Are Agent Commissions in Jeopardy?

By Cyril Tuohy

Under pressure from lawmakers and government regulators, the insurance industry has an opportunity to reshape compensation models in a positive way, analysts say.

The Department of Labor expects to publish its fiduciary-only rule next year, which will heavily regulate compensation for agents selling annuities. The DOL and its allies in Congress are pressuring the industry to do away with lucrative incentives to sell.

But compensation analysts and industry consultants who have studied what attracts and motivates top producers stitch a nuanced and varied picture of what carriers do to attract consistent, productive agents.

Incentive programs, in particular “incentive gaming,” have turned out to be a mixed bag because some agents do just enough to earn the prize and not a dollar more, said Jason Brown, principal of ZS Associates Inc., a global sales and marketing consulting firm.

In other cases, however, the incentive was enough to motivate agents to perform beyond benchmarks and blossom into productive long-term agents.

Perks, giveaways and vacations, which have infuriated some lawmakers, are, in fact, quite expensive to run, and ZS Associates has recommended canceling such junkets because they are not profitable and only reach a small portion of the sales force, Brown said.

Sen. Elizabeth Warren, D-Mass., last month raised the ire of many an annuity distributor with her report outlining the myriad travel, perks and giveaways — “kickbacks” she called them — used by the industry to incentivize agents to sell a specific carrier’s products.

Titled “Villas, Castles, and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry,” the investigation uncovered tales of lavish expenditures by carriers for everything from iPads to European golf vacations to “NFL Super Bowl-style rings” to reward top agents.

Without a doubt, life and annuity carriers — indeed just about any company in the business of reaping profits — reward its top sellers with lavish perks. Perks, though, represent a reward for a job well done. They aren’t the mechanism that keeps advisors coming back day after day, Brown said.

Setting aside the feelings of irate lawmakers, many carriers are tinkering with their compensation models as they seek to attract young talent, Brown said in an interview with InsuranceNewsNet this week.

Not abolishing commissions

In the insurance world where so much of the reward is based on commission, no one is talking about abolishing them. But companies are taking steps to move away from commission-based models, Brown said.

Agent revenue models based solely on commissions were always a tough way to make a living, and they explain the high rate of attrition among agent trainees. Now, at last, the idea that commissions alone are enough to incentivize agents is fading, Brown said.

Workers in the general population shy away from the pure commission model and skew toward salary and incentives, ZS Associates research reveals. On the whole, people are willing to trade potential for “upside” for more stability, Brown said.

That’s one reason why carriers are experimenting with goal-based incentives around customer satisfaction and retention, he also said.

Many candidates often bypass complex compensation plans and complicated commission grids and instead wind up making employer selections based on gut instinct, Brown said. “Only the most sophisticated advisors sit down and run the numbers.”

To be sure, the phrase “great earnings potential” still figures at the top of the list of reasons to join an employer, according to a recent survey of over 150 financial advisors by ZS Associates.

But when asked why they picked their most recent employer firms, respondents also rated “enjoyable nature of work,” and “great firm reputation.”

When respondents were asked how they determined earnings potential, the top three responses were brand or firm reputation, diversity and competitive product advantages, and gross dealer commission rates. Salary amount or guaranteed income level was rated a distant fourth.

Questions such as whether products are easy to sell, do agents receive a healthy flow of leads, will the organization support its agents, how much risk does the company take on when hiring a new agent are variables that are not communicated through a commission payout grid, Brown said.

Plenty of variables

Nonfinancial variables may offer progressive life and annuity carriers, desperate to replenish the ranks of aging distributors, an opportunity to test the boundaries in the competition for talent.

Are companies willing to let people work from home? Will carriers accept elastic schedules? Might the information technology department pay for one or more mobile devices? How are sales managers proposing to divide territories?

Other questions include how flat is the employer’s organization? Does cloud-based data belong to the advisor or to the company? Can new hires communicate via Facebook and Instagram? How fast the track to advancement? What about the benefits package? Will an employer pay back a student loan in exchange for producers meeting sales benchmarks?

Susan Combs, CEO of Combs & Co., a financial advisory practice in New York City, said she’s found that the “eat what you kill” commission-based model is a very difficult sell for young advisors getting started in the business.

“You have to show them what the prize is — they don’t care about 50 years from now,” she said.

Her company is set up so employees don’t have to come in to work on Fridays, and the company does not track vacation days.

Bonuses are paid out based on company production.

If her company is up 7 percent in one quarter, the commensurate amount shows up in their checks as a reward, she said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].