‘It Is Glorious To Be Rich’
In our culture there is a profound desire for wealth. Just look at the publicity surrounding lotteries and the buzz around the million-dollar television game shows if you are not convinced. There are more and more magazines devoted to the good life (read: rich life) and McMansions dot surburbia. In the United States of America, the desire for pecuniary success is ever present.
This has gone beyond the United States. In fact, the headline for this article–”It is glorious to be rich”–comes from that one-time Communist, then-market reformer Premier Deng of the People’s Republic of China, of all places.
So, it is no surprise that among life insurance producers there is a very strong drive for the “good life.”
Although there are many reasons people enter the insurance business, a powerful one for staying and persevering is the potential to earn a very good living. Without question, a ubiquitous reason that producers have for being in the business is the potential to become wealthy. Talk to producers, and this is recognized early on. When we survey producers, we also find money is the number one motivator.
Pursuing the Golden Apple
We have surveyed producers to find out more about this motivation. In fact, we did a recent survey of 322 Million Dollar Round Table producers. Of this group of high-achievers, more than 90% said they were in the profession of marketing life insurance because they believe it is a way to make a “good living.”
The profession is seen as a path to personal affluence. In this same group, 72.8% believe a producer can become wealthy by marketing life insurance (Exhibit 1).
An interest in becoming wealthy does not abrogate the desire among producers to do a great job for their clients, to make their communities better places to live, or to make the world a better place because they are here. On the contrary, these motivations are complementary. Doing good and doing well go together–doing well enables people to do more good, and doing good makes people attractive and sought out by others, so they can do well.
Making money certainly is not bad; in the hands of thoughtful, caring people, the good that they can do because of their own monetary accomplishments is considerable.
Still, there is a cultural orientation toward making money (to getting rich) in this profession. This perspective is not at all limited to the insurance industry. On the contrary, it tends to be a prevalent mind-set among entrepreneurs of all types. Take, for instance, people who made (and still have) many millions because they created (and cashed out of) Internet companies. The majority of these people (69.5%) chose to create Internet companies with the express intent of becoming wealthy (Exhibit 2), almost the same proportion as producers whose goal is to become wealthy.
We have established that most producers want to become wealthy. Now the question becomes, how? How does a producer become personally wealthy? What should producers with this goal be doing?
The answer will surprise you. The answer is not by just marketing life insurance. The answer is by leveraging all the opportunities that arise because a producer is marketing life insurance.
The first step is to build a business focusing on clients who are wealthy and in need of sophisticated financial advice. The paradox is that finding such a clientele does not directly or immediately translate into personal wealth.
The key to wealth is leveraging the asset of having such a clientele, and that means addressing compensation issues head-on. So, just how does a high-end producer join the ranks of the truly affluent by being a high-end producer?
The answer comes in the compensation models he or she adopts.
There are four independent and cross-dependent compensation arrangements employed by elite producers. Some of these are those arrangements that have been historically associated with certain products (e.g., commissions and insurance), while some are evolving (e.g., asset-based fees tied to insurance).
The four primary compensation arrangements include:
Advisory fees. Sometimes hourly-based, most often project-based, advisory fees are costs borne by the client for accessing the expertise of the producer. Fees are commonly charged for feasibility studies and other analyses, case design and implementation. Advisory fees can range from a few thousand dollars to hundreds of thousands of dollars (and every once in a while they reach two commas).
Commissions. For the sale of products the producer receives a commission. Traditional life insurance, for example, is one type of product that pays out a commission. Various derivative products also compensate producers with commissions.
Asset-based fees. The move by many producers into the fee-based investment management business is one example of this. As institutions adopt the wealth management model, there are an increasing number of situations where producers can be compensated with basis points tied to assets under management (such as in the case of private placement variable life insurance).
Thus, the more assets under management, the more the fees. And the longer those assets stay under management, the more the fees. This retainer-type arrangement adds up and even permits producers to create a transaction around this part of the business.
Performance fees. The greatest compensation is possible from performance fees. Here the producer is compensated based on the quantifiable success of a cutting-edge strategy employed. These fees are calculated as a percentage against a predetermined benchmark within a select time frame.
More than any other compensation arrangement, performance fees can produce the greatest payday for professional advisors. They often result in fees of hundreds of thousands of dollars and occasionally millions of dollars.
In working with many elite producers, we find that their clients are not inherently opposed to any of the four compensation arrangements. The wealthy are sophisticated, experienced users of the services and products of advisors and are thus generally familiar with the various compensation schemes.
The wealthy are also prepared, and even predisposed, to pay for results. In fact, the greater the client’s private wealth, the more comfortable he or she is paying premium prices for exceptional value.
For producers, it is not enough to want to become wealthy. The industry and the profession are changing and producers must change along with them. It will no longer be enough to sell traditional products and receive traditional compensation. The glories of being rich in the coming years will go to those producers who leverage their greatest asset–their clients–to leverage their compensation.
is principal of Prince & Associates, a research and consulting firm in Shelton, Conn. He can be reached via e-mail at email@example.com.
Reproduced from National Underwriter Life & Health/Financial Services Edition, August 6, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.