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The Ultimate Pyramid Scheme?

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There are few MLM (multi-level marketing) products or schemes that are successful or even legal in some states. Yet, when trying to figure out exactly what are the varying levels of compensation passed down to you, “Joe Agent,” from FMOs/IMOs (field/independent marketing organizations) the water gets very cloudy.

“Street level comp,” bonus comp and overrides are terms bantered around in the inner “circle of trust” behind the scenes of these marketing organizations. And hey, everyone (even a marketing organization) has a right to earn a living; but how much is their cut from your production? Good luck finding this information. 

Just as a registered rep has a “payout” percentage of their production from the broker/dealer (B/D), so, too, does the agent of a general agency. However in the B/D world, the gross commission or fee earned on a case is easily disseminated; it’s published in the prospectus. But with the second defeat of Rule 151A in 2010, one of the things kept “private” from both investors and producers are the actual total commissions, bonuses and overrides paid on a contract.

Since a fixed or indexed annuity is in fact a contract, the minutia about such things as cost and fees imbedded in the product are left untold. In fact, many insurance professionals believe there are no fees in a fixed or indexed annuity. And maybe it’s none of your business how much profit an organization really earns from your production. But when your client is effectively paying the bill, it’s something I think could be more transparent. Why don’t FMOs simply fess up and tell the agent “we get ‘X’ percent of each contract you sell”? Instead, the industry norm is to wine and dine, escort the agent on glamorous even exotic incentive trips (wait until you get the 1099 for these reward excursionsouch!) and even offer “perks” such as catalogs to select your “free prize” for production levels. 

(A side note: Are the costs of the marketing organization employees who attend these trips added to the 1099 sent to the agents who were “rewarded?” Certainly the employees of the marketing organization aren’t given a 1099 for “working” on these incentive trips. It would hurt to learn that all of the expenses racked up “entertaining” the agents were then conveniently expensed to the lucky agent(s) on the trip.)

Come on already, it’s 2012. I think clients and producers would feel more comfortable knowing the cost or “price” associated with contracting with their FMO/IMO. The definition of a cynic is someone who knows the price of everything and the value of nothing. I certainly am not one and do not encourage anyone else to be a cynic. But there truly is “no free lunch,” and why not reveal what exactly are the compensation levels above “street?” More confusing is that many insurance products will pay out 110 percent comp. Explain how payouts go beyond 100 percent? Are carriers intentionally losing money? I seriously doubt it.

It’s often not about what one pays but what one “receives” when it comes to dealing with fees, either published or embedded. Personally, I feel it would be ideal to know all of the details and hands in the production compensation pie. But maybe I am alone in this feeling?


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