As consolidation changes the face of some businesses, others say being owned by larger companies – insurance manufacturers like iA Financial Group (iA) and Great-West Life – makes no difference to the way they operate. Management structures remain in place and unchanged, and the companies continue to operate independently of their parent company’s businesses.
“There is good value in independent distribution,” says PPI Solutions president and CEO, Jim Virtue. “I think that’s why you’re seeing this trend. Whether we see other companies buy independent distribution, I don’t know. That will be interesting to see, but clearly iA and Great-West Life see a lot of value in independent distribution.”
So far others, including insurance company executives, agree they’ve seen no change to the way distributors like PPI and Financial Horizons Group operate under their new parent companies. “Honestly, they’ve been very good. I haven’t seen a single change in the receptivity of those MGAs,” says SSQ Insurance vice president of individual life and investment products, Doug Paul. “Great-West’s ownership of Financial Horizons hasn’t changed anything in my day-to-day activity. The same is true for PPI, which was just bought by iA. They’ve been very fair minded in maintaining independent distribution.”
Parent company influence will likely manifest in different ways as new ownership structures give MGAs access to new reserves of capital needed to bolster services and acquire new business.
At PPI, Virtue says that money is being used to provide better tools, compliance and regulatory support and better service to independent advisors. The company could see its parent company add to the business with continued acquisitions like the recent purchase of ABEX Brokerage Services Inc. and its subsidiary ABEX National Brokerage. He also hopes to develop a program where iA will help finance advisor transitions when new advisors would like to purchase a retiring advisor’s business. “Capital makes doing those things much easier.”
At Financial Horizons Group (FHG), company founder and chairman, John Hamilton says he’s made over 35 acquisitions for the company in the past five years. The company has also created Continuum Financial Centres, a business designed to bring new advisors into the industry and match them up with advisors who are retiring. “We have a very strong strategic plan to continue acquisitions, both on the MGA and the advisor side,” he says. “We’ve been very active.” (Editors note: John Hamilton will soon transition to the role of founder and senior advisor of FHG. In July, Nick Pszeniczny will take on the role of CEO)
As consolidation continues at a reasonable clip, some industry observers say acquiring advisors instead of whole firms, is more their focus.
“You’re competing with large financial institutions and large private equity firms that are aggressively out in the market paying huge multiples,” says Paul Brown, chairman and CEO of IDC Worldsource Insurance Network. “We see more value in acquiring the advisors, as opposed to acquiring firms. It doesn’t mean we’re not open to strategic acquisitions, but we’ve noticed in the last couple of years that, because of these large players getting more active in the market, that it’s very, very competitive. There seems to be an appetite to pay pretty aggressive multiples. I don’t know if that’s sustainable. If you’re a seller it’s probably attractive. But as a buyer, you’ve got to be wary of that.”
Acquiring or being acquired is not the only way to go, either, says Doug Paul. He says SSQ is currently reaching out to MGAs who are not aligned with one of the major carriers, to see if groups might be formed where companies collectively invest in opportunities that provide scale. The company could also invest in technology that might be used by all, or provide financing for one MGA to buy another. “We would like to explore an alternative approach. That would be working with a group of aligned MGAs where we could work with them and invest in them in return for a right of first refusal” if another major life insurance company were to make a bid for the companies involved. “We would have this right of first refusal so we don’t see that investment go to another carrier.”
Empire Life is another carrier with no plans to acquire distribution companies. Sean Kilburn, senior vice president of retail for Empire Life says the company has developed loan facilities and other financial arrangements that allow Empire Life to support independent MGAs without making an outright purchase. “We’ve configured our business to support independent financial advisors. Our focus is not on purchasing and operating an MGA, but we believe there is a role we can play in supporting strong, independent, existing MGAs to (help) maximize their potential,” he says. “The skill set needed to successfully retain and attract independent advisors is fundamentally different than the skills required to build a successful life insurance manufacturer or tied sales force. We believe we can best support advisors by helping to make sure they have choices when deciding what MGA they want to work with.”
Digital sales processes
Instead of investing in distribution, Kilburn says Empire Life has instead been focused on the industry’s evolving technology needs by investing in digital sales processes. These processes are designed to help advisors become more efficient with their time and also meet a customer’s changing needs and buying preferences. “Everything we’ve built, we’ve focused our resources on making Empire Life simpler, faster and easier to deal with in a digital world,” he says.
Advisor efficiency is a big focus for many firms. “If you look at the way technology is changing our business, there will probably be fewer advisors servicing larger blocks of business, leveraging technology to be more productive,” says Kilburn. “They’ll be spending less time on administration and prospecting and more time advising customers.”
The sale of simplified products are part of that picture, as insurance companies continue to invest in more flexible products that are easier to sell.
“The consumer is changing a lot. As an industry, we’ve got to adjust,” Hamilton says. “Some of these simpler sales, we’ve got to make those easier. You’ve got to have systems in place so you’re not spending a lot of time on it. The more advanced and larger sales will still have to be sold, but some of the term policies, you can’t afford to be travelling all over the city and all over the country for a $500,000 sale or for $25 a month.”
“You can buy anything you want on Amazon,” he adds. “As an industry, we need to be able to create the same ease when buying our product, the simple ones, almost online. It’s not just an MGA challenge, that’s an industry challenge.”
Technology is also expected to help alleviate pressure as the industry grapples with changing regulatory demands, as well.
Advisor oversight continues to be a major area of focus for the Canadian Life and Health Insurance Association (CLHIA). In June 2017 it published a paper, entitled Improving Advisor Oversight, which recommends that independent advisors identify a primary distribution firm, and that those distribution firms should have oversight responsibilities delegated to them under a regulatory licensing regime. “Implementing that sort of change would be a longer term objective,” says CLHIA assistant vice president of distribution, Erica Hiemstra. “We believe support exists among industry stakeholders to make some positive changes in areas like ensuring advisor proficiency and awareness about their compliance obligations towards customers.”
Among other things, the paper says today’s regulatory structure and oversight obligations reflect a period when most insurers sold their products through a traditional career sales force. “While insurers have systems in place to monitor for advisor misconduct, the oversight done by each insurer…is limited to the businessplaced with that particular insurer, making it difficult to detect misconduct that may cross insurers, such as churning. By contrast, the MGA is well positioned to monitor for such misconduct,” they write.
To help MGAs meet their potential new obligations if it’s determined that distribution companies should be responsible for carrying out prescribed oversight functions (the paper calls for a primary MGA to be responsible for supervising an advisor’s entire business and coordinate with secondary distribution firms to investigate if concerns arise which involve multiple distributors) it’s hoped that APEXA, a web-based, advisor screening, contracting and compliance tool will become the standard solution for monitoring an advisor’s activities.
In addition to advisor oversight, the association is also currently working on segregated fund cost disclosure. It recommends that insurance and mutual fund regulators and their industries work together to implement more detailed cost disclosure to consumers. Hiemstra also says advisors will notice that incentive travel programs are being wound down as carriers voluntarily accept the recommendation that new parameters should be adopted to manage the perception that a conflict of interest might exist when advisors recommend certain products to their clients.
“We’re on the cusp of fundamental changes in how MGAs will be operating and working with advisors,” Brown says. “There’s going to be more emphasis on the monitoring and supervision of advisors. I think there’s going to be more accountability at the MGA level to know the advisor, to understand what kind of business they’re doing and to have more of a role in making sure they’re putting the client’s interests first.”