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‘I’ll pay your debt if you sell our annuities’

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Last week I got a phone call from a friend who owns a small FMO and he told me a hard to believe story that was the most bizarre thing I have heard (so far) in the annuity industry. By the way, that’s hard to do in the crazy world of annuity sales. Maybe my self-inflicted hermit status has prevented me from knowing about what’s going on in the outside world, so I apologize if this is common knowledge to all of you that actually interact with other agents. However, after a few selected phone calls to people in the know, I found out that this new circus just came to town.

My friend told me an anonymous story of one of his producers who had been with his FMO a very long time, but who had just left for another FMO (and moved all of his contracts) because the new FMO had agreed to pay a large overdue federal tax bill. What? For this humanitarian gesture, the agent had to sign a long-term deal with this generous FMO to run all of his annuity sales through this group. In addition, he had to sell a certain level of annuity premium over that time period for the “loan/gift” to be eventually wiped away. Wow!

As most of you know, I came from the securities wirehouse world and this recruiting practice is quite common under the guise of a “forgivable loan.” And I guess it’s semantics to say that paying off someone’s taxes or mortgage as opposed to handing over a forgivable loan check are different from an intention standpoint. However, this “buying annuity business” practice with upfront money might be a game changer for the annuity world because the number of real producers is miniscule compared to the brokerage world. There are not many agents that consistently raise a lot of annuity premium year after year.

Possible conflict of interest

The few FMOs that I have been told that are aggressively buying annuity business by the paying of the agent’s debt are well known to push their annuity product “favorites” to their army of agents. If an agent signs an exclusive deal to run all of their apps through this FMO, do they require that now-captive agent to sell their “annuity de jour”? I hope not. I hope that they allow that now “kept” agent to offer whatever annuity that agent feels is in the client’s best interest.

However, if that agent primarily sells the FMOs proprietary product or the annuity with the most carrier back-end bonus to the FMO, this would be a legal lay up for any type of customer complaint against the indebted agent (or FMO).

One of the deals I was confidentially told about involved a huge debt being paid off in exchange for a five-year exclusive deal with the FMO that requires the agent to sell $3 million per year of annuity premium. I’m not sure if it had to be FIAs, a proprietary product, or any type of annuity, but this agreement alone has the potential to not put the client’s best interest at the top of the agent’s priority list. 

Can’t hit the numbers

This is going to be interesting to watch over time when agents end up not hitting the required sales production numbers. Will the agent turn the table and sue the FMO? Will the agent tell the client that they were pressured to sell when the FMO comes after him for the money? Anytime you have a specific sales number that you have to reach, your client decisions could be compromised if you aren’t “hitting” that needed number. This is just human nature, but bad for the client.

Carriers need to wake up

My advice to carriers is to protect yourself from these types of selling agreements by finding out if their approved FMOs are participating in this type of agent buying practice. Hopefully, this is already on their radar screens, and they have done as much as possible to protect themselves from potential and predictable problems. In the near future, it would not surprise me to see a separate agreement from the carrier that an agent would have to sign to either say they do not have an FMO agreement like this or if they do, to provide the details in order for the carrier to approve their contract.

This is nothing more than a sign of the times that some FMOs have so much money flowing in, that they have to spend it somewhere. From an entrepreneurial standpoint, it’s certainly an aggressive way to create a “forced captive” group of agents within an FMO organization. It would be practically impossible for another FMO to recruit an agent away from an FMO when there is a rock-solid, legal, five-year exclusive agreement in place. I guess the FMO could pay off the other FMO! Wait, I think I just threw up!

Word will spread fast among agents if they know they can get rid of some debt, and continue to sell their beloved one-size-fits-all annuity. However, as the old adage says: “If it sounds too good to be true, it is.” This new pay-for-play FMO recruiting strategy will eventually validate this saying as well, and will be another black eye on an annuity industry that doesn’t need to take any more hits.

For more from Stan Haithcock, see:

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