A Fee Based IMO?

[nathan.lee]

Nathan Lee-

The 1% was an example. If the override is 2% than that is what's passed along. What ever the override is to the IMO, it is passed along. So I see where you were going with the example I gave. I was trying to keep it simple for discussion purposes.

So Nathan, in your example a $10 million a year producer would pay a $5k fee and if the override was 2% the would receive a net $195k on top of their commissions. It sounds like a great deal to me.!

I am trying to figure what the negatives and the positives are on a program like this would be.

And please, if you wouldn't mind. I'm not a kid, as you suggested. I've been in the finance industry for over 12 years.

From what actual producers are telling me is that a chance for them to participate in the full commission / override, even for an upfront fee, would benefit them greatly.
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I'm actually older than you Matt!

Ok...so let me get this straight? This IMO is passing their complete override to the producer in exchange for $5,000 up front?

As the COO of an IMO, I can't see this business model working at all unless the IMO simply holds the contracts for the producer. Assuming I understand correctly, the model is based on the IMO collecting as many producers as possible regardless of production level since the override is being passed entirely to the producer.

What about production bonuses paid to the IMO? Are those being passed to the producers as well or being kept by the IMO?

Let's do some more math.

Producer pays $5,000 fee

Producer issues $1,000,000 with this IMO

IMO receives 2% override from business ($20,000)

IMO pays 2% override to producer ($20,000)

Producer receives an additional $15,000 on his/her business ($20,000 override less $5,000 fee) and IMO pockets $5,000 fee.

Let's say this IMO has $100,000,000 in production with 10 $10,000,000 producers.

The IMO has generated $2,000,000 in overrides and $50,000 in fees.

The IMO pays our the entirety of the $2,000,000 to the producers leaving $50,000 in fees as its net revenue.

Now what if this same IMO reaches $100,000,000 with 100 $1,000,000 producers?

The IMO has generated the same $2,000,000 in overrides but $500,000 in fees.

The IMO pays the entirety of the $2,000,000 to the producers leaving $500,000 in fees as its net revenue.

Under this scenario, the IMO is incentivized to collect as many producers as possible regardless of their production. What incentive does the IMO have to help the producer write more premium?

An IMO is a for profit business just like the producer. If the IMO does not collect enough revenue, in this case fees since the overrides are being passed to the producers, then the IMO will not be able to cover operating costs. Contracting depts, marketers, new business depts, accountants, licensing fees, electricity, data, website, marketing, E&O, owners, etc. are all expenses that the IMO must cover. Since the overrides are not a factor, the the fees must cover this.

If you are looking for a downside, it is that not enough producers sign up and pay the fee to the IMO. Also, I would not expect too much in terms of either service or marketing asistance.

 

[donamese]

In my experience traditional IMO's do not like to give away their override to the agent. Even if it is 25bps or 50bps. Let alone trying to get an IMO to give away 1% or more!

Depends on the product and how much spread they will give. A MYGA where gross is probaby around 3-4% they take 1-1.5% total in spread from street. Now for an FIA where gross commissions may be 10% then they are likely taking around 3% over street.

Most IMOs will talk production and if they see you can sell, then you will typically get a higher than street anyhow. If not, keep shopping. Many IMOs give production bonuses with no up front cost.

I personally wouldn't see this being a great asset because:

A. I have to front 5K
B. I have to trust you live up to your end of the bargain
C. Trust you don't close shop and take my money
D. If I don't hit my target I lost 5K

 

[irobbins]

Under this scenario, the IMO is incentivized to collect as many producers as possible regardless of their production. What incentive does the IMO have to help the producer write more premium?

I understand your point about helping the producer write more. But what about the producer that doesn't need help with a website, someone creating a facebook page for him or a twitter account. Someone that doesn't like doing seminars? Someone that doesn't want to go on a "top producer" trip with 100 strangers. That would rather take the extra money and take their family on a heck of a vacation?

What about the average producer that does $1m a year and can't find a higher contract with a carrier because their IMO won't even give them a 25bps bump on their payout?

What about the producer that just simply wants to make more money on the business he / she currently writes?

You are correct. This would not be a program I think for a producer that only does $500k a year in annuity premium, that needs someone to do all the marketing for them. That needs help finding clients because they won't get out of their basement and prospect! They're out there!!! They're part of that 80 - 20 group!
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I personally wouldn't see this being a great asset because:

A. I have to front 5K
B. I have to trust you live up to your end of the bargain
C. Trust you don't close shop and take my money
D. If I don't hit my target I lost 5K

Good thoughts! I guess on the flip side the IMO (in a traditional model) who gave the higher payout would have to trust the agent to produce what they said they will produce, other wise the IMO gives away money they normally wouldn't give to a lower producer.

