Life Insurance as Multi-Level Marketing
July 16, 2010 by RickBryan
Last night I caught an episode of Penn & Teller’s “Bullshit” on HBO where the duo exposed the hoax behind multi-level marketing (MLM) organizations. A few days earlier I was out with one of my buddies who is an agency sales director (ASD) for one of the big New York City life insurers, and it struck as to some of the similarities between his role as ASD and how MLM organizations operate. My friend could barely focus on all of the beautiful women out that evening, but instead complained the whole evening about the pressure he was under to “recruit, recruit, recruit.” “Build my unit” and “recruit producer groups from other companies” was now my friends’ primary role. What happened to training financial advisors? Learning how whole life and variable universal life insurance operate, and the fascinating and wonderfully rewarding career as a life insurance agent. Apparently, in the last few years, that aspect of the industry has been replaced by corporate pressure down on the agency managers to grow their organizations. If it were not for the 100+ years in business which most New York insurers can boast about, this strangely resembles the MLM business model Penn & Teller revealed as, in the end, self-emploding and unworkable.
Its always been part of the life insurance industry model that agency managers were expected to recruit new agents into the business, and train and nurture them for a few years to become Top of the Table producers. Yes, selling to friends and family was always the way new agents began their careers, in all companies (which is proper and correct, by the way), and that’s not so different from how MLM companies pitch to their new recruits. The difference, of course, is that the income made from selling products is eventually how agents become top producers in the insurance industry, whereas having an enormous ‘downstream’ line (like a pyramid) is the ultimate goal of a top producer in the MLM industry.
What seems to have changed now in the life insurance industry is that sales managers are now being told by corporate that their *exclusive* role is to recruit and grow the organization, with product sales and training being of secondary importance. See this excellent link to a primer on the legal definition of illegal pyramid schemes. On the whole, the life insurance industry does not come close to being a pyramid scheme, although certainly aspects of how its products are sold does have similarities to multi-level marketing organizations which are borderline illegal. The main point, I suppose, is that it wasn’t so many years ago that my buddy and I had a lot of fun ‘talking shop’ while cruising New York for wine, women and song. Now we go out and my buddy is just glad to have some respite from the enormous pressure he’s under to “grow his organization,” which as Penn Jillette says, is just bullshit.
Don’t misunderstand: it’s still my opinion that a career as a financial advisor, a Certified Financial Planner ™, and a traditional life insurance agent, is one of the most rewarding careers available in the US. But at the sales agency management level, it seems like the game has changed recently, and not for the better in my view. When the agency management’s focus changes from having the most sophisticated and quality organization to having the largest organization, something is going askew with the industry.