Are you being served?

When I was a boy, I never missed an episode of The Twilight Zone. In one episode, aliens from an advanced civilization came to earth to offer up an earthly paradise where there was no hunger, no war, no strife, no lack of any kind; think John’s Lennon’s “Imagine”. All you had to do was catch the next ride to Planet X! The thoughtful aliens had even given a book to their main human contact (let’s call him Bob) explaining how this cosmic nirvana worked. It was entitled To Serve Man and was written in the alien language. Bob’s love interest (let’s call her Carol) busied herself translating the book while Bob set up mass deportations to Planet X for folks seeking a better life. Indeed, Carol had decoded the title page, and it did, in fact, read To Serve Man. But by the end of the episode, as Bob was boarding the spacecraft, Carol came rushing up to the passenger barrier and screamed to Bob that she had finished translating the book. Bob was unconcerned until Carol screamed To Serve Man … it’s a cookbook!!

And so, when you are offered a financial product ask yourself “who is on the menu?”, the bevy of available products, or you?

One way of sorting through this is to understand the several delivery systems you may encounter and to know to which of these delivery systems your agent or broker belongs.

There are four delivery/distribution systems in the retail financial sector. Over my extensive career, I have operated in three of them. Here they are:

1. Direct Response System

Some companies advertise for customers to contact them directly without going through an insurance office (intermediary). This may be done by having them fill out an application online or it may be done by having customers call a phone number to be connected to a salaried, licensed, employed agent who works for his/her employer and not you.

Are your interests being served in this system? Obviously not. You are simply ordering blindly off an extensive menu and engaging in a commoditized transaction. This system is usually accessed when buying term life insurance. The client has already decided what they want, has perhaps reviewed a few rates, and then calls to place an order through an employee who could care less about the appropriateness of the product chosen since they are simply taking an order and will never talk to you again. It is the most rudimentary method of accessing the financial services industry. We at Slingshot Capital Solutions have never operated in this manner.

2. Captive Managerial Agency System

This system is when the agent/broker producer is an employee of the insurer, the company. The producer will be paid a salary usually in the form of a “training allowance” and or enhanced commissions or bonuses. This model allows for a large amount of financial stability for the agent/broker, but they are entirely dependent on the “good will” of their employer as they can be fired at any time particularly if they fail to meet certain imposed sales quotas.

Most importantly for the consumer, these people are compromised from the get-go and are necessarily in a position where they will first seek to please their company and then spend more effort convincing customers that their specific company’s products are best form them. They must do business with their company only and are contractually forbidden from doing business with another carrier.

Under this system, your interests are indeed being served but only after the interests of the company, the agency, and the agent are satisfied. Some well-known companies who operate in this way are New York Life and Northwestern Mutual. When I first started my career in 1975, I was in such a position with Bankers Life of Iowa, now the Principal Group.

3. Captive General Agency System

Here we have a very similar situation to the captive managerial agency system. The only difference is that managerial systems are “company shops” and the general agencies are franchises owned by the General Agent. General agencies tend to be entrepreneurial in nature and tend to service a more sophisticated clientele. Otherwise, the experience for the consumer is very much the same. Guardian Life and Mass Mutual are examples of this structure. In my career, I have been affiliated with both … as an Assistant General Agent with Mass Mutual and a Regional Director of Agencies with the Guardian.

4. IMOs or Independent Marketing Organizations

IMO’s are like captive general agencies with two critical exceptions: they do not capture their agents and they are free to market products from any company they have a sales agreement with, as are the agents. The advantages of such a system cannot be overstated and are immediately apparent. Here, the agent is not an employee of the IMO but simply has a sales agreement with the IMO as it, in turn, has with any number of companies. In fact, an agent can have more than one IMO relationship. The agent is the customer and not the prisoner of the IMO, and the consumer is the customer of the agent and not the IMO.

The agents who affiliate with IMO’s are entrepreneurial small businesspeople. They operate independently of the various companies so they can place customers with a variety of insurers. Since they earn money only by commissions, they are far more loyal to their customers than to the companies. While they do hold a fiduciary duty to the insurer, they will gain far more financial stability and success by placing their clients with the product and company that will best serve their clients’ interests.

This is the system we stand by and have been operating in for the past 20 years.