Lion Street: Aiming to become king of the producer group jungle?

Hersch: Do you have near- or long-term revenue goals for the company?

Murphy: We expect in three years to be twice as big as we are now. We're fast-approaching a tipping point — a doubling of our national footprint and revenue — that will command attention and respect for our firm in the marketplace.

Hersch: How does Lion's Street's business model differ from that of M Financial Group, National Financial Partners or other producer groups?

Murphy: Our business model is closer to M Financial's than NFP's. NFP started as a life insurance-centric organization, but has since pivoted to focusing on executive benefits and wealth management. M Financial Group has remained true to its life insurance roots. But unlike M, we're not restricted to a handful of carriers: M has five or so product providers; we've got some 35 to 40.

Hersch: To the extent that Lion Street maintains a strong focus on life products, I imagine their advisors will continue to derive a significant amount of compensation from commissions. Given the growing number of advisors who are opting for fee-based practices, do you anticipate a shift in payouts from up-front or heaped compensation to fee-like commissions?

Murphy: Yes, and for several reasons. First, given growing calls for greater compensation transparency, it will be very difficult to avoid commission disclosure. Second, as advisors build their products, they can't remain single product-only providers to clients. They need to integrate other practice components, such as serving wealth accumulation and retirement income needs.

Also, it's very difficult to hold yourself out as a fiduciary acting in the client's best interest while being restricted to one or two product providers. By affiliating with a company like Lion Street, advisors can remain product-neutral: They can source product from multiple insurers; and they receive no financial incentives to sell product from one carrier versus another.

Aside from how a carrier prices its products, it makes no difference compensation-wise whether advisors sell product from one of five partnerships carriers with whom we deal directly — Prudential Financial, Pacific Life, Lincoln Financial, John Hancock and Symetra — or the 35th company in terms of sales volume.

Regarding the partnership carriers, we believe that our owner-advisors should be able to talk directly to the underwriters, and not work through clearinghouses like brokerage-general agencies. BGAs, in my view, are on the wane because companies don't compete as much today on price as they do on product features.

Hersch: So if BGAs are to remain competitive, I take it they'll have to provide additional value. I raise this point because I spoke with the president of one recently whose expertise was in helping carriers to design cash value-rich universal life products to appeal to retirement savers. Does Lion Street also have such product development expertise? Or do you depend entirely on the insurers to manufacture products in tune with your requirements?

Murphy: It's a hybrid of the two. We don't yet have a product design person on staff. What we do provide carriers — and this extends beyond our partnership companies — is input on products we believe will sell. One example: products that pay advisors levelized commissions over a period of years in lieu of heaped commission.

Many carriers have been circumspect about adopting this structure, in part because they're concerned about cannibalizing their current sales. They don't want to do what's in their long-term interest because they're concerned about short-term sales results.

Hersch: Why would they be cannibalizing existing sales?

Murphy: If a carrier becomes an early adopter of levelized compensation, then producers — particularly commission-only agents and brokers — may favor a competitor that pays them commissions up front.

But whereas life insurers lag in migrating to levelized payouts, the trend is already well underway at mutual fund and annuity providers that incorporate a commission into an advisory wrapper that generates recurring fees. If and when insurers join the bandwagon, Lion Street will be well position for the change, as our partner-owners undertake long-term client engagements to which fee-based or fee-like compensation lends itself well.

Hersch: Many advisors now specialize in retirement income planning, a burgeoning market given the growing number of baby boomers entering retirement. Is this specialization also taking place at Lion Street?

Murphy: Very much so. And this touches on our core focus: protection products. Retirement income planning can't just be about investments, rate of return or volatility testing.

An unexpected disability, critical illness or long-term care event can spoil the best-laid plans. And because of medical advances, accidents or illnesses that once killed people now leave them infirm.

I like to think of long-term care insurance and life insurance as discreet income buckets that can help to bracket regular retirement income — supplementary tax-free money that can defray additional expenses in retirement.

In short, investment and protection planning are coming together. An investment advisor who only deals in that part of the business is, in my view, leaving a whole flank of the client's nest egg exposed.

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