooting straight, I want to point out what I believe is one of the issues our channel is faced with that I have always known but was further highlighted to me when I created my own marketing organization three years ago.

First off, the linchpin of my observation. When I was in the carrier world, I was a couple layers removed from the agents, even though I had been training and educating those agents for years. Doesn’t that seem like a contradiction? It is not a contradiction because training and educating agents is completely different than sitting down with them and talking about the ailments in their businesses and addressing their concerns. Three years ago I put myself on the ground floor where I could help these fine folks by doing exactly that—listening to the issues they were experiencing with their businesses and helping solve them. What was the surprise that I found? Probably one of the very few surprises I have experienced since opening my independent marketing organization? That there is a true and genuine thirst for training, mentorship, and education inside many of the financial professionals in the independent space. This is a wonderful thing to me because who doesn’t like having people that genuinely want to get better at their trade? However, I observed a flip side to this “thirst.” Why do these agents have such a thirst? What I found was, this thirst is there with many agents because they have not found anybody to quench it. This is an area of opportunity for us as a channel!

By the way, the agents that are receiving this training, mentorship, etc., will generally never consider leaving their IMO or BGA. They love them! Because these IMOs/BGAs took the pain to create the processes and systems to do it right, they will have agents for life. The agents love them because they get to have their cake and eat it too: Great compensation levels and also great training.

So, is that the end of my column? That I think we need more training and education? No. If finding great training, education and mentorship is a concern in our channel—as is probably the case in many industries—then what do I think one of the causes of that problem is? I think it very much has to do with Matthew… The inclination for distributors/IMO‘s/BGAs to want to recruit agencies in order to make their production larger, without any synergistic components to the relationship. Getting larger is great but the last part, “without any synergistic components to the relationship,” is the area I want to highlight.

Example. I often get calls from larger IMOs who try to recruit my company “under” their hierarchy. They tell me that the relationship will be a “mutually beneficial relationship.“ And when I know that my systems, technology, education, is likely as good or better than theirs, I am of course curious about what the benefit to me would be. Their response? That 1+1 = 3 from a compensation standpoint with the carriers and that extra “1” they will split with me. In other words, the value proposition to both of us would purely be to get more money from the carriers. Again, Matthew’s idea was not a new idea apparently.

The above is not the way that independent distribution was meant to be. It was intended that independent distribution was to share one similarity with the captive channel. That there has to be an intermediary that trains, educates, and provides services and technology to the “downline” agents or agencies. And to incentivize this, the carriers of course would compensate the IMOs and BGAs through distributor compensation that—as I alluded to—is progressive with production scale.

Does great training and education take place in the independent channel? Absolutely it does! And for much of the industry, the structure works very well and some IMOs provide terrific value to their downlines. In fact, for many of our contracts, I am associated with a larger IMO that is invaluable to me. For these IMOs that are providing training, education, mentorship, systems, underwriting resources, technology, marketing, etc., they should be getting the larger share of the carriers dollars versus what the carriers are forced to provide to those that get larger with the main goal of 1+1=3 from a compensation standpoint. Again, there can never be too much training, mentorship and education—so by the carriers rewarding that type of behavior the industry would only get better. And this is the reasoning behind what the carriers created in their compensation schedules, to reward the distributors that grow their production via training, education, etc.

However, because we are all independent (versus captive), it is extremely hard for carriers to police the original intent. At XYZ Captive Insurance Company, if a general agency was not doing their job in training and educating, they are reprimanded or terminated. This is not so easy in the independent channel and makes for exceedingly difficult calculus for the carriers. For example, if an IMO/BGA were to practice the “stacking” like what Matthew proposed, a carrier cannot get too carried away with enforcement. This is because that IMO/BGA will always have other carriers available to them if one carrier enforces the rules. So, many times the carriers’ hands are tied.

Because there is only so much pricing in products, the compensation schedules are basically a zero-sum game. Similar to how I told Matthew that eventually he would only get a balloon. So, for years, the carriers have been wrestling with the issue of how do they allocate more of the bonus schedule to those that are truly providing value to their downline without destroying the large amount of distribution that they have? There is no easy answer to this other than for all those involved—carriers, IMOs, BGAs, agents—to have a relentless focus on training, education, etc. When this happens, the money will take care of itself for all involved.

Lastly, this issue is not just about the flow of money and it’s not even about carriers, IMOs, BGAs, or agents. This issue is also about the value that our channel provides to consumers. When I witness agents that are truly thirsty for more knowledge, whether they receive that knowledge or not will ultimately impact the consumer that works with that agent. And clearly, the more educated and trained the agent is, the better we as an industry and channel will do for the end consumer.

Charlie Gipple, CLU, ChFC, is the owner of CG Financial Group, an innovative and full-service independent marketing organization (IMO) that serves independent agents that sell life insurance, annuities and asset-based long term care. He also owns “The Retirement Academy” (www.retirement-academy.com), which is a subscription based online training platform for agents, reps, and company wholesalers.

Gipple is recognized throughout the industry as one of the foremost thought leaders and subject matter experts on annuities, life insurance, long term care, leadership, storyselling and behavioral finance. He is also an industry keynote speaker conducting 100-150 speeches per year. He has spoken at the MDRT Top of the Table as well as other large forums and has also appeared on TheStreet.com and AM Best TV.

Gipple has vast leadership experience in the insurance industry as he has been an executive of various insurance companies and large independent marketing organizations. He is unique in his broad knowledge across the life insurance, annuities and securities businesses. Additionally, within these businesses, he has a deep understanding of the distribution aspects of these products along with the actuarial and hedging aspects. He holds a bachelor’s degree in Finance from the University of Northern Iowa, is FINRA Series 7 and Series 66 licensed and also holds the CLU® and ChFC® designations.

Gipple can be reached by phone at 515-986-3065. Email: cgipple@cgfinancialgroupllc.com.