to get out of it, rather than the business opportunity that exists by pulling it together. So, how frequently are people asking those questions? A lot of times, they’re not. But they should be.”

Some agencies pull out of a deal when they propose a goal, and say to the bank, “Okay, here’s what we want to do. What are you going to commit to?’ They may want a commitment that goes way beyond what the bank is willing to do.

Understanding the industry One thing to remember is that most people in the insurance

industry today got there by default. It’s one of the few industries or careers that do not have an organized prerequisite stream to provide people into that field. That’s true even though the economy of it is good, and the financial rewards are good. People just get there by default.

A bank operation, recognizing this, needs to address the fact that the average age in the agency force is rising. There is a lot of concern about where the future vibrant young insurance profes- sionals and producers are going to come from. So that’s a very important part of the mix that you need to look at.

“You don’t find a lot of young children,” Reagan reminded us, “who when asked, ‘What do you want to be when you grow up?’ reply, ‘An insurance agent!”’

Reagan also urged bankers to find out what the agency’s owner and employees expect.

“A big key in looking at an insurance agency that you’re considering,” Reagan explained, “is looking closely at the owner’s, or the key employees’ expectations. And one vitally important area to pin down is what their roles and responsibili- ties would be in your bank organization. What would their compensation, benefits, and perks be in your organization? Determine what their commitment to the future is going to be

when they’re with your organization. And learn what their purchase considerations are. What do they expect that you’re going to pay for their organization?

“These are good questions to ask up front, as early as you can,” he continued. “And particularly, these questions need to be asked before you ever start talking about price! Because if you look at a typical insurance agency, it’s a privately held firm. They’re not in business to pay taxes. They’re in business to hopefully reward those who are involved with it, including the owners. And most insurance agencies don’t make much money. Because the money is bonused out. It’s taken out in perks and benefits. It’s like most other privately held firms.

And when you look at the compensation that is being paid, and the profit and bottom line, the two are in inverse proportion. The more the profit, the less the compensation. And if this agency is to be profitable, the biggest adjustment that’s going to have to be made is to owner’s compensation. That’s not anything that’s surprising.”

How profitable will it be? Compensation, perks, and benefits will also establish how

profitable agency ownership will be for your bank. “Because that’s going to determine how much money can be

made,” said Reagan, “the kind of earnings that can be generated, and the kind of value that can be supported-as well as the roles and responsibilities that each would assume.

“As for those agents that are aggressive,” he concluded, “the kinds of folks that you’re going to want to be looking at-they’re going to be pretty ambitious. They’ll ask, ‘Where is the opportu- nity here for me?’ So some of it is not only measuring what their expectations are, but also determining whether their expectations are realistic in your organization.”

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SOME CHALLENGES OF A TEAM APPROACH

ome banks have chosen to sell insurance using a team S approach. David Holton, president of Wachovia Insurance Group (Winston-Salem, North Carolina), discussed his bank’s experience at a recent meeting of the Association of Banks-In- Insurance (Washington, D.C.).

At Wachovia, an insurance advisor is one member of each team. Wachovia sets both team goals and goals for individual members on the team. And the all the individual goals contribute to the team goal. What’s more, all sales leads are qualified before team members pursue them.

Should everyone be licensed? However, there were many issues to work out. For one thing,

would it be better to license every member of the team to sell insurance? Holton isn’t sure.

“We thought about licensing some of the people on the team, and things of that nature,” said Holton. “And we’ll just see as we go. But right now, it’s working for us. Fundamentally, it’s working okay.”

Other banks have been trying to do the same thing, wrestling with the issue. And some have given up and said that they’re

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going to license all their private bankers. Where a capital markets group and trust people are combined, it may make sense to get all those people licensed. They will share in the activities of the insurance advisor.

“And that’s a direction that we are also looking at,” Holton divulged. “I think with everything else we were trying to do, to organize the team and change behaviors [to become more coop- erative, instead of competitive], we said, ‘Let’s do it using an interim step here.’ But I think ultimately, if you want to get down to measuring their performance the way you want to, and reward- ing them the way you ultimately want to reward them, you’re probably going to have to license them.”

Should you pool commissions and split them among mem- bers of the team?

“That’s the other argument, the discussion we’re having,” Holton noted. “It has to do with the question of whether this is a pool of money that gets distributed. I wasn’t sure which way to go. I was just trying to look at the options here. But one way to look at this is that we pay incentives to individuals-you know, bonus checks to certain individuals at the end of the year for certain members of the company. And in fact, there’s a 401(k) distribution. And in that pot of 401(k) money is money that was earned by licensed people selling annuities, and mutual funds.

“So it goes into this pot,” he continued. “And I think that’s what you are going to find. At some point in time, if you put it into a big enough pot, it kind of gets lost, and legally it is hard to figure out that there is a connectivity. And that’s the argument for doing it the other way. The other argument was that we’re new, there are eyes on us-so maybe we’ll just do it another way.

