5 myths about FMOs debunked
By Joe Simonds
Advisor Internet Marketing
After all of the responses to my last article, "Warning: Why FMOs will be extinct soon," I couldn't resist writing a follow-up piece.
Myth No. 1 — FMO trips are a good deal for the producer
If you are anything like me, you have probably been on countless FMO and insurance company trips in the past. Looking back on your trip experiences, have you ever had that moment when you either think to yourself or whisper to your spouse, “How did that person ever make this trip?” Have you ever had the call from your FMO telling you about next year’s trip that is to a destination you have been numerous times before? Perhaps you bust your tail to make a trip and then find out that the FMO scheduled it during a time that you simply can’t make. We have heard story after story of FMOs scheduling trips during a child’s graduation, during one of the busiest seminar months, during a family reunion, and any number of other conflicting dates.
Unfortunately, most FMOs know that they can’t please everyone, and, on average, there are approximately 10 percent of qualifying agents that never get to attend. Have you ever been in this 10 percent before and helped pay for a bunch of your competitors to take a trip without you?
Moreover, have you ever put pen to paper and calculated how much one of these incentive trips costs you in business? While you are stuck at a dinner table with a group of agents who do nothing but speak about themselves, drink too much, or ruin your “dream incentive vacation”, one of your prospects back home is doing business with one of your competitors. If you are a $10 million producer who takes four weeks of normal “off-time” — be it holiday time with family, a normal vacation, or just much needed rest and rejuvenation, during a normal year, that leaves 48 weeks of normal, grinding hard work. Ten million dollars divided into 48 weeks is approximately $210,000 per week of production. At an industry average 7 percent commission, that week spent with agents with whom you have nothing in common costs you $14,500. And that is assuming that one of your clients or prospects doesn’t do business with your competitor while you are gone. For that much money, I am certain you could find a nice trip to take with your own family, on your own time, to your own perfect destination.
But please don’t think for a moment that I am saying these incredible vacation destinations are 100 percent bad. What I am attempting to convey is that if I were in your shoes, I would rather take a trip with my own family or close friends and on my own conditions. If you take a step back and really think about it, having all of those variables decided by someone else is absurd.
A few more facts about FMO trips:
- The FMOs that push trips the hardest do so because they have to — they have nothing else of value to give you.
- Do you know that numerous FMOs budget $1 million or more for their trips each year? Talk about a ton of money that could have been used to help grow your practice.
- At some point in the near future, financial regulations will prevent FMO incentive trips altogether. We will then truly see which FMOs are "naked when the tide goes out.”
FMOs have been around for over 20 years and go by a variety of different names: FMO, IMO, NMO, BGA, annuity marketing company, upline, etc. However, all are essentially one and the same: the middleman between insurance carrier and agent. The original concept of the FMO distribution was not a new idea, either. Industries such as automobile makers, steel, alcohol and countless others have used distributors, wholesalers and middlemen to get the finished product out into the market in a timely and cost-effective manner.
Regarding the insurance arena, carriers realized that there were huge cost benefits to outsourcing their distribution to FMOs on a pay-for-performance-only model, meaning the FMO distributors only get paid if they can recruit agents, train and educate the agents, and get them to write business. And don’t forget the carrier cost savings of not having to cover salaries, fringe benefits, etc. for these distributors.
So let’s talk about the myth that all FMOs add value. Today, there are over 300 annuity and life insurance marketing groups that refer to themselves as FMOs. And even though none of them will ever admit it, the larger portion of these 300 do not add enough value to justify how much commission they make. Many of these FMOs say that they add value by returning calls, having spreadsheets of their products available and following up on your cases. But last time I checked, these services are minimum criteria for any insurance company to simply stay in business these days. However, the great news is that there are still numerous FMOs that truly do add value, and I am not referring to the perceived value that we all see each week when an FMO advertises in the industry trade magazines. Beware of the fluff and false promises out there. What I have found is that the FMOs who make outlandish claims advertise the most are the ones who have littleto no value to back it up. The great FMOs grow by word of mouth provided by happy financial professionals.
Myth No. 3 — Broker-dealers like FMOs
Over the last few years of wild market fluctuations and consumer sentiment shifting towards safety and protection of principal, countless registered representatives have begun offering and selling fixed indexed and fixed annuities to their clients. Additionally, as registered reps, many of these securities licensed advisors must run any and all of their annuity business through their broker-dealer. This could be for purposes of suitability, E&O, or, in some cases, to run it through the grid to count for GDC, benefits, etc.
Now keep in mind my earlier statement that many of these FMOs have been around and have had exclusive distribution rights with these carriers for two decades. So when the broker-dealers came asking for direct access to the annuity products from the carriers, most of those carriers protected their FMO relationships and forced the broker-dealer to go through FMOs. But this isn’t where the myth gets busted. The myth that broker-dealers actually like FMOs gets busted on items relating to transparency. In particular, there have been stories of certain FMOs who “encouraged” and “coached” registered reps to write away from their broker-dealer; stories of FMOs that don’t abide by the broker dealer annuity product approval list; and even FMOs that have found other ways to cut the broker-dealer out of their override. When you combine this with the overall lack of transparency regarding agent appointments, cases, commissions, etc. from the FMO to the broker-dealer, it's no wonder that this myth is one of the easiest ones to debunk.
