The pace of mergers and acquisitions among life brokerage agencies has been ticking up in recent years. Much of the M&A activity is being fueled by private equity firms that see in the independent distributors promising investment opportunities.
For a growing number of producers, a key question is whether the injection of outside capital is a good thing, notably in respect to two issues: (1) the training and support they can expect to receive from private equity-backed firms; and (2) how their compensation might be impacted.
From where I sit, private equity's growing involvement in distribution has, on balance, been a positive development, in part because they're experimenting with new business models that can bring efficiencies, economies of scale and innovation to the wholesaling space.
Good examples of such forwarding-thinking experimentation — not in all cases private equity-backed, but nonetheless excellent case studies in the sort of innovation that can be expected from private equity's growing role in distribution — were featured at the opening general session of NAILBA 34, the 2015 annual meeting of the The National Association of Independent Life Brokerage Agencies, being held in Orlando Nov. 19-21. The gathering brought together a panel to explore new models that are developing in the wholesaling distribution arena.
For a growing number of BGAs, the winning formula is to offer best-in-class training and support. James Wong of Partners Advantage Insurance Services said independent producers are increasingly looking for online education they can access via a desktop PC or mobile device, including podcasts, webinars, and videos.
It isn't just traditional life agents and brokers that want virtual instruction. Wong noted there's also growing demand among advisors in "adjacent" distribution channels, including registered investment advisors, those dually registered with RIAs and broker-dealers, as well as bank-employed advisors.
In addition to to online training tools, Partners Advantage, a national marketing organization, avails its customers (both wholesalers and independent producers) of marketing programs, sales tools and a dedicated case manager and marketer.
The use of technology can also be a competitive advantage for agencies looking to service independent producers efficiently in other ways: processing policy applications electronically, generating leads and availing agents and brokers of cutting-edge sales management tools. Ryan Pinney of Pinney Insurance Center said the return on the investment achieved through technology automation has benefited not only its direct marketing arm, but also producers affiliated with its traditional brokerage channel.
Another way to add value in distribution is to offer services tailored to niche segments of the producer world. Larry Herman, president of Herman Agency Inc., said his company now caters to high-end RIAs and P&C shops, private banks, family offices, and firms specializing in group benefits. Each of these companies, he noted, enjoy trusting, established relationships with wealthier clients. That lets Herman devote less of his agency's resources to assisting producers in closing sales and more to post-sale plan implementation work.
Of which there's a lot. Given the high-net worth clientele, much time and labor is needed for advanced planning: deciding on the right policy, establishing a suitable trust for wealth transfer purposes or instituting a buy-agreement for a business owner.
Herman Agency's expertise is a competitive advantage for the firm. Producers who otherwise would face difficulties offering advance planning to the high net worth are often willing to forgo higher-paying commissions at other brokerage agencies to leverage Herman's niche support services.
Herman's business model boasts another advantage over that of conventional BGAs: the ability to simplify and streamline the organization. With fewer people on staff, fewer managers are needed to oversee them. There's also, he says, less "office politics" and on-the-job stress.
