Insurance advisors are compensated in a variety of ways for their efforts but there is one constant: almost all insurance advisors are paid by commission only.
Of those surveyed for Investment Executive‘s 2004 Insurance Advisors’ Report Card, the happiest advisors seem to be those at firms with systems in place to ensure regular and timely payouts.
Take Toronto-based Equinox Financial Group Inc. The company squeaked into first place in this year’s Report Card with an IE rating of 9.0. It scored highest in the compensation category, with a score of 8.9 — up 1.2 points from 7.7 in the 2003 Report Card.
The company is unique among those surveyed for its business structure. Advisors do not work directly for Equinox, which is an intermediary between four major manufacturers of insurance products and more than 30 independent insurance agencies that employ their own advisors.
Equinox negotiates commission levels with the agencies, and pays a lump sum; individual agencies then determine their advisors’ initial commission and subsequent override bonuses. Equinox also aggregates the commissions paid by the four suppliers so advisors and their agencies are on the same commission payout grid regardless of what product they sell.
“The beauty of our system is we pay out on a simplified grid with the four [suppliers],” says Daniel Dessureault, Equinox’s general manager. “The advisor and the agency have only one grid, no matter which insurer they end up putting business through.”
The only change Equinox made in the past year that could explain the jump in the compensation rating was in technology. In the past year, the company introduced online commission statements and electronic transfer of commission payments to advisors’ bank accounts. “Advisors can look up their commission statements at any time, and they’ll always be up to date. Before that, they had to wait for the weekly distribution of commission statements and cheques.”
This company, along with Great-West Life Assurance Co., seems to have the strongest advisor compensation model. Great-West Life could take a page out of the Equinox book on how it delivers commissions, however. According to advisors’ comments, Great-West Life would probably jump significantly in its commission ratings if its advisors received regular weekly payouts.
According to those surveyed, Great-West Life pays out commissions on a monthly basis. “The frequency of payment could definitely be improved,” says one Calgary-area advisor. “Compensation is still on a monthly basis.” Compensation ratings at the company slipped slightly to 7.8 from 7.9 in 2003. Despite the slippage, the company still placed third in the category.
Frequency of payout aside, Great-West Life agents say long-term compensation is one of the best things about the Winnipeg-based company. Leander Dueck, senior vice president of individual distribution, says the company offers what it calls “levellized compensation,” in which mature advisors (those with more than 10 years in the business) earn about 80% of their compensation from ongoing business and 20% from new business.
This is almost a complete reversal of the usual arrangement. Most insurance advisors in the industry, Dueck says, are paid on a high/low basis: high commissions for initial business and lower commissions for renewals. At Great-West Life, the most significant earnings are for ongoing business. As well, he says, a “gold key” advisor who does business typically in one product, such as group benefits, but occasionally sells living benefits still earns a regular bonus in the company’s main business line, rather than a lower commission for the single piece of stand-alone business. “All sales are blended in,” he says.
Waterloo, Ont.-based Clarica Financial Services Inc. is another company with a variation on the level commission theme. At Clarica, however, advisors are paid the same amount in Year 10 as in Year 1. “It’s baked into the culture of the company,” says Jack Garramone, vice president of independent career advisors. “We think it does the best job of delivering an alignment among the advisor, the customer and the company.”
Clarica advisors are somewhat mixed in their feedback about this structure. Although several praise the company’s level commission scheme, just as many say they’re upset by it. Some maintain the compensation and sales support for those with more than three years in the business is one of the worst things about the company.