If the idea of bolting from your career agency and running your own life insurance brokerage has magnetic appeal, think long and hard before you make the leap. That prudent bit of advice comes from sources interviewed by National Underwriter, who say the benefits of a career transition–unlimited compensation potential, access to more products and the joys of being your own boss–have to be balanced against the increased burdens, as well as the managerial talent and willpower required of a business owner.
“A great agent can become a great broker, but a poor agent will probably be a disastrous broker,” says Julie Jennings, an independent broker and vice president of Sylvia & Co. Insurance Agency, Dartmouth, Mass. “Once you are a broker, you not only need good prospecting and sales techniques. You also need to hone your analytical skills to evaluate many options and present the right solution to clients.”
As compared to captive or career agents, who are expected to sell primarily–if not exclusively–their own carrier’s products, independent brokers have to be well versed in multiple manufacturers’ offerings, including features/benefits and underwriting requirements. The more lines of business they fold into their practices–disability income and long term care, among others–the greater the knowledge requirement.
The aspiring independent broker, sources say, also has to be entrepreneurial, with the drive and self-discipline to match. Says Jeffrey Suyematsu, a senior vice president of life and distribution at Allianz Life Insurance Company of North America, Minneapolis, Minn: “Agents who make the transition successfully clearly are disciplined, methodical and organized. They also focus on one or two markets that cater to their core competencies.”
Bing Waldert, a senior analyst of Cerulli Associates, Boston, Mass., agrees, adding that “agents need to be honest with themselves in deciding who they are and what they’re good at. Do they have the personality and skills to be independent? Are the advantages of that independence worth the additional headaches and demands on their time?”
Observers say that, as business owners, brokers have to implement people, processes and systems that, as career agents, were managed on their behalf by their carrier. Among the requirements: software applications for communicating with clients, preparing illustrations/financial plans and managing payroll; para-planners and administrative staff who can assist with case preparation; plus marketing literature and the support of advanced sales teams for large cases. They must, in sum, kick-start and oversee an enterprise while continuing to focus on their core competencies–servicing existing clients and acquiring new ones.
“Not everyone is cut out to be an entrepreneur,” says Steve Spiro, president of Spiro Risk Management Inc., Valley Stream, N.Y., and the state national director for the Independent Insurance Agents & Brokers of New York, Inc., Dewitt, N.Y. “The resources needed to run a successful practice may come as a cost to the career agent, but they’re someone else’s problem. When you transition to broker, they become your problem because you’re now the boss.”
While weighing the added responsibilities and costs of the transition, aspiring brokers also have to consider their ability to absorb a potentially dramatic reduction in benefits and compensation, at least in the near term. Kay Dempsey, president of The Dempsey Companies, Atlanta, Ga., an independent broker-dealer, observes that while many distributors and producer groups through which brokers do business offer retirement packages, such as nonqualified deferred compensation plans, brokers generally need to buy their own health insurance, a potentially costly proposition depending on their insurability and medical condition.
Also to consider is the loss of trailing (or renewal) commissions earned on prior sales. Typically, observers say, career agencies keep those renewals (except for commissions in which the producer is already vested), though they may permit the agent-turned-broker to service and/or sell new products to previously acquired clients.
Dempsey says the ability to maintain existing client relationships is only appropriate. And new brokers should insist on this before signing any new contract with their old carrier or general agency.
“Most brokers want to continue longstanding relationships and to service the business they sold,” says Dempsey. “I don’t think it’s moral or ethical for them to be prohibited from doing that. That wouldn’t speak well of their old general agency.”
Sources add that any negative financial impact stemming from a career change needs to be factored into a business plan that projects the new broker’s strategic goals and objectives three to five years out. That plan also needs to incorporate new sources of compensation, fixed and variable expenses, product lines, and expertise to be added or dropped, plus relationships contemplated with other professionals (including CPAs and attorneys) and carriers.
Suyematsu says the resources typically offered to new producers notwithstanding–such as sales training, mentoring and prospect lead generation–brokers should expect as much support in the field from their broker-dealer as career agents do from their GAs.
Allianz, he notes, offers its 170,000 independent agents and brokers a call center-based case design team that helps producers prepare client presentations and proposals and tailor solutions. The company also offers producers access to a case management system, plus administrative and back-office support.
Not least to consider in weighing the pros and cons of a transition are the benefits of staying put. Observers stress that many producers thrive in the more structured environment of a career agency. And, while these agencies may impose sales quotas and/or restrictions on the sale of products, most now permit agents to sell third-party solutions when their own products are unsuitable for the client.
That trend only has accelerated in recent years, sources say, with the decline in the number of career agents, low agent retention rates, rising training costs, and the increasing shift from single product solutions to comprehensive financial planning and consultative selling.
Also underpinning the expansion in product offerings is the fact that underwriting requirements and ratings vary, sometimes significantly from company to company. An insurance applicant with a certain medical condition may qualify for only a highly rated/high premium policy with one carrier but a standard rating/lower premium policy with another. Given the choice between pitching the favored carrier’s policy and acting in the client’s best interest, the need for access to third-party solutions becomes obvious.
“While it is expected that the agent will try to place the policy first with the lead company, general agencies have become more understanding that the lead manufacturer can’t always provide the best policy,” says Spiro. “So, with respect to product offerings available to them, the differences between agent and broker have narrowed. Most general agencies that I deal with would rather see that I get the client than place the policy with the lead carrier.”
Spiro adds that the agent, who represents the carrier, is also able to bind coverage conditionally upon receipt of the initial premium payment and the applicant’s signature on the contract. For the broker, who represents the client, the policy does not enter into force until the underwriter approves the application.
One thing that career agents should not consider when deciding whether to go independent, Dempsey insists, is their relationship with the boss.
“It’s a mistake if they’re leaving the career agency because they don’t get along with the GA,” says Dempsey. “Turnover among home office personnel is far higher than it is among agents and planners. If the producer’s chief consideration is economics, access to new products, ideas, compensation or a desire to build a business, that’s one thing. But the relationship issue doesn’t hold water.”
Whether producers opt to further their professional development as a career agent or independent broker, sources agree, they need to ensure that they’re doing business with a reputable and financially stable agency. As regards carriers, much of this information can be accessed through company reports and rating agencies. But at the level of general agency, company reputability is best learned through word of mouth.
Says Spiro: “If I shake a client’s hand and give my word, I want the right company standing behind me. I want a firm that has honored its claims and won’t be challenged in court.”
Voices From The Field