Should high turnover rates affect your buying decision?

Payscale recently did an article on turnover rates among Fortune 500 companies. Near the bottom of the list for turnover are a number of life insurance companies here in Birmingham that you may one day find yourself working with. Employee turnover speaks volumes about management’s ability to train and prepare an employee for success. Payscale’s purpose in writing the article is to inform job seekers and hopefully steer them clear of bad decisions. But it also begs the question: should you be concerned in working with a company like this?

Possible Reasons for the High Turnover Rate

Difficult Job

A life working in sales isn’t for everyone. I’ve often thought that my job would be easier if I sold something like milk or diapers. You can not live as a parent without them! But while saving for retirement or protecting your family or business is vitally important, people aren’t beating down my office door wanting a plan done for them. It takes genuine work for a financial professional to find people to do business with.

Aside from the difficulty of working in a sales job, many people just aren’t built for commissioned based income. There are people who simply prefer a salary or fixed income. My wife is a planner — it’s extremely hard to budget when you don’t exactly know much you have coming in this month! Throw in our society’s increasing need to not be bothered or hassled and you have a tough job ahead of you.

Timing

The time of the year an agent begins with a financial firm can make or break you. An agent that starts in January will be more successful than an agent starting in November. Why? No one wants to think about financial planning or insurance during the holidays. Good agents fail because it’s just a bad time of the year to start in financial services.

The Agency System of Recruiting

Insurance companies and many financial firms generally have two tracks that an employee can take: personal production and management. Recruiting is the entry level position on the management track. Producers are charged with getting appointments and selling either insurance or investments. Recruiters hire new producers. Producers receive a commission on a product sale.(life insurance, disability etc) Recruiters receive a percentage of the new agent’s sales. Depending on the insurance company and agreement, a recruiter can take as much as 30-40% of a new agents sales. For example: if a producer were to sell a policy with an annual premium of $1,000; the new agent will receive about 40-50% of that, or $400-$500. The recruiter will make around 30-40% of the annual premium, or $300-$400. Some recruiters do some personal production on the side to supplement income but their primary task is the hiring of new agents. There are only two ways for a recruiter to make more money: the agents that they have hired have to sell more or the recruiter has to hire more. Now, here’s where it gets dirty — every office has a production requirement for new agents — usually something like $5000 of annual premium per month. The moment the new agent has a bad month or two and falls below a certain threshold, it’s in the recruiter’s best interest to put a new agent in that desk that can meet the production requirement. Just about anyone who knows at least one hundred people can sell $10,000-$15,000 of annual premium in their first three months. Recruiters know this and can project to make $4,000-$6,000 per every agent hired. This is why there is an 85% turnover rate in insurance as there is a financial incentive for a recruiter to put new agents in the office. Incidentally, this is also motivation for bad financial advice as I’ve met recruiters who encourage new agents to push horrible products or investments to, “just get the sale.” I knew of a recruiter that was pushing new agents to take qualified investments (401ks etc.) from 30 – 40 year olds and put them into fixed annuities paying less than 1% annually in years when the market was up over 10%. It’s a bad day for the client when they realize that their brand new annuity is paying 1% and has a 7 year surrender period!

Now this is a generalization as all recruiters are not bad people. There are some who genuinely care about the people they bring into the industry and devote themselves to training and giving the new agent every opportunity to succeed. But for every good recruiter that I’ve met, there are others who will tell prospective agents anything to get them into the office.  

What To Do as a Consumer

So that brings us back around to the original question at hand: would you be concerned knowing that the person you’re buying that insurance policy from may not be there in the long run? (or the short-term…) My answer — it depends. How’s that for a, middle child, indecisive answer? But the answer to that should be situational. Just because an agent is new at his or her trade doesn’t mean that you’re getting bad advice does it? I think it’s important to consider what you’re buying as well — are you buying an insurance policy or entrusting them to manage a million dollar portfolio? Personally, I would require more trust on the latter. Needless to say, here are some steps that I think every consumer can take to protect themselves in the life insurance transaction:

  • First, ask good questions. Think of this as an interview with the agent — the more you know about the agent, the better informed you’ll be.

  • Get second opinions. If you’re concerned about the premiums or if something doesn’t sound quite right, get a second opinion.

  • Ask your friends for referrals to good agents.

  • Last, and my favorite option, check out the agent’s business page on google. You can find a business page by googling the company. You’ll have a chance to read reviews from prior clients. When I’m personally shopping for a service, I like to read what people are saying before I pick up the phone.

Experience and tenure may not be the most important characteristic when you’re looking for an agent — but every buyer wants to know that they’re working with a professional that will be around to service the policy. I often ask clients, “how comfortable would you be if you were on an airplane and the pilot, who looks like he just graduated from college, walks down the aisle?” You might think twice about that flight wouldn’t you?

As always, if you’re looking for a second opinion on your current coverage or if you haven’t looked at your policies in a while, shoot me an email or give me a call. I’d be glad to help.