By Andy Hagar
Of the more than 45,000 P&C agencies in the United States, I estimate that at least 20% have attempted to grow their business by adding a financial services arm. While this is a great idea--and the foundation of our company--agencies' reactions to the Glass-Steagal Act have produced mixed results.
As I have traveled around the country talking to owners of hundreds of P&C firms, I have heard the same story over and over: "tried it and couldn't make it work."
Last summer I met with the owner of one of the largest and most substantial P&C agencies in the mid-sized southern market who, on two separate occasions, tried but ultimately failed to integrate a new financial services representative in-house. In each instance, the firm lacked the time and know-how--the backup, products, education, compliance, follow through, marketing support and other tools necessary for success.
It is important to know that struggling is not a prerequisite to offering financial services through your P&C agency. A system that provides outside compliance materials, marketing support and training, while allowing autonomy within the agency office makes a great deal of sense. By becoming a part of a large system such as Hagar Financial, you can acquire the resources needed to transition more easily into expanded financial services--a transition that I believe every agency must manage in order to survive. You can also learn valuable lessons from others' experiences.
One of the earliest and currently most successful small-market P&C ventures into previously uncharted waters was executed by Bob Weisenburger, president of General Agency Company in Mt. Pleasant, Michigan. Currently representing the fourth generation in an agency that was founded in 1915, Weisenburger launched his financial service business in 1984. This venture, which was born out of his interest in life insurance, has resulted in estimated revenues of $400,000 annually, or roughly 12% of the P&C side revenues--all of this in a market where the population for the city and county number 28,000 and 85,000 respectively. General Agency is one company that chose to "go it alone" and made it pay off.
"Before we started the financial services side, I was doing estate tax planning and personal life sales that generated $500 in commissions," Weisenburger recalls. "I was tired of seeing my customers leave my office and go buy a $100,000 mutual fund from a complete stranger down the street. So we went to work developing the financial services side.
"Fortunately, the large financial service providers had not yet fully established themselves in small to medium-sized markets like ours, so we quickly purged our client list, pinpointing our first tier of contacts and got on the phones. While the early timing of our efforts and the quality of our existing relationships helped, we spent a great deal of time making evening calls, glad-handing, cementing relationships and creating revenue for our financial services side tied to friendships and credibility."
Weisenburger says the overriding factor that enabled his venture to succeed in the early stages was the focus on simplicity. The company focused almost exclusively on mutual fund sales, quality, recognizable names, long-term approaches and commitment to total compliance from day one.
"We did our homework, focused on mutual funds and kept our selections simple," Weisenburger says. "We availed ourselves of many families of funds, but we picked the strongest, highest-quality performers, the most recognized families, and focused on solid long-term strategies for our clients. Later, we would accommodate good accounts who wanted to trade stocks and bonds, but we never chased that business."
According to Weisenburger, the company moved into other sales (including stocks) as it continued to grow but soon discovered that representatives focusing on such sales spent 75% of their time generating 5% of their revenue. Moreover, his firm's focus on the long term helps keep the pressure down when the market is down.
"Since we're always preaching quality and long-term approach, focusing on the intimacy of our relationships, making proactive calls to hand hold with our friends, always reminding them that their plan is good, things will bounce back, 'stay the course,' this effort greatly minimized the anxiety and 'ship-jumping.'"
When I asked Weisenburger what he thinks an agency needs to have behind it to make a financial services arm work, he said without pause, "A mentor."
Weisenburger continued: "We found a gentleman with nearly 20 years more experience than we had who worked with mutual funds and securities back in the mid-1980s. He was looking for additional sales persons while we were looking for someone with the knowledge and expertise to teach us patience, compliance and the long-term approach. Being 20 years our senior (53/33), he helped us understand the average investors and what they expected of their money!"
Fortunately, the mentor role can lie on either side of the tracks. In Weisenburger's case, it was the broker with the seasoning and the principals of the firm with the youthful enthusiasm. In most cases for Rough Notes readers, I anticipate that the reverse will be the case. The agency principals will be the seasoned professionals who need to be willing to mentor a younger financial services representative regarding relationships.
"If a P&C guy would be willing to spend the time with a new financial services rep, leading him or her into meetings and interviews with the agency's trusting customers saying, 'Hey, this is the guy we picked. This is the guy we trust. And this is why, together, we should be in a better position to help you.'--in my eyes, that's an A+.
"We would have never started off in the good shape we did without a more experienced, more seasoned set of eyes and ears alongside us."
In my experience, the formula that creates the highest probability and efficiency for a successful launch of a financial services arm in a P&C agency is one in which the agency already employs a Series 6, Series 7 or Series 63 licensed representative. Current trends among industry heavyweights support this formula as well.
According to State Farm spokesperson Ana Compain-Romero, since 1998, the nation's largest provider of personal lines has required all of its new agents to be Series 6 licensed. In all but eight states, a Series 63 license is required as well. Currently 9,419 out of 16,301 (nearly 58%) of agents representing the company hold one or both of those licenses.
"Our customers have been asking us to provide a broader array of financial services for several years," Compain-Romero says. "Now that banks can sell insurance, we have to be responsive to customers' needs and demands. We must be able to provide a competitive array of products and services. From our agents' perspective, our variable products management is a valuable commodity to our agents' tool kit. We believe it is highly important to be as diversified as possible in order to be more attractive in the markets we serve. We believe it is a significant advantage to offer the mangos, pineapples and cassavas in addition to the apples and oranges."
Taking the opportunity to expand its service options to customers one step further, State Farm has now rolled out banking services in 19 states.
While recruiting a Series 6, 7 or 63 licensed representative for your small to mid-sized agency may seem like a significant challenge at first, consider the pool of candidates and the significance of what you can offer to such an employee.
First, every single one of your P&C customers is a lead for your financial services representative. This is highly attractive for any potential representative, no matter how seasoned or green. Second, given the trend of significant mergers and acquisitions among major corporations that the financial services industry is currently experiencing, thousands of representatives are "shaking out" of the large institutions and wire houses and are looking for independent opportunities with growth potential. Imagine how valuable your existing customers will prove to be (with adequate B/D support, of course) to recent graduates and newbies with Series 6, 7 and 63 licenses. Either one of these opportunities could represent an outstanding fit in your agency while providing a significant value-added benefit to your P&C customers. *
The author
Andy Hagar is president and CEO of Hagar Financial Corporation, a full-service broker dealer created in 1996 to provide financial services to independent insurance agents. Representing the third generation of financial experts tied to the Brannen Banks of Florida and Hagar-Brannen Insurance, Inc., dating back to 1929, Hagar is committed to providing his clients access to the finest investment products in the world providing a direct way for them to compete with financial institutions, educating them and watching them succeed.
Currently, Hagar Financial operates with 100 representatives in 26 states and has $750 million in assets under management. Visit them on the Web (www.hagarfinancial.com) or call (800) 416-2043.