One day after announcing its exit from the individual annuity business and the potential sale of its indivual life and retirement plan businesses, as well as broker-dealer Woodbury Financial Services, The Hartford remains mostly mum on the details moving forward.
Industry recruiters and watchers, however, have plenty to say about what they believe to be the reasons behind the move and its potential impact on the advisor space.
“It’s part of a trend of large insurance companies parting ways with their broker-dealers,” said Dan Inveen, director of research with Tacoma, Wash.-based FA Insight. “It’s tougher to earn money off of annuity-based products, primarily due to lower interest rates. But regardless of the interest rate environment, it’s no longer as easy or acceptable to have manufacturers control distribution.”
A more educated public that understands potential conflicts of interest and the value of “independence” is driving the mood, Inveen says.
A second reason was noted in a response to a question during Wednesday’s presentation by the company to analysts and the media. Christopher Swift, executive vice president and CFO of The Hartford, characterized Woodbury’s earnings as "modest," noting that its $250 million in revenues "are essentially offset by commissions and operating expenses."
“Of course, everyone is more cost-conscious today than in the past,” Inveen added. “The Hartford was getting pressure from investors on this front. It used to be that a company could run a BD at a loss and make up for it on the product side, but no longer. Investors want them to be profit centers, not cost centers.”
If Woodbury were to be sold, private equity firms would be the most likely suitors, said Jon Henschen (left), president of the independent recruiting firm Henschen & Associates in Marine on St Croix, Minn. Allianz, which is based in St. Louis Park, Minn., close to Woodbury’s headquarters, is also a likely suitor, as the insurance giant is looking to expand further into U.S. markets.
“The rep and staff geography of Woodbury would be a good fit for Allianz,” Henschen says. “Ironically, Allianz U.S. operations are headed up by Walter White, who is the former president of Woodbury.”
The Hartford’s announcement of an intended sale before contacting potential buyers is problematic for Woodbury, as it gives competing firms ample time to aggressively go after Woodbury reps and make offers to lure them away.
“As time drags on with no offer in place, the troops grow restless and start to scatter," Henschen notes. "The best retention scenarios typically happen when the sale is negotiated in private and an announcement is made after a sale has been negotiated.”
The reason publicly traded companies like Hartford (as well as Ameriprise, in the case last year of Securities America) make announcements like these early is to appeal to shareholders and reap the benefit of increased stock prices.
“Woodbury is unique in having a regional vice president arrangement,” Henschen said. “Office of Supervisory Jurisdiction (OSJ) managers can get overrides on their reps’ production, but the supervision on the reps was done by regional vice presidents. This gave OSJs the best of both worlds; overrides on reps under them, but no supervision duties or liabilities. It is unlikely this structure would continue under a new owner.”
One other reason makes the timing problematic for Woodbury. The firm had recently started to ramp up recruiting efforts by contacting third-party recruiters with which to contract. They also brought in the former head of business development from Royal Alliance. With the announcement of the sale, “any recruiting efforts will be dead in the water,” Henschen says.