Why Primerica reps are happy campers

With the final numbers in and the tallies completed, financial planning super-firm Primerica Financial Services Ltd. walked away with this year’s top score in Investment Executive‘s third annual Planners’ Report Card.

According to the numbers, Mississauga, Ont.-based Primerica planners love working at the firm. The company garnered scores substantially higher than those of its competitors.

In terms of an the “IE Quality value”, our bottom line, of the firms that offer their reps a full line of services, Primerica scored an 8.5, followed by Winnipeg-based Investors Group Inc. with 8.2 and Radville, Sask.-based TWC Financial Corp., at 8.1.

An honourable mention goes to Markham, Ont.-based FundEX Investments Inc., which is surveyed for the first time this year. In the areas in which it offers services to its reps, it posted an IE quality rating of 8.7. Its business model, however, precludes giving reps sales and marketing support, advertising and research — which were among the lowest scoring categories — making it ineligible for the top spot.

Primerica offers reps a full slate of services and those reps gave their firm the highest score in 10 of the 18 categories in the report card, including a 10 out of 10 when planners were asked about the long-range stability of their firms. Primreica’s relationship with U.S. giant Citigroup would account for that.

Not only were the Primerica scores well above the rest, but the Primerica numbers also represent an improvement over last year: 13 of the numbers (shown in green on the above report card) represent an improvement of half a point over the results from last year, when Primerica came in a tenth of a point behind Berkshire.

Some of the high points include the 9.9 planners gave Primerica when asked about the strategic focus of the company. The firm also scored high in legal and compliance and ongoing training, scoring 9.9 and 9.1, respectively. Primerica planners also seem to love their branch managers, rating them a 9.2. With employees apparently so happy, it’s no wonder Primerica received a 9.1 in the overall category, a broad measure of the opinion planners have of their firms.

As well, the employees seem to be more fully satisfied with their head office than the planners at any other firm.

“I am a happy camper,” says a Primerica rep in southwestern Ontario.

However, there was one drastically low mark — a 3.1 for advertising. That’s because Primerica basically doesn’t do any. According to a rep from one Alberta city: “Our advertising consists of word-of-mouth and referrals.”

Primerica is what’s known as a “network marketer,” with recruits brought in by those already in the firm. That corporate structure is supported by a complex compensation model in which those already in the firm get commissions from planners they bring in, creating an intricate pyramid of payment that relies on a steady stream of new recruits to generate profits.

If there’s one stat that’s out of step with the rest of the industry, it’s Primerica’s low payout. On average, only 57% of commissions earned from the client go back to the rep, whereas in most of the industry, that number is somewhere in the mid-70s. Presumably, the lower Primerica payout is because much of the money from a sale goes to pay those further up the chain of recruitment.

In some sense, this corporate structure partly explains the high marks. Meetings have been called “evangelical,” in the sense that they’re centred on strong motivational speeches designed to inspire the new hires and create a strong sense of belonging.

The corporate culture is one of recruitment. Considering the economic sustainability of the company is based on bringing in a constant supply of new recruits, and that reps’ compensation depends on that, it would seem that no one would even consider making the company look bad.

Not that there is anything to be ashamed of. The company is built on the ashes of U.S. insurance company A.L. Williams, which got a leg up in the industry by convincing individuals to buy term life insurance rather than whole life insurance, and then invest the money they saved in funds conveniently provided by the agent.

That “shady” reputation has since been turned around. Primerica has been on a roll recently, working to turn itself into a full-service financial services firm. Indeed, it is now owned by U.S. conglomerate Citigroup, and New Jersey-based A.M. Best & Co. has upgraded Primerica twice to its current standing of A++.

The success of the company is partly because of its strategy in targeting lower-income, blue-collar workers who have been shunned by the rest of the industry. While the rest of the firms in the survey tear themselves apart fighting over the relatively small, finite pool of high net-worth individuals, Primerica skims along under the radar making money by catering to the rest of the population.

That is also where it finds most of its recruits. Primerica looks specifically for people who are new to the industry, who have no idea what conditions are like at other firms and who are from disparate fields. The Primerica Web site, which contains a few quotes and pictures pertaining to recruitment — but nothing about finance — contains testimony from a former football player and a jewellery-store owner.

Because of that, some have suggested comparing Primerica with the rest of the industry is like comparing apples with oranges. For example, FundEX actually received a higher score in payouts than Primerica, but was discounted from the top spot because it operates on a business model very different from that of the other planners. The criticism is that its corporate model is so different from the rest of the industry that including FundEX in the report card is unfair.

Perhaps, but if the complaints are sour grapes then the critics should take note: Primerica may be in for a rough ride in the near term. Last August, a Primerica rep took the company to court in Ontario for not paying reps the minimum wage during training. The judge agreed with the plaintiff. As well, the Canadian Securities Administrators is moving ahead with a proposal to require all planners to have the certified financial planner designation.

No one we surveyed at Primerica has a certified financial planner designation.

“Any education is great, but letters are unimportant, and do not reflect ability,” says one Primerica rep in the Maritimes. “Once an industry standard is set, great, but so far, designations are dumb,” says another Primerica rep in Alberta.

The consequences for a company that survives on recruitment could be costly. If new employees have to be paid while they are trained and undergo even more rigorous training on their own time (taking time from recruitment), the corporate structure operated by Primerica could be severely squeezed. IE