Regulation Push Puts IMOs In A Tight Spot

By Cyril Tuohy

The Department of Labor’s fiduciary rule no longer exists, but its aftermath will affect independent marketing organizations (IMO) for years to come.

“IMOs today have to help producers make more money, do it in less time, and eliminate as much stress along the way as possible,” said Dan K. Charley, president of Alpine Brokerage Services, and IMO with offices in Florida and New Jersey.

Today’s IMO has become a de facto business coach for the financial professional, not just a support organization as in the past, he said.

IMOs contract with advisors to sell life and annuity products in the independent distribution channel. The organizations have traditionally offered advisors support, product illustrations and good pay, but the fiduciary era has turned these services into mere table stakes.

In this new era, IMOs need to provide water-tight record-keeping, up-to-the-minute compliance, education, professional training and legal services for advisors with whom they do business, IMO executives said.

The 350 IMOs around the country for years were the predominant sales outlet for fixed index annuities, a $58 billion market, but have recently lost market share to banks and broker-dealers, institutions more heavily regulated.

Competition has forced IMOs to improve their value to advisors by either reorganizing internally or buying other IMOs to bolster their capabilities.

Searching for a Fit

Take Jason Smith, founder and CEO of Westlake, Ohio-based C2P Enterprises, a holding company that includes an IMO.

C2P bought a coaching company earlier this year and is in talks to buy another company in the training industry.

“We’re looking to build out our portfolio of companies at the holding company level because you just never know what’s coming next,” Smith said.

Not only has C2P itself been asked to buy another IMO, but C2P has in-turn had to fend off acquirers, “but we’re not for sale,” Smith said.

With the Securities and Exchange Commission seeking public comment around Regulation Best Interest and states looking to adopt their own fiduciary standards, the industry can expect more oversight, the industry experts said.

The death of the DOL fiduciary rule has given IMOs a bit of a reprieve, but there’s plenty of uncertainty among IMOs and agencies as the NAIC and the states pick up the fiduciary baton, said Erik Miller, senior financial analyst with A.M. Best Co.

In short, regulation isn’t going away.

The New Professionalism

In the meantime, many industry execs say the dawn of the fiduciary era injected a degree of professionalization and accountability into IMOs.

More IMOs are signing deals with broker-dealer advisory platforms, while insurers narrow their focus to doing business with no more than a half-dozen IMOs. IMO executives say they welcome those changes.

“Having really good advisors and getting rid of bad actors is a good thing,” said Cody Foster, founder of the IMO Advisors Excel in Topeka, Kan.

Many long-time IMO executives see smaller IMOs either merging with larger competitors of leaving the industry as aging owners opt for retirement.

The days of an IMO selling one or two products from an insurer are gone and IMOs with a book of $1 million to $4 million in life insurance premium and between $20 million and $100 million in annuity premium are going to find it difficult to prosper.

In April, Simplicity Financial Marketing bought InsurMark after acquiring WealthWise Partners and Liberty Financial Resources last year.

Simplicity was renamed from Dressander BHC, itself a previous merger of two separate IMOs.

In March, AMZ Financial, in Urbandale, Iowa, announced a merger with Riverside, Calif.-based Partners Advantage.

“Smaller IMOs are looking to partner up with larger IMOs and acquisitions is one of the ways in which this is happening,” said Mike Kalen, founder of Sequoia Advisory and former CEO of the IMO Futurity First.

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].