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Can't Hack Total Independence? Try The Halfway House

As tens of thousands of life insurance and financial planning professionals can attest, launching an independent practice has many attractions, not least of which are the ability to source product from any number of carriers and to run the business as one sees fit. But with that freedom come responsibilities--procuring and managing sales, marketing, administrative, and information technology platforms and staff to support the practice--that to many advisors may be too great a burden.

Hence the appeal of firms that offer something in between: benefits that combine the advantages of a traditional career agency with those of an independent practice.

"Many advisors don't want 100% autonomy," says Peter Gordon, president of John Hancock Financial Network, Boston, Mass. "They want the freedom to run their own business while retaining many of the benefits of the traditional career agency system. We're providing a platform that allows them to secure a level of independence without having to leave."

What the stats say

That desire for semi-independence is mirrored in a survey that John Hancock conducted in December with Mathew Greenwald & Associates, a Washington, D.C.-based market research firm. The survey examined financial professionals' attitudes about resources offered through affiliations with business partners such as insurance companies, wirehouses, banks and independent broker-dealers.

Top financial representatives showed a strong preference for certain offerings of a traditional career system, with 7 in 10 reps preferring to work for a nationally recognized company over an independent firm (71% vs. 29%). A majority also preferred the health and retirement benefits usually associated with a career system. Nearly 70% of respondents (69%) expressed a preference for access to a subsidized health care platform compared to increased incentives (30%).

However, experienced financial representatives also showed a strong preference for certain offerings usually associated with an independent broker/dealer. Nearly 9 out of 10 respondents prefer to sell from an open product platform than a proprietary platform, 88% vs. 12%, respectively. They also overwhelmingly prefer to be recognized for their total sales regardless of product mix (80% vs. 19% for product-line sales). In terms of training support, two-thirds prefer to receive their training locally from experts in the field rather than from a home office (68% vs. 31%).

John Hancock Financial Network's new model, says Gordon, allows advisors to affiliate with JHFN in one of three ways. A "traditional financial representative" option offers a high level of support in terms of infrastructure, supervision, training, and marketing from the local JFHN firm. It also offers both traditional retirement and health plans.

A second option, "independent financial representative" is expected to appeal to entrepreneurial advisors interested in greater independence, control and flexibility over how they build, brand and market their business and the products they offer. A third choice, "producer group," caters to advisors who have formed alliances to share a common business vision and brand identity and who seek to benefit from the economies of scale, expertise and the local and national resources of a major carrier.

Under the JHFN initiative, advisors can move from one type of affiliation to another as their business evolves. Gordon says he expects the shifts to go in both directions.

"Some advisors will gradually navigate to an independent model; others will want to stay traditional. And many advisors will also revert to the traditional model after going independent. I can't stress that enough: One model is not intrinsically better than other. All of the affiliations are truly viable."

A hybrid approach

So, too, perhaps, is an unusual business model offered through Futurity First. Launched in January 2008 with $100 million in venture capital funding from private equity firm Aquiline Capital Partners, the Rocky Hill, Conn.-based company describes itself as an independent career agency that serves the needs of middle-income families and small business owners.

Where's the novelty? As do career agencies at national carriers, Futurity First employs its own field force of life agents, offering them compensation, retirement and health benefits, plus training and support services, comparable to those provided by traditional career agencies. But the Futurity First doesn't manufacture its own products. Like an independent life brokerage agency, the company avails of its producers of products from a wide range of carriers.

"We've developed a value proposition that we think is very attractive to agents who would prefer not to be totally independent," says Edward Berube, Futurity First's co-founder, president and CEO. "These agents like being part of a career agency system and the branding and support that goes with being part of a bigger organization. But they also want independent access to product."

The company, he adds, is now allocating the Aquiline venture capital to ramp up a national network of offices. Having closed 2008 with some 30 branches, Futurity First's plan is to bring online another 30 to 40 each year for the next 4 to 5 years. Employing some 300 agents, the combined field force of these offices is projected to grow to 3,000-plus by end of 2013.

The ideal recruit, says Berube, is the "seasoned" agent who has been in the business from 1 to 5 years. The company is also eyeing career-changers who have successfully built careers in other fields and can hit the ground running with an established network of client prospects.

Those who get hired should not expect to be doing advanced sales or marketing variable life products. The company is focused on the middle market (families with household incomes ranging from $30,000 to $200,000), which Berube says remains largely underserved.

"Yes, we have a very contrarian strategy," he says. "But we think there is a huge opportunity in the broad middle market to sell traditional insurance products through career agents. And the best way to position ourselves in this market is to offer a best in class portfolio with a one-need, one product-at-a-time sales process."

