Independent advisor vs. captive agent: The unlocked truth, Pt. 2

By Steven McCarty

The National Ethics Association


Editor's note: This article focuses on the benefits and challenges of the independent advisor. See part one in the series for a detailed look at captive agents.

Remember the myth of Icarus? He tried to escape from ancient Crete using wings his father made of feathers and wax. Despite Daedulus’s warnings, Icarus flew too close to the sun, melting his wings and plunging headlong into the sea.

Just as Icarus believed flight had no limits, many captive agents view independence as a soaring opportunity. But they quickly find that the dream has flaws. For instance, many believe that independents find the optimal solution for every client. In reality, working on full commission may limit their ability to work with multiple IMOs and carriers. Plus, if they go outside their main IMO, they’ll fragment their production volume, lowering their compensation and expense support.

Similarly, captives often believe that once airborne, they’ll be able to work with clients as they see fit. In practice, working on full commission means they have to be ultra-efficient with their time. They often can’t spend as much time with prospects and clients as they’d like, eroding the customer experience for many.

Having the freedom to recommend high-quality products is a big issue for many captives. Yet once again, getting paid on commission confounds their flight plans, leading them to sell products that optimize practice revenue rather than client value.

Now, I’m not suggesting that being an independent is a bumpy flight. In fact, for the right person, the benefits of independence can be as thrilling as Icarus's early moments in the air, with benefits such as:
  • The ability to chart your own course.

  • More flexibility to walk away from carriers and products that turn bad.

  • The ability to earn what you’re truly worth.

  • The power to manage your income and expenditures as you see fit.
But to achieve these benefits, independents must work hard to mitigate the inherent disadvantages of their business model. And they must apply their ethical values at all times to make sure they’re meeting client needs. Here are some pointers that should help:
  • Don’t always default to your IMO’s portfolio in order to maximize payout and expense support. Commit to “flying your own way” when clients present with unique needs your IMO can’t handle.

  • Acknowledge the limitations (and rewards) of a 100 percent commission model, but don’t let it override your common sense and commitment to the client.

  • Recognize the importance of generating revenue quickly, but don’t shortcut client fact-finding and solution design. In other words, provide a high-quality customer experience in order to build life-long client relationships.

  • Balance the shortcomings of your business model by working with a great IMO — one that can help you match client needs with high-value products, while also helping you maintain efficient workflow.
Finally, remember this: To succeed as an independent, you need the ambition of Icarus, the pragmatism of Daedulus, and the ethics of ... you! That’s the unlocked truth.

See also:

Captive insurance companies and life insurance: A very bad combination

Independent agents give to live

A Christmas list for the independent producer channel

Captive insurance trends: producers and agents are forming captive insurance companies as an additional profit center