2016 FMO Executive Outlook, Part I: The M&A climate, planning for the DOL Fiduciary Rule, other key challenges

The widespread uncertainty surrounding looming regulation – specifically the Department of Labor’s updated Fiduciary Rule – is fraying nerves throughout the independent life insurance and annuity distribution channel.

The proposed rule is expected to present major obstacles for agents/advisors and the FMOs who serve them, impacting the way producers interact with clients and conduct their business. It is expected to be released before the end of April and (pending expected legal challenges) potentially implemented before the end of the year. The subject weighs heavily on the minds of leaders at Field Marketing Organizations (FMOs) who, as one executive told us, are looking to leverage their strengths and seek partners to manage their weaknesses.

Insurance Forums recently asked top executives at a number of FMOs to share their thoughts on the current state of some of the most important trends impacting the business, what has them excited for 2016, and what might be around the corner.

The feedback from the unique perspective of high-level executives at these key intermediaries provides market intelligence that will help independent producers be more aware of the forces impacting their distribution channel and what they can do to take advantage of current and emerging opportunities.

In Part II, set to post next week, our roundtable panelists tackle topics including what FMOs need to be doing to secure their place in the distribution chain; how they are working to make 2016 a successful year for them and their producers; and what gives them reason for optimism for the channel and the industry moving forward.

Without further adieu, here is a little bit about the panelists, followed by the questions and their responses. Insurance Forums wishes to thank all four of our participants for their thoughtful responses.

-Brian Anderson

Executive Editor

Insurance Forums

Panelist bios:

For more about each of the panelists, see the detailed bios at the end of this article.

Michael Kalen, CLU, ChFC, is President and CEO of the Futurity First Financial Corporation, an independent, nationwide insurance distribution organization specializing in retirement income and insurance protection solutions. The businesses include Houston-based Dressander|BHC, a life brokerage general agency and recently sold its hybrid career agency distribution company. The company represents leading annuity and life insurance carriers and is a top 5 producer for 6 different insurance carriers. Its producer network includes over 2,500 independent agents, 15 agencies and 14 broker-dealer firms.

Steve Kerns is the Founder & CEO of Houston-based InsurMark, which he started with his wife, Becky, in 1983.InsurMark has grown into a well-established and respected national insurance marketing organization with thousands of advisor-partners in all 50 states. In the past 10 years alone, InsurMark advisors placed nearly $5 billion in fixed and fixed-indexed annuity premium.

Steve is also a founding partner of LifeUSA, known today as Allianz, of The Annexus Group, Market Synergy Group, and Collabrix – all influential organizations in the FIA space. Throughout his career, Steve has served on numerous insurance company advisory boards and is a proud member of NAFA, NAIFA, the National Ethics Bureau (NEB), AIMCOR and AIMCOR Enterprise Insurance Group.

W. Andrew (Andy) Unkefer is the President of Glendale, Ariz.-based Unkefer & Associates, which he foundedin 1994. Unkefer & Associates is a national annuity and life insurance marketing organization involved in product design and national sales distribution. The company’s goal is to be the No. 1 resource for independent agents in their annuity and life insurance sales effort. Along with serving independent agents, agencies and mid-sized insurance marketing firms, Andy has contributed consulting services to several insurance companies. He is Unkefer & Associates’ visionary leader, creating a service organization dedicated to the needs of the agents they serve.

Mark Williams serves as the President of Brokers International, Ltd., a national insurance marketing organization based in Panora, Iowa. In this role, Mark is responsible for recruiting financial professionals to one of over 20 insurance companies Brokers International represents. Mark also oversees marketing, producer programs and distribution of life insurance and annuity products offered to the thousands of agents that work with Brokers International. His career in the financial services business spans over 25 years and has always been focused on insurance product distribution and marketing.

QUESTION #1 – M&A ACTIVITY

Insurance Forums:We’ve seen a fair share of mergers and acquisitions in the FMO space recently. How would you summarize the market’s current M&A environment, and would you expect activity to ramp up or slow down as 2016 wears on?

