Small managing general agents feel threatened by a model proposed by the Canadian Life and Health Insurance Association which would oblige advisors to deal with a primary MGA. According to them, such a model would favour the largest MGAs. Some MGAs revealed their fears and their survival plans to The Insurance and Investment Journal.
Regional MGAs are facing rapidly growing obstacles, says Gary Wardrop, partner at WealthLINK Financial Services for the past five years. The Kelowna-based MGA’s website describes the firm as a boutique-style MGA situated in the heart of the Okanagan, which offers advisors the support of a dedicated team. In fact, British Columbia spearheaded the 2012 regulatory initiative of scrutinizing MGAs’ activities.
Wardrop thinks that small boutique players can remain profitable despite the burden of compliance. The CLHIA proposal, while clearly a threat, may also be overcome once the final rules are known, he says.
The CLHIA proposes a new licensing regime where advisors must choose a primary MGA with which to place their business. The MGA would be in charge of supervising the advisors and ensuring that they hold errors and omissions (E&O) professional liability insurance.
A more formidable obstacle would be the consolidation of the distribution network, which such a model would inevitably trigger. In a letter sent recently to the Canadian Association of Independent Life Insurance Brokerage Agencies (CAILBA), Wardrop expresses disappointment with the CLHIA’s proposals. A guideline that forces advisors to choose a primary distributor would prompt Canada-wide MGAs to encourage advisors to put all their business in one place, he explains. “As soon as it is regulated that an advisor must choose a ‘primary distribution firm’ then…our MGA and others like ours would be forced to sell/merge with a large national MGA virtually overnight,” Wardrop argues.
He thinks the MGA network would be shortchanged. Regional players benefit from proximity that favours advisor supervision, he adds. “Smaller MGAs with a regional focus usually have a better understanding of the business being written by all of the advisors whom they deal with, not just the top 20 per cent. We should be able to address concerns with improper practices in a more direct approach. This is not to say that large national MGAs are not also able to act in a similar manner,” Wardrop points out.
Caroline Thibeault says that personalized service fuels the profitability of her firm. The CEO of Groupe SFGT, a Coaticook, Quebec MGA led by her father, Gérald Thibeault, claims that small MGAs have the advantage of being able to get to know their advisors better. SFGT has ten employees. Between 65 and 75 advisors sell five or more policies per year. The MGA also distributes mutual funds through Merici Services financiers. The MGA says it concentrates on independent high-performance advisors who seek a high level of service.
Thibeault flatly dismisses the alarmist discourse on the demise of small MGAs. “Oddly enough, small and mid-size MGAs are the ones whose structure is the most constant over time. They will still be there after numerous upheavals. They offer room for advisors who do not want to deal with large MGAs. They want to and can be autonomous. They seek extraordinary service that will let them grow their business,” she says.
Proximity works both ways. “We handpick advisors. We have a large volume with each advisor with whom we do business. An above average proportion of them place business with us,” she says.
Groupe SFGT has always grown organically, never by acquisitions, Thibeault continues. “It’s not the premium volume or number of advisors that make an MGA solid. It may have cost a lot to acquire volume and eroded your profitability margin,” she explains. “We see all our advisors regularly. I am always on the road. We stage several recognition and training events for advisors.” By attending half-day training sessions and a conference, advisors can earn up to 33 continuing education units per year.
Interestingly, SFGT attracts advisors mostly from other regions. “My advisors come mainly from the South and North shores of Montréal and from the Québec City area, even the Saguenay,” Thibeault says. “When I joined Groupe SFGT in 2009, I wanted to make people forget that we are far away. We are super high tech. We adopted Fundserv from the start.” SFGT uses Winfund back-office systems in insurance and mutual funds. The organization has also obtained a preferred rate for the Kronos Technologies customer management system, for all advisors.
Thibeault does not feel threatened by online sales without a representative. “Internet or not, there will always be people who want to buy without meeting an advisor,” she says. “At least, the customers buy basic insurance. If they discover later that this product does not meet their needs, they may turn to an advisor. Many people in Canada are underinsured. We will never find ourselves selling too much insurance.”
Exclusivity favours conformity
Inforce Life is a small MGA based in the Scarborough area. CEO and founder Chandran Rasalingam serves 83 advisors, who produced $1.7 million in insurance premiums in 2016. The MGA also holds segregated fund assets of $5 million. It works with four direct insurers and other distribution partners including the MGA Canada Protection Plan and B2B Bank. Inforce Life also offers specialty life insurance products such as nonmedical critical illness and simplified issue life insurance from Canada Protection Plan.
The small MGA is growing quickly: Inforce Life’s 41-year-old entrepreneur is openly ambitious. “Two years ago, we had 40 agents and around $800,000 premium volume. We expect exponential growth to expand our services to other provinces. We want to be among the top five MGAs in the country,” he says.
