For ambitious career agents, the allure of setting up an independent practice can be hard to resist. The ability to source products from multiple manufacturers, charge fees and run a business unfettered by carrier restrictions are among the many attractions. Yet, going independent also carries a downside: Advisors stand to lose the support structure and services they enjoyed while wedded to their career agency.
Enter the producer group: a gathering of independent advisors who, at the most basic level, provide a forum for sharing expertise, best practices and a framework through which to collaborate on cases. The largest producer groups–First Financial Resources, M Financial Group, National Financial Partners and Sagemark Consulting Private Wealth Services, among them–have achieved such size that, their proponents argue, the groups effectively substitute for much that is lost when transitioning to independence.
“The producer group has to a significant degree taken the place of the culture, collegiality and sense of belonging associated with the career agency system,” says Jim Gelder, CEO of NFP Insurance Services, Inc. and executive vice president of National Financial Partners, New York, which has 225-plus members. “Within the group, the producer remains independent while securing access to services and expertise that would be difficult to obtain operating on their own.”
“I could duplicate the resources and structure of a producer group, but it would be time-consuming and very expensive,” adds Patrick Murphy, a partner and relationship manager at Lenox Advisors, a New York-based firm and an NFP member company. “To be able to tap into this model provides a tremendous leg up.”
High among the advantages available to members of such producer groups, sources tell National Underwriter, is the ability to quickly secure insurance and financial services expertise not available in one’s own practice. Advisors increasingly require such outside skills because of the expanding body of knowledge required to competently service clients in such areas as wealth transfer, business succession planning, executive benefits and asset management.
To assist a client requiring an employee stock ownership plan, for example, Lenox Advisors connected with an NFP member firm that has advanced expertise in ESOPs, a complicated planning area in which relatively few advisors are knowledgeable. Jim McClure, a partner with Murphy at Lenox Advisors’ Chicago-based office, acknowledges that his firm could have allied with an unaffiliated company having the requisite expertise.
But, he says, the process was far quicker working through NFP because the member firm’s capabilities had already been vetted. Being part of a family of practices also tends to align the interests of companies within the group. An unaffiliated firm, notes Murphy, might have given low priority to the ESOP request–or turned it down–if the client engagement were deemed to be insufficiently profitable.
Beyond access to third-party expertise, another attraction of producer groups is the ability to learn about best practices. Jim Niedzinski, a principal of The Capstone Group, a Southfield, Mich.-based member firm of Lincoln Financial Advisors, Philadelphia, Pa., says he’s gained exposure to practice management techniques through a Lincoln Financial producer group catering to the high net worth. The unit, Sagemark Consulting Private Wealth Services, claims some 200 members among Lincoln’s 7,200-plus affiliated advisors.
That exposure has prompted Niedzinski to make changes to his business. He has, for example, adopted a rigid fee structure to help qualify prospects and filter out those who don’t meet his client profile. Niedzinski now also avails clients of a password-protected online “vault,” where they can go to store and download key estate planning documents, such as wills, trusts and healthcare proxies. The Web access came in handy recently, he says, when hospital personnel needed to retrieve a power of attorney document on behalf of an incapacitated client.
“My affiliation with Sagemark has been a tremendously positive experience,” says Niedzinski. “The ideas-sharing has been priceless, as has been the culture of the group, which is caught, not taught. It’s like catching a good disease.”
McClure, too, says his experience with NFP has been equally enlightening. “When I joined, I got a real education,” he says. “I’m a more astute business person than I was five years ago.”
Advisors aren’t the only ones benefiting from the sharing of intellectual capital. Company staff–office managers, paraplanners, marketing and back-office professionals–also frequently learn about productivity-enhancing practices through conventions, in-classroom instruction, conference calls and online forums hosted by their producer groups.
David Downey, a founder and principal of The Downey Group, Champaign, Ill., says he periodically sends his support staff to educational gatherings hosted by M Financial Group, a Portland, Ore.-based network of some 100 financial services firms, including Downey’s. NFP, too, organizes seminars for support staff: More than 300 office personnel employed at NFP member firms, says Gelder, assembled in Austin, Texas earlier this year for 2 days of training on best practices, products and software applications.
NFP member firms can avail themselves other resources, including technologies like customer relation management software; attorneys, and case design specialists who assist in developing strategies for complex estate or business plans; compliance professionals who assure that client communications are above board; and underwriters who can negotiate optimal terms for custom-designed insurance contracts.
“By aggregating the value of their businesses in a producer group, advisors can invest in the infrastructure, training and services needed to grow their practices,” says Gelder. “They gain economic leverage that they wouldn’t otherwise have.”
The power of collective bargaining is enjoyed as well by the M Financial Group firms. Downey, who sits on the board of directors of the holding company, in addition to running his own practice, says the member companies can secure favorable rates on life insurance contracts with carriers in part because they help to finance new product development; and because their high net worth clients, as a group, are a lower mortality risk than are the carriers’ policyholders.
“We can demonstrate that our typical client lives longer and is healthier than the typical client of the carriers,” says Downey. “Our firms deal with a more upscale market, which generally manifests itself in longer life spans and better persistency. People keep their policies longer because they can afford to do so.”
The numerous benefits of membership in a producer group, sources say, can be a powerful attraction for independent advisors who need more support than they secure on their own. But membership comes at a cost. NFP requires of applicants a $10,000 annual licensing fee. At M Financial, annual licensing fees and capital contribution costs total $30,000 during the first two years and $6,000 annually thereafter.
But before money is put on the table, there’s a vetting process to pass–and it works two ways. On one side, committees within the producer groups examine prospective members to determine whether they have the skills, clientele, commitment and ethical standards that will be required of them. And, once admitted, performance benchmarks have to be met. At NFP, for example, a one-principal firm has to have $250,000 annually in production credits; the mandate for each additional producing principal is $150,000.
Insurance and financial services professionals have to do their own due diligence. Among other questions, says Gelder, advisors need to determine whether the producer group in question has the track record, financial wherewithal and breadth of expertise to carry out its commitments. Also to weigh is the group’s reputation and brand recognition.
“When you join a producer group, you no longer hold yourself out as a sole practitioner because you’ve acquired the identity of the group,” says Murphy. “For me, knowing that I’m part of a larger organization has given me greater confidence.”
Yet another factor to consider in the advisor’s vetting process is the producer group’s ownership. Fred Jonske, president and CEO of M Financial Group, counsels advisors to join an entity owned by the producers themselves–M Financial’s governing structure–and to be wary of those groups that are an arm of an insurance manufacturer or stockholders who may view the producers’ interests as secondary.
“When the member firms don’t have a voice, there’s not necessarily an alignment of interests,” says Jonske. “A carrier-owned group may want all production to go to the carrier. And if the group is owned by shareholders, profitability concerns may dictate decisions about how best to deploy capital and resources.”