Suggested Commission Split Structures For Agents

My dad, who was the wittiest and toughest person I ever knew, owned a construction business (underground utilities and concrete) for 40-years. As somebody who “dug ditches” since his early teens all the way up to his death, he had a way with words that I usually don’t repeat but I will here. He once told me jokingly, “How do you know when the deal was negotiated fairly for both sides? When both sides of the agreement feel that they have been screwed.” Now, that’s not something that you learn in business school, nor do I condone that method of thinking. He tended to say things for the effect.

Rather, I prefer the thought of both sides feeling that they received a fair deal. That is how you make for happy business partners and a sustainable and reputable business. I do believe that when agents partner with other agents and “split commissions” that there is a structure that—based on my experience—does exactly that. It makes both sides feel the deal is fair.

Oftentimes a “junior agent” might seek to partner with a veteran agent. The reasons for this partnership are obvious. If the junior agent cannot get the sale without the help of a veteran agent, it would be silly to not utilize a veteran (assuming one is available) even if it means that the junior agent would get less than 100 percent of the total compensation. As they say, 100 percent of $0 is zero compensation. By the way, if you are a junior agent and don’t have access to a “veteran agent,” partner with an IMO that will help you with the sale. In many cases—as with my IMO—there would generally not be a commission split unless I am hopping on an airplane.

A second scenario might be the inverse of the above. This is where a veteran agent will seek to partner with a junior agent. Why would a “rainmaker” want to partner with somebody junior? For the veteran agent to free up time to do what he/she does best—rainmaking. Thus the veteran agent may seek to offload some of the time-consuming legwork to a junior agent.

A third example may have nothing to do with junior versus veteran. It may be a scenario where an insurance agent is partnering with a CPA or an attorney. Many times the CPA has a captive audience and they just need an “insurance expert” to do the case design and also close the case for them.

These three scenarios are great business scenarios and very smart! They allow each individual to do what they do best while not trying to do a task that neither person is optimal at, while at the same time the junior advisor (or the CPA/Attorney) is learning from the veteran agent. The three scenarios are efficiency at its finest and what makes our industry’s compensation flexibility such a great thing. However, you must know what a fair “split” arrangement looks like so that neither party feels ripped-off.

So, what is a fair split arrangement? This is the main topic of this article.

The Million Dollar Round Table (MDRT) was the first—that I know of—to really prescribe a breakdown of what commission splits should look like. These commission split percentages that they recommended were generally based on the types of services that each agent would provide. The below breakdown is very similar to what the MDRT first came up with except for some slight verbiage changes that we applied. This is merely a guide, but I believe a very good guide.

  • 20 percent—Prospect Delivery: This is where the agent has brought the client to the table, whether through past relationships, a referral, or marketing activities.
  • 20 percent—Data Collection and Delivery: This is where the agent collects all the data needed for the sale (health information, financial information, fact finding) and also delivers material to the client that is needed prior to the sale.
  • 20 percent—Case Design: This is where the agent designs the strategy, which includes: running illustrations, modeling scenarios, seeking the right prices, organizing the end plan that is to be presented, etc.
  • 20 percent—Closing The Deal: This is where the veteran agent comes in many times to “make it rain.” This is where the final presentation/conversation occurs with the clients. This is the inflection point—the case/plan either gets implemented here or dies here!
  • 20 percent—Ongoing Service: This is the delivery of the policy, annual reviews, continuous updates for the clients, etc.

With the above being said, a common approach would be that the veteran helps close the sale. That would mean that the veteran could easily justify getting 20 percent and the junior agent getting 80 percent. If the veteran also did case design, then he/she might ask for 40 percent.

As an IMO, I work with scores of agents per week and they often ask me how they should get compensated on cases they “split” with other agents. I have never had an agency balk at the above MDRT method.

Charlie Gipple, CLU, ChFC, CFP, 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, ChFC, and CFP designations.

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