On the trusting a person to live up to their end of the bargain I am sure that an IMO would have an agreement with the terms outlined that both parties would have to sign.

On the closing up shop part. If an IMO promised you a higher payout or production bonuses and didn't give those to the producer or closed up shop before they paid the bonuses out, what would be the difference?

We all sell products from carriers on a daily basis with a great big disclaimer stating "the guarantee's are based on the claims paying ability of the company." So I guess we all put forward a little trust!

 

[nathan.lee]

I understand your point about helping the producer write more. But what about the producer that doesn't need help with a website, someone creating a facebook page for him or a twitter account. Someone that doesn't like doing seminars? Someone that doesn't want to go on a "top producer" trip with 100 strangers. That would rather take the extra money and take their family on a heck of a vacation?

What about the average producer that does $1m a year and can't find a higher contract with a carrier because their IMO won't even give them a 25bps bump on their payout?

What about the producer that just simply wants to make more money on the business he / she currently writes?

You are correct. This would not be a program I think for a producer that only does $500k a year in annuity premium, that needs someone to do all the marketing for them. That needs help finding clients because they won't get out of their basement and prospect! They're out there!!! They're part of that 80 - 20 group!

Agreed. Producers that want ZERO help from an upline and only want higher contracts...perfect plan. Much of what many IMOs provide is fluff anyway. My concern isn't what the producer wants. I see exactly why the producer would want this.

I'm looking at it from the perspective of that IMO. If my entire revenue is based on fees because I am passing 100% of the production override to the producers, then I am inclined to "sign-up" as many producers as possible and hope that I never hear from them again. I don't care if/when they write business because I don't see that money.

Under this scenario, there is little incentive for the IMO to even service the producer properly. How does the producer know that the IMO has a full contract with the carrier and is paying the producer correctly? How does the producer know that the IMO won't just collect a bunch of fees and disappear? Also, is this an annual fee? If not, then the IMO has no renewable income.

I guess it all boils down to what does the producer want out of his/her relationship with the upline. If the highest comp is all that he/she wants and he/she has the infrastructure to process business and generate leads then it does sound like a decent deal for the producer if the IMO can sustain the business model.

For someone wanting to start an IMO that operates in the fashion...set expectations correctly and know your costs.

EDIT: Google Advance Fee Scam or Lottery Scam http://en.wikipedia.org/wiki/Lottery_scam While I am certainly not suggesting this IMO is conducting a scam, this is certainly something competing IMOs will use against it.

 

[donamese]

For the IMO, they also have to be wary of chargebacks. They sign responsibility for the producer so if the producer incurs a chargeback and does not pay the balance, the IMO could have it rolled to them. This could very well exceed the 5K fee they acquired leaving them at a loss.

 

[CALTCAgent]

Good thoughts! I guess on the flip side the IMO (in a traditional model) who gave the higher payout would have to trust the agent to produce what they said they will produce, other wise the IMO gives away money they normally wouldn't give to a lower producer.

On the trusting a person to live up to their end of the bargain I am sure that an IMO would have an agreement with the terms outlined that both parties would have to sign.

From time to time the carriers change the compenation. So nothing is signed in stone here. The IMO not out any money, maybe a little time, but that is the nature of the business.

On the closing up shop part. If an IMO promised you a higher payout or production bonuses and didn't give those to the producer or closed up shop before they paid the bonuses out, what would be the difference?

$5,000 up front.

We all sell products from carriers on a daily basis with a great big disclaimer stating "the guarantee's are based on the claims paying ability of the company." So I guess we all put forward a little trust!

There is a lot more regulation here protecting the consumer. Trusting an IMO does not make any sense whatsoever.

They won't even honor an open release policy most of the time. This forum has enough proof of that.

 

[Norwayguy]

I'm sorry don't producer groups like M Group already exist requiring a buy in and have production requirements?

 

[galic42]

been tried several times, insurance companies will not allow it because of their relationship with their other FMOs

 

[just some f.e.llow]

Seems like a pretty good deal for the IMO, especially when you calculate how many fees the IMO is going to receive that are attached to non producing agents. If the IMO recruits 100 agents and collects 5K for each one, and 80 of them never produce...add that up and it will buy a lot of junior bacon cheeseburgers from Wendys...

Average producers wouldn't take this deal because the cost is prohibitive.

Above average producers won't take this deal because the difference between what they get currently and what they get from a fee based imo is minimal. Couple that with the fee, and they aren't interested.

World class producers won't take the deal because they're already getting a strong contract. If they aren't, all they have to do is call around and they would get it in a heartbeat.

The other thing that's missing here is this: how would you plan to get "top contracts" from carriers right off the bat? Do you have $100 million in production under you right now?