Consider these million-dollar producers:
1) One producer specializes in brokering lottery winnings. He is a cash flow broker who works in the 16 states where lottery winnings are assignable. Cash flow brokers arrange for the purchase of income streams such as annuities, workers’ compensation, privately held mortgage notes and lottery winnings. In less than five years, he has generated more than $4 million in fees brokering lottery winnings. In addition, he is often asked to invest a portion of the lump-sum payments as well as develop comprehensive financial and estate plans for lottery winners–activities that more than double his fee income.
2) A financial advisory (offices in New York, Paris and Geneva) with an unusual approach to client development: The firm has a minority stake in four executive protection firms that provide bodyguards and other personal protection services for high-level corporate officers and wealthy families. The average net worth of one of these clients is north of $15 million. The advisory firm specializes in international asset protection planning and has been able to grow its business on referrals from the executive protection firms.
3) Another producer noticed that many of his clients were quite concerned about privacy and very interested in maintaining their anonymity. To meet the needs of these wealthy clients (and ensure an ongoing and consistent dialogue), he hired a computer programmer to create an encryption program, including anonymous e-mailers, for these clients to use. He provides his wealthy investor clients with the software so they can communicate on a regular basis. His efforts have resulted in his building a clientele worth in excess of $2 billion.
4) When wealthy people get divorced, a lot of money often moves around. One producer leveraged this insight as well as her background as a former divorce attorney to help very affluent women with their transition through divorce. She obtains clients through a well-developed referral network of divorce attorneys. She helps her divorced clients prioritize their financial concerns and creates financial and estate plans for them.
5) A producer founded a virtual advisory firm with official headquarters in Greenwich, Conn., that provides an array of highly sophisticated and customized proprietary strategies for a very select group of onshore and offshore clients, usually just three clients per year. For economic reasons, each client must have a minimum net worth of $1 billion.
All these examples are million-dollar producers. All market life insurance as a significant part of their practices. Their examples raise a lot of questions. Just what is a million-dollar producer? What criteria should we employ to define a million-dollar producer? How many are there?
In the life insurance industry, for the most part, success has traditionally been based on production. Production has traditionally been a function primarily of how much life insurance and related products were sold. Thus, the term “producer” specifically relates to products. This is a very logical approach if you are a product manufacturer, as insurers are.
However, this is not very useful thinking if you are a producer. If you only think in terms of your revenue coming from the sale of insurance products, you will miss many lucrative opportunities.
Although the sale of insurance products is the mainstay for the overwhelming majority of producers, it is actually becoming less consequential. This is especially the case for producers concentrating on the ultra-affluent or high-net-worth markets. Producers working with the wealthy are finding more and more that traditional production does not correlate very well with personal success.
As these cases show, there is a strong need to redefine the million-dollar producer and move away from production as the sole criteria.
should take two steps. The first is determining a viable definition of success. The second is extending this definition to the producer and exploring the implications.
Lets start with determining success. For these purposes, lets also measure success in strictly financial terms. We will take as a given the personal satisfaction producers gain in helping others, and set aside ego-driven factors. For these purposes, success is defined purely as income. Note that we are talking about income, not revenue. Revenue is a sales number whereas income is that portion of revenue that translates into personal wealth.
In fact, production and income–at the higher levels of affluence–are often not that closely correlated in the insurance industry. There are many producers putting up great production numbers who are not making money in terms of real income. This is because they have not structured or managed their practices to be sufficiently cost-effective to generate great incomes from great production.
To get a feel for how the life industry tends to define success, let us look at the producer associations: the Million Dollar Round Table, including Top of the Table; the Association for Advanced Life Underwriters; and the International Forum (see chart).
The MDRT (which includes TOT) is clearly production-based. So is the International Forum. Entry into the AALU can be either production- or income-based.
All too many producers do not approach the business to maximize their own income. Some top producers mistakenly equate maximizing payout with maximizing income. Is it better to put the systems and structures in place to create a pipeline of wealthier and wealthier clients, or to get the greatest payout possible on a handful of cases?
Presuming a producer wants the largest long-term income stream, the right choice is creating the opportunity to upgrade the quality of clients rather than opting for the greater short-term payout. We argue that choosing the greater payout can be shortsighted.
But, you say, handling the needs of wealthier and wealthier clients is more and more complex, requiring specialized skill sets. One error some top producers make is to add people to their staff in order to have all requisite skills necessary to manage sophisticated client situations.
A more cost-effective approach is to establish strategic alliances. Because strategic alliances are a variable instead of a fixed cost, a producer only need pay for what he needs in a client situation. Strategic alliances in the form of formal and focused professional networks are relatively easy to establish.
To be successful in todays financial services environment, producers need to think less about production and more about ways to ramp up the bottom line. This goal of creating personal wealth for the producer brings us to the second step–extending our definition of success to the producer.
In this new view of success, what defines a million-dollar producer is income. Accordingly, a million-dollar producer has an income of at least $1 million (before taxes but after all expenses). This, of course, is on a per-producer basis.
Since income fluctuates significantly in the life insurance business, we need to further refine the definition of a million-dollar producer and say it is anyone who has an average income (again, before taxes but after all expenses) of $1 million per year over a three-year period.
There are several niches within the life insurance industry where such incomes are not that unusual. Limiting our analysis for the moment only to those producers working with the affluent and small/mid-sized business owners, we estimate there are slightly more than 200 producers working in the U.S. who meet this million-dollar income standard of success.
As you can see, many of the producers who are in the elite 200 are not “classic” life insurance producers. The examples above illustrate the diversity of the ways these producers put together their business model. It is noteworthy that the majority of these elite producers are life insurance specialists. However, some million-dollar producers are attorneys, accountants and aligned professionals.
Another aspect of the elite 200 is how many of them actually have incomes substantially beyond the million-dollar minimum for being included in this cohort. The examples above are all of producers whose average annual income exceeded $5 million over the last three years.
There is a tremendous amount of life insurance business being done today, but the people taking the most home are doing business in nontraditional ways. To join them, producers need to think through many issues. The first issue to consider is how they think about success. The ones headed for elite status will be thinking not of the brass ring, but on the gold at the end of the rainbow.
As the examples cited show, there is no question there are creative opportunities for producers to achieve exceptionally high levels of income. What is necessary for fast-tracking producers is to take the hard-learned lessons of the true million-dollar producers and apply them to their own practices.
Russ Prince, pictured above, is principal of Prince & Associates, research and consulting firm in Shelton, Conn. He can be reached at email@example.com. Arthur Bavelas is president and CEO of Resource Network LTD, Radnor, Pa. He can be reached at firstname.lastname@example.org.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 10, 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.