W. Andrew Unkefer, President, Unkefer & Associates: I have personally experienced the M&A trend in the annuity industry. I view it as a result of two things. First, our scale. The size of certain annuity distribution firms is great enough to gain the attention of larger investor groups such as private equity firms. These groups expect the growing senior citizen community to gravitate toward safer retirement products where they can assure a predictable lifetime income, for example. These investor groups hope to grow through further acquisitions and organic growth with the ultimate goal to drive the price of their investment through higher earnings and higher multiples paid for those earnings. Ultimately, these investors hope to secure their best return by selling to the highest bidder of all in a publicly traded stock exchange. The second driver on M&A in our space is simply competitive pressure. The roles and requirements of being an independent marketing organization (IMO) are rapidly changing. Some of these changes and costs cannot be overcome by smaller operators. These mid-sized to small IMOs may face extinction if they don’t align with the right long-term business partner.

Michael Kalen, CLU, ChFC, President & CEO, Futurity First/Dressander|BHC: M&A activity in the FMO space should continue to ramp up. The cost of doing business, the aging demographic of FMO owners and the need for scale will all drive increased interest in M&A activity. The large FMOs have the benefit of scale, capital and expertise and can be of great help to smaller business owners that need additional capital or capacity.

Steve Kerns, Founder & CEO, InsurMark: I believe we will continue to see mergers at about the same level of activity as 2015. If the UK is any indicator, and it often is, the uncertainty with looming regulation and advisors caught in the crosshairs will encourage FMOs to leverage their strengths and seek partners to manage their weaknesses.

Mark Williams, President, Brokers International: I would say it’s more difficult to operate as a small FMO now — especially with the looming requirements proposed by the DOL. The proposed changes have the potential to create increased responsibility for FMOs and their advisors. This could make conducting business even more difficult and leave organizations who lack the resources or willingness to adapt ripe for the picking.

QUESTION #2 – DOL FIDUCIARY RULE

Insurance Forums: Do you expect the DOL’s revised Fiduciary Rule to take effect before President Obama leaves office, and if so, what, if anything, is being done to help your producers prepare and adjust to the changes it could bring?

Steve Kerns: There is no doubt that is the DOL’s plan based on everything we are hearing. We really do need to see the final rule before we can even begin to start helping producers. Congress has recently become very active and the administration is obviously worried about the outcome as they sent [Secretary of Labor Thomas E.] Perez to the Hill to meet with about 80 democrats and answer their concerns with the Rule. In reports just issued March 8^th, The White House recently reinforced the Administration’s belief that the DOL Fiduciary Rule will help retirement planning similar to what Dodd-Frank and the Consumer Financial Protection Bureau did for the financial markets. However, there is growing concern on both sides of the aisle about what it will do to middle income America and I think Congress has some opportunities to stop it through appropriations. Barring that, we have litigation. You can’t prepare for what you don’t know – you can’t board your house up thinking you’re expecting a hurricane when what actually happens is a furnace fire!

Michael Kalen: We are preparing as if the new DOL Rule will go into effect in the near future. While there will be industry and consumer opposition to the rule, there is enough interest in a fiduciary standard in a more macro sense that it makes sense to prepare our producers for this. We believe that some of the tenants of the revised rule like “ensure objectivity at the point of sale” and “transparency” are good for the consumer and will be good for business in the long run. We are educating our producers and beginning to develop platform tools they will need to meet these standards if and when they are implemented.

Mark Williams: Based on what I’ve read, this is a high priority for the Obama administration. Having said that, we are taking a proactive approach and encouraging producers to stay informed. We’re also providing them with as many updates as we can. Regardless of the changes, we’ve always been well positioned to help producers take a holistic approach to retirement planning by offering annuities, life insurance and wealth management. Our philosophy of working individually with producers also allows us to deliver tailored solutions based on their clients’ needs; that’s why we’ve remained an independent shop.

