by Darla Mercado and featured in Investment News
John Hancock Financial Services Inc. today will announce a dramatic overhaul of its business model in which some of its 1,800 representatives have the option of going independent.
Under Hancock’s new structure, as of Jan. 1, reps may elect to go independent, which would allow them to expand their menu of product offerings and give them more control over how they market their businesses. The new model also allows for groups of independent reps to band together to form a so-called producer group, providing insurance and investment services.
Reps may also choose to maintain a traditional relationship with Boston-based Hancock as statutory employees, in which case they would receive a high level of support as well as a subsidized health and retirement plan from the firm in exchange for selling a certain amount of its proprietary products.
Plans to implement the business model have been in the works for the past two years and represent an about-face from the company’s previous model as a career agency.
“In effect, we are taking what has been more of a traditional insurance agency system and combining it with the best attributes of the independent model,” said Peter Gordon, president of John Hancock Financial Network, the career agency arm of John Hancock Financial Services.
“Most of John Hancock’s sales come through other channels,” he said. “We’re in effect a brokerage company, whether it’s 401(k)s or insurance, and we treat this as another channel.”
Though the reps will have the choice, Mr. Gordon said the firm expected many of them to remain statutory employees.
Some recruiters view the move as a defensive tactic to retain — or attract — investment- and financial-planning-oriented representatives.“It’s more to appease the existing reps,” said Jonathan Henschen, president of Henschen & Associates LLC, a recruiter based in Marine on St. Croix, Minn. “The reps probably feel boxed in, not having many product choices to offer clients.”
Others, meanwhile, expressed skepticism about whether Hancock’s independent reps would in fact find it easy to recast themselves as independent advisers.
“The problem that insurance agents face when they’re trying to transition to be an independent financial planner is that perception their clients have of them now,” said a recruiter, who did want to be identified.
That skepticism kept New York-based Axa Advisors LLC from following through on its 2002 initiative to encourage its agents to become certified financial planners.
After spending money on training reps, the company had to cut back on its initiative because it was too expensive and wasn’t generating sufficient revenue, the recruiter said.
Recruiters also questioned the level of independence in this kind of arrangement.
While insurers are discouraged from providing major payment incentives for reps who push proprietary products, insurance executives still may pressure local sales forces to recommend proprietary products, Mr. Henschen said.
Hancock’s move could pay off.
“This is a departure for them, but it’s a retention tool and a way to attract some reps to Hancock who are looking for support on the insurance side,” said the recruiter.
Under the new model, 50% of the total production of reps who choose the traditional affiliation with Hancock will be expected to come from the sale of proprietary products. Reps who choose to go independent or join a producer group won’t be expected to sell a required amount of Hancock products.
Typically, reps in an insurance broker-dealer arrangement obtain at least 25%of their sales through proprietary products, according to Mr. Henschen.
In terms of paying the reps in the new arrangement, traditional reps will receive a combination of commissions and benefits but won’t be permitted to own their books of business.
Meanwhile, reps who go the independent route will own their books of business.
In the insurance broker-dealer arena, reps who go the career route can hold on to about 50% to 85% of their commissions. On the other hand, independent reps keep 85% to 90% of their commissions.
The company’s decision to change its approach stems not only from an observation of the career-versus-independent track for reps but also a change in philosophy when it comes to distribution.
“We like both wholesale and retail, but we feel where we could grow is in retail distribution,” Mr. Gordon said.