Myth No. 4 — FMOs actually understand marketing
After reading some of the advertising material and websites of many FMOs, I find myself wondering if many of them even remember what the “M” in “FMO” stands for? For those of you that need a refresher course, it stands for Marketing. Just as a Ford dealership (a middle-man distributor for the Ford factory) has to earn their keep by marketing, branding and promoting every way possible, the exact same principles must be followed by FMOs in the insurance industry.
It seems as though many FMOs have become complacent, just assuming their agents will remain loyal and continue to keep submitting business with or without real marketing programs in place. But that could not be further from the truth! Although there are many agents who have a sense of loyalty to their long-standing relationships with their FMOs, at the end of the day, this is a business. And if your business is called an FMO, which is an acronym for a marketing company, then you had better learn how to help your agents market and grow their practice, or some other group will.
Another incredibly important piece that demystifies this myth is the fact that the vast majority of these FMOs are not taking advantage of technology and this ever-growing digital revolution that is upon us. In this digital age, the marketing opportunities are virtually limitless. New solutions to branding, “going viral” and creating leads from your online marketing efforts are expanding every month. There are countless examples of companies that are generating a significant number of unique leads without any paid digital advertising. Why isn’t every FMO taking capitalizing on this ever-growing trend?
There is a new kind of marketing company entering the annuity and life distribution arena — much to the dismay of the old school FMOs — that is known as the digital marketing organization (DMO). A DMO is a low-overhead, no-holds-barred digital marketing distribution force that utilizes every possible digital technological asset available for itself and its agents. The ultimate goal is two-fold:
1. To maximize leads, branding and online marketing for their agents. DMOs are helping agents grow their practice online by building free lead-generating websites for their agents, drip email campaigns, utilizing social media outlets, creating customized videos, guaranteeing their agents make it on the first page of Google in 10 days or less and conducting specific consumer searches.
2. Increasing the velocity of business and money for the client, advisor and broker-dealer. By using digital appointments, digital annuity applications and streamlining the financial professional’s practice by going paperless, DMOs can show advisors countless measures that increase the velocity of money and marketing.
I fully realize that I won’t make any friends by exposing this myth, but I think it is about time we all face the facts. Before I begin, I want to go on the record and say that I don’t believe all FMO’s will become extinct — just the ones that don’t adapt to the upcoming changes.
As I mentioned previously, distribution centers have been around for ages in all kinds of different industries. And over the years, outside forces, such as recessions or technological advances, have altered distribution in numerous ways. In most every case, the distribution partners that didn’t adapt to the changes found themselves out of business, while the partners who capitalized on change were able to carve out new market share and create wild amounts of new revenue. Although I don’t want to bore you with a full case study, here are three examples to make this illustration much clearer.
1. Amazon.com — For many years, consumers shopped for electronics, office supplies and countless other consumer goods at places like Best Buy, Radio Shack, Circuit City, CompUSA, Office Depot, etc. But seemingly out of nowhere, a small company called Amazon.com grew by leaps and bounds, taking away billions in sales from these previously mentioned brick and mortar stores. The brick and mortar stores became a free place to “test out” the gadget before you went home and bought it on Amazon.com. Many of these stores never adapted and have become extinct, bankrupt, or were bought out. A few have taken note of Amazon’s advantage and built strategies to compete with it. Regardless, you see my point. Just 10 short years ago, no one would have ever bet that some website could cripple and topple names like Radio Shack and Circuit City, which were booming retail stores always packed with people.
2. Dell Direct — Similar to the story above, for years, everyone went to brick and mortar computer stores to buy a computer. Large companies like IBM, Hewlett Packard and Compaq all had to use distribution and retail partners to sell their end user products. But a brilliant company out of Austin,TX called Dell decided to try something new by selling computers direct to consumers and cutting out the middle-man. For those of you that don’t know how the story went, it was wildly successful. It didn’t put most of the other companies completely out of business, but it sure did revolutionize how computers could be sold going forward. 3. Carmax — For as long as most baby boomers can remember, the only way you bought a car was to visit local car dealerships, used car lots, or the classified listings in the paper. Although not as big of a national fear as the dentist, having to be “sold” by a used or new car salesman has become the butt of many jokes over the years, primarily because it was the only way to get a car unless you went directly to a private owner. But a company called Carmax completely revolutionized how buying and selling cars can be done by cutting out some of the middle-man excess and “making the buying process easy and fun,” as their slogan goes. They took the hassle and haggling completely out of the equation and also caused many high-priced dealerships to go out of business before they finally realized that Carmax was here to stay.
Moral of these three stories
There are usually a few winners and many losers when industries change. Well, it should come as no surprise that the insurance and annuity industry is about to go through some big changes, as well. At a time when interest rates are at all-time lows (which squeezes the insurance carriers’ profits), you can bet that the carriers are looking very closely at how much they pay their distribution. Moreover, they are analyzing any and all new solutions and new partners (like an Amazon, Carmax, or Dell) that can significantly decrease the costs associated with distribution. My bet is that over the next three years, there will be a huge consolidation and elimination of FMOs that don’t (or can’t) adapt quickly enough. At the same time, most of the distribution will be controlled by a few mega-FMOs.
Will your FMO become a Circuit City, or will it rise above, like an Amazon.com?