Andy Unkefer: I predict the final version of fiduciary rule will be revealed by [the start of April]. This allows enough time for the current administration to bring the rule into effect before losing the ability to do so in late November. Agents, marketing firms and carriers should expect to be required to comply with the new rule by January 1, 2017. The only barrier to this reality is successful litigation from our industry. Here’s what we are doing. First, we are contributing to the fight and rallying our agents to participate on two fronts; help fund litigation and help drive new legislation. Second, we are preparing to create a fiduciary structure capable of serving our agents, agencies and other marketing firms so they can fully comply with the rule if it prevails. This requires a large investment in technology and human capital. The sales process of the future will require greater intensity, disclosure, monitoring, archiving and reporting than ever before. Agents and IMOs will need to select their distribution partners with extreme caution and locate firms ready to protect the business they are collectively building together.

QUESTION #3 – OTHER KEY ISSUES

Insurance Forums: Beyond what has already been covered, what other industry issues – relating to the regulatory environment, carriers, agent training, direct sellers, producers or consumers – are FMOs keeping a close eye on right now?

Michael Kalen: We are very positive about carrier innovation. They are developing electronic applications, consumer tools, better websites, etc. Product innovation continues to be strong, especially in IUL, FIAs and asset-based LTC.

Mark Williams: All of the above matter, but I would add that product development, carriers entering our space, the role of technology and trends in how consumers want to receive advice and ultimately purchase are critical issues we monitor daily.

Andy Unkefer: Outside of the DOL rule, I would suggest the marketing firms and advisors focus on planning rather than product. Walking folks through a real planning process not only increases your sales, it improves the quality of advice rendered and satisfaction level of the customer. Explore blending disciplines to create exceptional value for your current and future customers. Great planning involves financial expertise, legal advice, tax advice and now includes a deeper knowledge of medical issues. Organizations capable of delivering a multiple-disciplinary practice model will be capable of providing value while complying within the different regulatory landscapes.

Steve Kerns: All of the above. The regulatory environment keeps getting more and more a part of our business culture. New regulations, clarifying/reinterpreting older regulations; state versus federal, more interest in intermediaries like FMOs and their market conduct, are all issues we are watching and preparing for. Carrier interpretation of the looming regulations and need to protect themselves also has us watching because how they react will impact us and our producers. As we move to the more holistic solutions approach that brings even more regulatory and legal exposure, both for us and the producer. We will need to be prepared to help producers mitigate that exposure as well as our own internal marketers.

QUESTION #4 – DESCRIBE YOUR FMO

Insurance Forums: If we were to ask your appointed agents, “Give me 3 adjectives that best describe your FMO,” what are the 3 words we would hear most?

Mark Williams: Supportive, visionary and responsive.

Andy Unkefer: Integrity, Intelligence, Innovative.

Steve Kerns: Integrity, Delivery, Innovative.

Michael Kalen: Innovative, value-added marketing ideas and trustworthy.

Check out Part II of this exclusive FMO Executive Roundtable here, where the roundtable tackles topics including what FMOs need to be doing to secure their place in the distribution chain; how they are working to make 2016 a successful year for them and their producers; and what gives them reason for optimism for the channel and the industry moving forward.

More about the roundtable panelists:

Steve Kerns, Founder & CEO, InsurMark: Steve Kerns began his financial services career with the Great Southern Life Insurance Company, where he earned rookie of the year honors in 1978. For the next six years, Steve built a successful retail life insurance practice, receiving numerous company awards, as well as qualifying for the Million Dollar Round Table all six of those years.

In 1983, he and his wife, Becky, founded InsurMark on the pillars of integrity, innovation, leadership and service. Although it began as a small dream, Houston-based InsurMark is now a well-established and well-respected national insurance marketing organization with thousands of advisor-partners in all 50 states. In the past 10 years alone, InsurMark advisors placed nearly $5 billion in fixed and fixed-indexed annuity premium.

Steve is a visionary and coach with a keen ability to spot industry and demographic trends. Which is why he functions as InsurMark’s chief strategic officer, in addition to his CEO responsibilities. He positions InsurMark to proactively capitalize on opportunities – not just stay in the game, but stay on top of it.

