Here are five reasons brokers lose business.
No. 1: Poor service
There are two trends in the area of service-quality decline that affect both smaller and larger brokers with back-office consolidation.
First, over the past few years, smaller brokers have spent about 30% more on government compliance than in earlier years. One way to fund the additional staffing has been to lay off staff in the operations department, which adds to the service load of remaining employees.
For clients, this results in longer response times, a decline in the accuracy of information supplied, and an overall diminished service experience.
For larger organizations and conglomerates that implement back-office consolidation, cost savings are their reward; but substantially lower staffing levels are a big downside for clients.
Often, clients dealing with consolidated back-office services see the service they receive as something that is tolerated, not appreciated or even enjoyed.
No. 2: Unusually high expenses
When it comes to excessive expenses, here are the most common areas that large insurance clients complain about:
- High advisory administration fees;
- Platform fees for assets with third-party managers;
- Mark ups on third-party money-management fees; and
- High E&O (errors and omissions insurance) rates along with high deductibles of $150,000 or more.
These costs can vary greatly from firm to firm, of course. As a rule, though, larger firms tend to charge platform fees and markups on third-party managers, which may be used to pay for large sign-on bonuses and costly services; small and mid-sized firms tend not to employ such practices.
No. 3: Surviving not thriving
Some clients are concerned that their broker is struggling financially but stay with them in the hopes that things will work out.
But consider this: Brokers in survival mode make little if any investments in technology improvements, staff expansion, the addition of services or the support of succession/continuation plans.
A broker’s ability to compete in the marketplace declines as their organization is falling further and further behind. Not keeping up with technology and industry trends puts brokers at risk of being commoditized.
No. 4: Lack of services
Some industry veterans think mid-sized brokers are highly focused on service, which enables affiliated producers to have fruitful working relations with back-office staff.
Large firms can have a harder time delivering great service because of their size, though they often will showcase the depth and breadth of their services.
With the advent of outsourcing, some mid-sized organizations have been able to offer high-quality services without needing to build out their operations internally.
Services such as practice-management consulting can bring substantial improvements in office operations, hiring, technology usage, marketing, staff training and business planning — all of which can domino into production increases of 30% or more within a year of implementation.
Clients also rave about these other services: support in the recruitment of fresh team members; marketing on social media, including YouTube videos and Facebook implementation; and succession and continuation planning tied to both finding a successor and obtaining the associated financing for this business move.
Many organizations could do much more in terms of adding efficiencies, growing their business and competing in the marketplace.
No. 5: Broker mismatch
I consulted for one group with half of its results tied to institutional business, which is the growing portion of their book. They are at a bank broker, which makes them a fish out of water when it comes to the type of business the bank is accustomed to servicing.
The bank makes an exception for them, because they do a large amount of production. But being an exception at your broker can be a lonely and dysfunctional situation.
Still, we frequently come across high-quality brokers who feel like red-headed stepchildren at their organizations but do not make a move that would truly put them in the right wheelhouse for their marketing and business focus.
Why do they stay put? Simply because they put off the inconvenience of making a broker switch.
Other common mismatches include:
- An advisory focus but affiliated with a transactional broker;
- A desire to work with a hybrid, dual-clearing firm but now affiliated with a broker that supports neither;
- A focus on alternative investments but with a firm that offers little to none of these products;
- In growth mode but at a broker offering little to no services that help professional growth;
- Looking to grow aggressively but lacking recruiting support;
- Needing a succession/continuation plan but at a firm with little to no producers in his/her geographic area and no other support for such plans; and
- A clean compliance record but at a firm with plenty of compliance issues.
Regardless of the costs and headaches from high E&O rates and deductibles — not to mention extra layers of company policies and procedures — clients frequently follow the path of least resistance and stay put.
What’s up? According to Denis Waitley, motivational speaker and author of the audio series “The Psychology of Winning” and books like “Seeds of Greatness” and “The Winner’s Edge: “Procrastination is the fear of success.”
“People procrastinate because they are afraid of the success that they know will result if they move ahead now. Because success is heavy, carries a responsibility with it, it is much easier to procrastinate and live on the ‘Someday I’ll’ philosophy,” Waitley writes.
Greater levels of success elude the type of brokers and agents described above primarily due to procrastination. Insurance professionals who know they are no longer a fit for their firm, yet stay, hobble their own success.
Jon Henschen (email@example.com) is president of Henschen & Associates, a Minnesota-based firm that helps advisors find broker-dealer relationships. These opinions are his own.
This is an updated version of an article that first published at ThinkAdvisor.com.