For many independent life insurance and financial service sales professionals, affiliating with a large producer group has a strong appeal. They maintain their independence while securing the support and expertise of a larger organization. In 2010, upstart Lion Street entered this market, one long dominated by two industry giants: National Financial Partners and M Financial Group.
LifeHealthPro Senior Editor Warren S. Hersch recently interviewed Brian Murphy, Lion Street’s president and chief operating officer, to learn how the company differentiates itself and aims to gain market share. The following are excerpts.
Hersch: How did Lion Street get started?
Murphy: Bob Carter, the founder of Lion Street, co-founded PartnersFinancial in 1987, then integrated the practice into National Financial Partners, which he established 1999 as one of three founders. Bob then left the company in 2008 and, eying an opportunity for an insurance-focused, financial services distributor, started Lion Street in 2010 with financial backing from Austin Ventures, the largest private equity firm in Texas. Hartford Financial, where I worked at the time as executive vice of the life business, became Lion Street’s first partnership carrier.
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Hersch: How significant is Austin Venture’s equity stake in Lion Street?
Murphy: The company has a $5 million stake, but a majority of our business is owned by our producers: all independent firms that provide life insurance, business insurance, and wealth management solutions to high-net-worth individuals, business owners and corporate clients.
They have five of the eight board seats. Bob Carter and I have two of the others; Austin Ventures has one. We enjoy a unique governing structure.
Hersch: How does a producer become part of the firm?
Murphy: To qualify, you need to generate $1 million-plus annually in revenue, of which life insurance sales provide a material percentage — north of 50 percent. We have nearly 100 firms representing 160 owners and 250 selling relationships or sub-producers within the firms.
Hersch: Do any of the firms hale from M Financial or NFP?
Murphy: Yes, some of them. Most of the advisor-owners have a son or daughter or nephew or niece in their operation.
Hersch: What do you offer advisors in terms of training and support?
Murphy (pictured at right): Our Lion Street University curriculum focuses product/case study design, underwriting/new business and training. We also have Young Guns Study Group, which bring together people who have from 1 to 10 years in the business. Some of the training is done via in-classroom instruction, but we also avail advisors of webcasts and WebExs.
On the support side, we offer a host of back-office services. The most recent addition is Multi-Life Design Center, which we launched last year to facilitate multi-life insurance sales for both executive benefit firms and traditional life insurance professionals.
Hersch: Are advisors at the member firms also learning from each other?
Murphy: A lot — this is a big part of our value proposition. Our seminal meeting of the year is Indaba, an African term signifying a meeting of elders to discuss important community interests. The annual gatherings feature TED-like talks presented by 20 to 25 advisor-owners, each talk lasting 15 to 20 minutes.
The meetings have led to more partnering: About 40 percent of our owners do business with each other, for example by lending each other people with particular advanced planning expertise.
Hersch: To what extent, then, are the advisor-owners outsourcing needed expertise to other firms versus recruiting specialists internally?
Murphy: We find there is a much greater appetite for outsourcing — and not just in an ad-hoc fashion. We also avail our advisors of opportunities to share resources on an ongoing basis.
Hersch: Does joining Lion Street entail a cost for interested advisors?
Murphy: There is no annual fee. To join, advisor firms purchase Regulation D stock — non-publicly traded shares —and they must be accredited investors.
Generally, they’re buying $50,000 of preferred stock that’s convertible to common stock. Some of our founding firms were able to invest a bit more, but no one firm owns a big stake in the company. That was important to us.
Hersch: So the advisor-owners mutually benefit from company earnings; and it’s therefore in everyone’s interest, I imagine, to collaborate as much as possible, yes?
Murphy: Correct. There’s an alignment of financial interests among the owners. They derive income from revenue at the firm level. And they benefit from growth in Lion Street’s profitability. Generally, Lion Street retains 10 to 15 percent of what an individual producer generates in sales. Reverse revenue-sharing with the member firms varies, based in part on the size of the firm.