Advisors relatively content with MGAs: study

(June 2007)Advisors who place their insurance business through a managing general agency remain satisfied with their relationship, for the most part, according to the latest research by the Advisor Group and NewLink Group.

“Advisors report having a good relationship with their MGA still; however, for the first time, this year shows a significant drop in satisfaction with that relationship,” says Tricia Benn, director of research for Rogers Business and Professional Publishing. While 82% report satisfaction, that’s down from 92% in the previous year.

Benn presented her findings at the third annual Changing Channel: Managing General Agencies Symposium in Collingwood, Ontario.

The overwhelming claim of satisfaction with their MGA belies the fact that the advisor community is of two minds when it comes to that relationship. Advisors continue to want additional training and support from their MGA, and the perceived absence of such support is likely at the root of any diminished satisfaction.

For example, 35% of respondents see their MGA as no more than a processing service for their apps, while 61% said their MGA provides value-added services, ranging from insurance training to business support.

More specifically, 65% would like training on tax and estate planning — but only 45% of respondents said they are willing to pay for it.

The cost, however, of hiring an in-house tax and estate planning specialist would be prohibitive for most MGAs, said Paul Brown, CEO of Worldsource Financial Management. He believes the advisors who most need such training are also the least likely to put it into practice.

Forty-three per cent of advisors want more training on insurance products, but only 13% are willing to pay for this training.

This desire for training and assistance, coupled with the reluctance to pay, presents a problem for MGAs, which is compounded by a mixed blessing: they are the most trusted sources for information among the advisors who work with them.

In almost every field of training, advisors prefer to learn from the MGA — the sole exception is on insurance products themselves, for which advisors prefer carriers. But even in this field, the margin is not huge, at 53% for carriers, versus 37% preferring the MGA.

MGAs are the most trusted source for training on everything else, from compliance (44%) to sales (41%) to practice management (39%).

Brown believes many advisors who started their careers in insurance have since moved into the investments channel and now focus far more on gathering assets on this side of their business, to the detriment of their insurance practice.

The numbers appear to bear that theory out. Last year, the average MGA advisor’s practice chalked up gross revenues of $55,600 from individual life and health insurance. That’s down from more than $72,000 in 2005. Mutual funds represented 43% of the average advisor’s revenues, while insurance made up 29%.

Despite the fact that 83% of respondents are also licensed to sell mutual funds, the survey found 54% want their MGA to stick to the insurance field alone. Only 32% said they want their MGA to process mutual fund transactions, while 37% would like to see the MGA form a strategic partnership with a dealership.

Yet 64% said their MGA already includes a mutual fund or securities dealership. Remarkably, 21% of advisors said they simply do not know.

Some MGAs say they have no problem with keeping out of investments. In fact, it seems that the trend is for investment dealers to move into the insurance side, as the high cost of regulation shaves dealer margins even thinner.

“We choose to be strong insurance providers and provide that support,” said John Hamilton, president of Financial Horizons Group. As such, his firm is quite content to comply with advisor wishes and stay out of the mutual fund sector.

“Because mutual fund dealers have extremely narrow margins, and heavy compliance oversight is getting worse every day, they are getting into the insurance business and actively working to get their arms around the advisor,” said Scott Sinclair, senior vice-president of AEGON Canada Inc.

Sinclair says this allows the firm to dictate to the advisor, that if they want to remain with that fund dealer, they need to place their insurance through the MGA channel of the same firm. The cost of changing dealers leaves the advisor virtually no choice in the matter.

New policy sales continue to lag, as the average advisor was able to place only 26 new contracts in the past year, down from 30 a year earlier. Top advisors, those who gross revenues in excess of $500,000, sold slightly more policies, at 34.

The number of in-force policies has declined dramatically for the average MGA advisor, with only 339 policies in place, compared to 433 a year earlier. Top advisors fared much better in 2006, with 768 policies in place.

To access the NewLink Group website, please click here.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(06/12/07)

Steven Lamb