Steve is a founding partner of LifeUSA, known today as Allianz, of The Annexus Group, Market Synergy Group, and Collabrix. These are all influential organizations in the FIA space that are innovators and leaders, bringing breakthrough thought-leadership to the rapidly expanding marketplace. Steve sits shoulder-to-shoulder, collaborating with some of the best minds in the business through his involvement in these organizations.

Throughout his career, Steve has served on numerous insurance company advisory boards and is a proud member of the National Association of Fixed Annuities (NAFA), the National Association of Insurance and Financial Advisors (NAIFA), the National Ethics Bureau (NEB), AIMCOR and AIMCOR Enterprise Insurance Group.

Steve is active in his church, an avid golfer, a bank director, a board trustee at Houston Baptist University and also serves on numerous charitable boards.

Steve’s passion in life is serving others and assisting them in realizing their dreams. He believes we serve a sovereign God who honors honesty, humility, and integrity; and that faith in Him and the daily application of His values gives us meaning and purpose in life, both personally and professionally. Based on Steve’s code of strong beliefs and ethical standards, he strives to live his life as an example to all that come in contact with him. Living in Houston, Texas with his wife of over 36 years, Becky, they have two sons.

Mark Williams, President, Brokers International, Ltd.: Mark Williams serves as President of Brokers International, Ltd., a national insurance marketing organization based in Panora, Iowa. In this role, Mark is responsible for recruiting financial professionals to one of over 20 insurance companies Brokers International represents. Mark also oversees marketing, producer programs and distribution of life insurance and annuity products offered to the thousands of agents that work with Brokers International. His career in the financial services business spans over 25 years and has always been focused on insurance product distribution and marketing.

Williams joined the company in Dec. 2014 as Chief Sales Officer. He brings a wealth of executive-level leadership from past positions as President of GamePlan Financial Marketing, LLC, and the Vice President of Sales at Allianz Life Insurance Company of North America. Williams succeeded longtime Brokers International President and CEO William (Bill) McCarty, who resigned effective March 1.

Michael Kalen, CLU, ChFC, President & CEO, Futurity First/Dressander|BHC: Michael Kalen is President and CEO of the Futurity First Financial Corporation, a Middletown, Conn.-based independent, nationwide insurance distribution organization specializing in retirement income and insurance protection solutions. The businesses include Dressander|BHC, a life brokerage general agency and recently sold its hybrid career agency distribution company. The company represents leading annuity and life insurance carriers and is a top 5 producer for 6 different insurance carriers. Its producer network includes over 2,500 independent agents, 15 agencies and 14 broker-dealer firms.

Mike joined Futurity First as its CEO in January 2010, after a 25-year career in the insurance and financial services industry with Hartford Life and Prudential Financial. Mike was a senior officer with The Hartford Financial Services Group, where he was Executive Vice President of Hartford’s Individual Life group, CEO of Hartford Life Europe and President of HESCO, Hartford’s broker-dealer.

W. Andrew Unkefer, President, Unkefer & Associates: Andy founded the Glendale, Ariz.-based company in 1994. Unkefer & Associates is a national annuity and life insurance marketing organization involved in product design and national sales distribution. The company’s goal is to be the No. 1 resource for independent agents in their annuity and life insurance sales effort. Along with serving independent agents, agencies and mid-sized insurance marketing firms, Andy has contributed consulting services to several insurance companies. He is Unkefer & Associates’ visionary leader, creating a service organization dedicated to the needs of the agents they serve.

In addition to his role at Unkefer & Associates, Unkefer is the Founder of Producertraining.com, a company that develops tools, online marketing platforms, resources, calculators, training and testing for insurance companies, agencies and wholesalers. His expertise has also earned him the 1990 Wall Street Journal Award and the prestigious NAFA Service Award along with the National Underwriter magazine Industry Elite Award for Innovation. LifeHealthPro named him as one of the 24 most creative people in insurance. Most recently, he was added to the Grand Canyon University Hall of Fame.