On many fronts the MGA Channel has the same old, same old problems, but these get compounded when faced with new regulatory, compliance, contractual and technology issues steaming toward them. Are all MGA’s ready for what’s about to hit them? Have some been so busy in their business, they’ve been neglecting to “look both ways”. Can all MGA’s survive? Will the life companies let them all survive?Sales growth comes from getting new business in the door, and when the existing advisors are not acting on the sales opportunities available to them, either because they: don’t want to work that hard; are more focused on the investment side; have not kept aware of their client’s changing needs; have not embraced new technology and trends, the problem will continue until new advisors can be unleashed on some of those existing client files. This would require contractual changes to those vested advisor contracts, and I’m not sure there’s a life company wanting to enter into this arena at this time.
That’s because right now both the life companies and the MGA’s have got to get ready for the implementation of the new CLHIA guidelines being introduced this fall. This will require many MGA’s to modify their operational guidelines and launch several more checks and balances inside their MGA, as expectations of greater supervisory oversight get shoved down on the MGA channel. Most of the larger MGA’s have already bulked up with the addition of a compliance officer and its accompanying staff, and expectations are that all MGA’s will be handed the same “rules of engagement.” But adding easily another $100,000-$200,000 minimum to the operations will cause some smaller MGA’s to say, “Do I really want this new responsibility?” It’s my guess that once these new guidelines get fully introduced, it will lead to some just selling off their MGA.
Shape up or ship out
This gets compounded too when the life companies revisit their distribution partners and say, we must narrow our distribution focus to those capable of fully adopting these new guidelines while showing they can provide continued growth in new business. As this is their best chance of corralling further regulation creep into our industry, this time around I do not see the life companies just giving lip service to these new guidelines. Either shape up or ship out and like all businesses, the strong and nimble will survive, while eliminating some of the weaker players along the way.
Combine this with most life companies’ thrust towards beefing up their technology; it remains to be seen how this might all play out going forward. Unfortunately there continues to be many technology challenges. From incomplete data feeds to the life company’s decision to not adopt one common industry wide electronic application, technology continues to be a thorn in the distribution side.
Then there is the Client Relationship Module, or commonly referred to as CRM2 that is about to fully hit the investment side of the business over the next 18 months. Will this result in pressure to adopt full compensation disclosure on the segregated funds line up too, or will it continue to fall under the insurance side of the financial advisors practice? How will dual license advisors deal with fee disclosure of their investment side, and going silent on the insurance side? Stay tuned I’d say!
While everyone agrees it’s critical we protect the consumer from the rogue advisor, there simply is no proof that adding layers and layers of compliance – at a significant expense to both the life companies and their MGA partners – will accomplish this goal.
While there are several unknowns facing the MGA channel, there are many positives too, says my former colleague Jim Virtue president of PPI Solutions. He explains that with Baby Boomers entering the Estate and Retirement planning phase, we can offer them several solutions including both GMWB’s and annuity products and assist them in succession planning solutions too,
This may lead someone to thus say, “Well if it’s such a great, bright future, maybe I should start my own MGA?” My advice to someone planning on starting a MGA today: look at another business opportunity as there’s simply no appetite at the life company level to add any MGAs to their partnership.
What’s for certain is the many great MGA entrepreneurs will adjust, adapt and continue to prosper in this great industry. MGA distribution is here to stay, the question is, will you be one of those?