As far as acquisition matches go, the purchase of Woodbury by AIG could turn out to be one of the better retention purchases by the insurance giant. To be sure, the AIG story will be carefully edited so it’s one that will entice as well as bringing a feeling of security. Many positives exist with this acquisition but wrinkles are always lurking beneath the surface.
Woodbury will probably experience very good retention with their reps, primarily due to retention bonuses already paid, but also for the following:
- No paperwork in making the change
- More retention money probably coming
- RVP’s working hard to talk up the new owner (they are paid bonuses for the reps taking retention bonuses)
- AIG promising to plug in their technology which would be an improvement to what they have
- They are having a conference in two weeks where they’ll have a pep talk with Larry Roth and Benmouche speaking to the reps giving them a “You’ve gone to heaven” perspective to the purchase.
Since I’m not one to “drink the Kool-Aid,” this is what I see as likely long-term changes:
- Woodbury was operated at a loss, but made up for it through Hartford product sales. E&O Insurance was only $1,000 at Woodbury, while the rest of the BD world pays $2,500-$,3000 annually. Some of their advisory administrative fees were unusually low, so costs in general will need to increase. AIG runs their BDs at a profit with Royal Alliance making over a 10% return, FSC around 7% and Sagepoint around 5%.
- AIG has many centralized back office operations, with trading run out of New York, and compliance and operations out of Phoenix and San Diego. We’re likely to see many back office functions at Woodbury transferred to AIG.
- The RVP structure will likely be phased out within two years. They have 19 RVPs on salary, benefits and bonuses making between $300,000 and $800,000 annually. This is overhead the other AIG BDs do not have. As a result they will move to an OSJ structure instead.
- Many of the Woodbury reps did large amounts of Hartford VUL because they made outstanding commissions on the product (up to 105% on premium). They’re in for a rude awakening with the commission rates paid by AIG on VUL products.
The worst horror story I can think of with BD acquisitions would be when Royal Alliance bought United Securities Alliance. I talked with one former owner of the latter Thursday night. He said their revenue when purchased was almost $30 million, but only $9 million switched to Royal. He’d be surprised if they have $5 million still in place. I don’t think the Woodbury purchase will be anywhere as bad, simply because it’s an insurance BD buying an insurance BD, while many of the reps at USA had left insurance BDs to be with a non-insurance BD.
On the humor side, a Woodbury rep recently joked that Gary Bender was a Larry Roth plant at Woodbury to scope them out for purchase. Bender was the long-standing head of recruiting at Royal Alliance and has been at Woodbury for about eight months.
I use to recruit for the largest producer group at Walnut Street Securities, the Advantage Financial Group headed by Joe Russo. Back in the day, we went through the purchase of Walnut Street by MetLife, which was then headed by Robert Benmosche. We’ll probably see the same thing we saw happen with MetLife. We’ll have a six- to 12-month “honeymoon period” where they leave things alone. They’ll then start tightening the thumb screws to make things the way they want.
Some of the big questions about AIG BDs in general would be: Are they going to centralize most all functions to one location like MetLife did having everything out of Isline, N.J.? Are they going to merge the BDs into just one or two BDs? This year, AIG was going to have one major conference for their three BDs, which may be looked at as a feeler for future consolidation. Benmosche stopped the sale of the AIG BDs saying at the time in 2009, “Why would we sell these firms at the bottom of the market?” Is this purchase of Woodbury an indicator of commitment to owning broker-dealers or is it to get more economies of scale to attract higher value in the sale of their BDs?
The differences between the AIG firms have virtually disappeared, to the point where the only things we see different is when you call Royal Alliance you get a New York accent, when you call FSC Securities you get a Southern accent and at Sagepoint, no accent. Maybe, in one to two years, the difference we’ll see at Woodbury will be a Minnesota accent. You betcha …