As for Inforce Life’s development: “We are growing organically. We’re not interested in bringing agents from other brokerage businesses. We’re experiencing in-house growth, and bringing in new blood into the distribution channel. We invest in our business, enter partnerships or merge with AGAs,” Rasalingam explains.
Rigorous advisor selection and exclusivity are the pillars of the model Rasalingam developed. He gained 10 years’ experience at Sun Life Financial before founding his own firm. “We hire agents who are working exclusively for us. We have a commitment to organic growth through hiring of raw talent to develop them into well producing advisors. We train them, we license and then coach them. We are really careful in our selection process. We don’t want to bring in somebody that doesn’t fit in our culture. The big MGAs have a lot of agents, but still 80 per cent of the business is coming from 20 per cent of their advisors,” he says.
Why MGAs have failed
Rasalingam adds that exclusivity makes it easier to ensure his firm’s compliance. In a vast market study, they found that compliance is vital to MGAs’ survival. “We did a lot of market research at the beginning, on why so many local MGAs are not growing after 15, 20 years in business, or why they failed. Our study indicated that they are going out of business because they could not handle compliance, had a poor management system and their agents lacked training,” he explains.
Most small MGAs balk at investing in management or in their systems. “Implementation of internal controls and processes for daily operations as expansion occurs is a challenging but essential task that requires time and effort,” Rasalingam says.
That is why Inforce Life implemented a solid organizational structure with leading-edge technology and an online presence, the CEO adds. He recently chose Bluesun’s Wealthserv as a back-office system. “The actual environment is very challenging on the compliance side. If one wants to stay in business, one has to put strict guidelines in place,” he says.
Experior Financial Group is a midsized MGA with 10 employees and 400 advisors, nearly 300 of which place at least five policies per year with the firm. All advisors represent Experior exclusively. However the clientele belongs to them, and they may become the owner of their firm, and even acquire a share of the company. The Guelph-based MGA operates nine offices, including two associated general agents, in Ontario and British Columbia.
To target the underinsured middle-class market, it has signed seven direct distribution contracts with insurance companies, and others with specialized players. Founder and CEO Jamie Prickett helms the business jointly with his spouse, president Lee-Ann Prickett, whom he met in the industry. Prickett incorporated Experior Financial Group in 2014. He has 16 years’ industry experience and his wife 10.
Interviewed by The Insurance and Investment Journal alongside COO Shelden Smollan, Prickett talked about his model, designed with advisors in mind: “Recruiting is one of our strengths. We went to 400 advisors in three and a half years. Our success comes from the culture that we have created. We developed a unique value proposition for advisors, that has attracted many. We’ve acquired two other MGAs so far because they loved the way we have planned for growth in the future.”
Experior Financial Group began with one idea in mind: build the largest team of successful advisors in the country, by providing support and opportunities to become an entrepreneur. “We focus on advisors that want to be successful and create their own business. We teach them and help them become successful through frequent leadership training, often on Webinars.” Advisors work in teams: the newcomer learns from a more experienced colleague.
When advisors achieve a certain milestone, they can open an Experior office and become an executive director, which corresponds to the status of associate general agent (AGA). “You have ownership of your book of business, you can develop ownership of an agency, and we issue shares in the company to our Executive Directors when they open branches,” Prickett says, adding that he knows of no other MGA that goes that far.
Jamie Prickett’s firm also offers a succession program that lets advisors who want to sell their book inside of Experior’s business model receive compensation corresponding to 75 per cent of their in force insurance and investment business. “This compensation will be paid directly to the selling advisor over 10 years,” he says.
The Experior Financial Group founder compares the firm to an agency in a career network. “We provide the support of a career agency, with all the flexibility of an MGA. One must not forget that captive agencies produced some of the greatest and most successful advisors, because of the training they offer and the protocol they follow. When advisors are too independent they sell on their own, and try to figure things out on their own,” Prickett explains.
This approach convinced Shelden Smollan to join Experior eight months ago. When Smollan met Prickett to conclude an MGA contract, he discovered a truly unique model, he says. “Advisors being involved in the meeting and working with each other and sharing… Success breeds success,” he says. Smollan has 40 years of industry experience under his belt, including in business development with the independent network at Assumption Life.
This model solves the recruitment problems that beset other MGAs, he says. “We turn new people into successful advisors, teaching them how to develop their own agency if they follow our program and would like to build a team themselves,” Smollan says.
Experior Financial Group is not averse to acquisitions. Of its nine offices, three result from acquisitions. Yet Smollan stresses that the MGA’s strength lies in organic growth. “Organic growth is our strength. I don’t think that success in our industry is only going to come from moving from one MGA to another MGA. It will come from new growth,” he says.