Selling to Main Street on Main Street

Futurity's First's value proposition for producers may be unique, but the company is not alone in targeting the middle market. Laying a claim to the retirement and distribution planning needs of this clientele is a subsidiary corporation of Woodland Hills, Calif.-based Table Bay Financial Network: America's IRA Centers. Launched in 2008, the centers comprise a network of franchisee-run offices, most of them located in shopping areas frequented by consumers.

"We have this burgeoning market of boomers holding onto $16.4 trillion, which we refer to as money in motion--money that's moving from accumulation to decumulation," says Barry Bulakites, a chief sales and marketing officer for Table Bay. "But there isn't much good localized advice for boomers needing distribution planning."

The centers intend to fill the gap by availing boomers of expertise in retirement, distribution, wealth transfer and income planning through advisors who work from a budding nationwide network of "stores." Situated in outdoor strip malls and other high-traffic shopping districts, the outlets aim to lend a customer-friendly retailing experience to the purchase of insurance and financial services, much as H.R. Block, Fidelity and E-Trade Group, providers of tax investment planning and Internet brokerage services, are doing with their own storefront locations.

The retailing approach, observes Bulakites, reflects a shift in buying patterns among consumers who are increasingly shunning indoor shopping malls and, with regard to financial services, executive suites in high-rise office towers, in favor of "Main Street." Open-air plazas, "life style centers" and downtown shopping districts, he says, are more inviting to consumers because the locations are more convenient and often less intimating; and because they encourage people to meander around to check out neighboring galleries, boutiques, restaurants, and other establishments.

A third component of America's IRA Centers' strategic focus is its franchise approach to sales and business processes. The turnkey package consists of home office-provided sales and technical training, plus standardized materials to aid advisors with all the phases of the client engagement: prospecting, presenting solutions, closing the sale and post-sale support.

"It's color by number," says Bulakites. "We're enabling advisors to quickly and immediately move into the marketplace without having to reinvent the wheel through trial and error. So long as you follow our checklists, you almost can't make a mistake."

Some participating advisors, he adds, will likely use the IRA Centers as "feeders:" store outlets to capture prospective clients' individual retirement accounts, folding them into practices that are based elsewhere. Table Bay is on track to have some 50 store locations open by year-end 2009. The goal is 500 branches in 5 years, with a total of 150 operating by end of 2010.



So What Am I Paid?

Whatever other advantages accrue to affiliating with one or another company, for many advisors the top question concerns compensation. Execs at the three firms interviewed for this story--Futurity First, John Hancock Financial Network and America's IRA Centers--claim they offer packages that are sure to entice.

Futurity First's Edward Berube says his company's agents receive "competitive commissions" (he declines to provide details), plus "incentive trips" and a monthly bonus based on production. Like their counterparts at traditional career agencies, the producers also get health insurance and a 401(k) retirement plan. The company does not, however, permit them to charge consulting fees.

The story is similar at John Hancock Financial Network for career ("traditional") reps who market primarily John Hancock proprietary products. The package includes "competitive" sales commissions (again, no details); and, upon achieving a minimum sales threshold, eligibility for subsidized group benefits, including health insurance and a retirement plan. New recruits also are paid a salary-like subsidy that phases out over time.

Independent reps who are paid as independent contractors and are not bound to maintain a primary relationship with John Hancock, enjoy higher commission levels, says JHFN's Peter Gordon. Once they secure an okay from the company's registered investment advisor, they also can charge clients wealth management fees.

JHFN also avails this independent group of a "high quality health and retirement platform" from which they can purchase voluntary benefits. No minimum sales threshold need be met to access these benefits.

Compensation and benefits for advisors participating in a producer group parallel those for traditional or independent agents, depending on with which group they choose to affiliate. But these advisors, notes Gordon, have a leg up because a producer group can aggregate sales, enabling them to offer their members potentially higher payout within certain guidelines.

At America's IRA Centers, advisors receive a sales commission for the life, long-term care, annuities and mutual fund products on offer, the commission being determined by the carrier or broker-dealer with whom the advisor has established a relationship. Though independent, says Table Bay's Barry Bulakites, the advisors are not allowed to charge consulting or wealth management fees of clients in any of the America's IRA Centers' branches (though they can assess fees for business originating elsewhere, such as an independent 2nd office).

Participating advisors also are entitled to a non-qualified deferred compensation package, compensation that is 100% funded by the home office and that, Bulakites notes, can really add up over time.

"We match their commissions at certain levels tied to production, so they're building a retirement program for themselves," he says. "An advisor who does $2 million in premium annually with us could end up with $1 million in the kitty 10 years from now."

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