Should you pool commissions and split them among members of the team?

“I think that ultimately there is a way to structure it, if you want to do it. But if there’s one area where we’re going to get slapped really hard, it’s on this issue. Because there are few things, really, that the insurance commissioners can come and get us for. We’re all abiding by the rules, and we’re trying to do the best we can. But compensation and tying are the two most visible issues. So why, at this point, stretch our luck?’

Motivating team members Holton showed a diagram illustrating the compensation for

the financial advisor on each team. “As this individual gets his deposits, loans, and fee income and

activities,” said Holton, “he converts those to a point system. That’s rather elaborate, frankly, and not something that I control. It’s run out of the private banking area. And as you work your way up, you get into the range where you’re supposed to be perform-

ing, to meet your goals. And then, your team works together.” “But if the insurance advisor, or any team member, is behind

in meeting his goals, as they’re going through the quarter, then it will affect the whole team. Because we pay based on the lowest producer. So the team member who is the lowest producer determines one of the measures of team success. And that’s the real incentive.”

This strongly motivates the team members. “So what you get now is the trust officer,” said Holton, “who

may be ‘tonning it,’ because he’s having a great year, saying, ‘I’d better be thinking about some banking opportunities, as I’m talking with this customer, and freeing up some liquidity. Because I know we’re going to sell off this asset, and we’re going to redeploy it, but we’ve got about six months before that happens. I better tell him that I want my banker to know that. And I’m going to proactively tell my customer, ‘I’d really like to introduce you to the private investment officer, the capital management person. Because we need to put these funds to use for you really quick. And then, we’d have it right here, and we’d be ready to move that money.’ Those are the kinds of discussions that go on.”

Structuring compensation But are all of the key team members compensated as some

percentage of their base, or of their full Compensation? And are they all on a similar scale, or does it vary by position, responsi- bilities, and so on?

“Some are flat dollar fees,” said Holton, “and some are a percentage of salary. For people in the private banking area, it’s a flat dollar amount that caps out at $1,500 or something like that. It tracks the point value of the performance grading system we use. There is a schedule specifying what you can earn each quarter, if your team hits this goal, and you hit that goal level. So it will be a fixed dollar amount. For the insurance advisor, it’s a fixed percentage of the commissionable revenue that he has generated, that comes into his book.

“So compensation is customized for each team member. If you saw the insurance advisor’s compensation scheme, it may have 5 percent, 10 percent, 20 percent, or 60 percent, for example. You may see the investment advisor being 1-1/2 percent, 3 percent, or 9 percent, based on salary. And you may see somebody else earning $200 up to $1,5&a flat amount of money.”

Do they do anything to try to levelize the four team players, as far as compensation received?

“No, Idon’t think so,” said Holton. “No, because you want your hard core, revenue-generating sales people, who are going to be at a lower base, to be able to ‘blow it out.’ And you want the folks that are on a higher base salary to be compensated a little bit differently. There’s no goal that all people are created equal in this.”

But isn’t there a danger of team members giving mixed sig- nals? What if a customer’s insurance advisor says, ‘I think you need a certain kind of insurance,’ and the investment advisor says, ‘I think you should buy bonds instead.’ Does that issue ever come up?

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FEBRUARY 2000

“Oh, yes,” answered Holton. “The question is whether we have conflicts inside there, where people are sharing their biases or their own personal investment strategies on this-whether it’s investments for insurance, or whether it’s term insurance versus universal life insurance, or permanent insurance. Yes, and that’s really been a healthy dialogue.

“Because what we’re doing,” he continued, “is we’re bringing people out of the closet. We’ve got a number of investment people who, for example, do not believe in variable annuities. They think a variable annuity is a very bad invest- ment. They don’t recommend that their people buy it at all. But we’ve got trust officers who have said, ‘I’m so delighted that you have long-term care insurance capabilities. That is the number one thing that I try to convince my clients to go buy. Because I spend all this time, and they spend all this time and money, to structure their estate. And wow! One event in long- term care wipes out all the planning that we’ve put in place. So I’m delighted to have that.”’

Be careful how you compensate team members. It’s an area where state insurance commissioners will probably be tough.

But not every team member feels like that. “You turn around and hear another one say that, ‘Well, I

don’t believe that. They’re wealthy enough, and they don’t need it. And they can deploy those assets.’ So, yes, we have that going. But the good thing about it is it’s all happening in that group. And we’re getting out some of these biases, and we’re having other people get educated in the process.”

Did insurance force a team approach? So the introduction of insurance has led to Wachovia using

a team approach. But would they use the team approach if insurance wasn’t involved?

“That’s a good question,” Holton reflected. “Would we have done this special individual and team compensation plan without insurance? From my bank’s perspective, we have been very, very late to the party in variable compensation. So we would have done it later, rather than sooner. I think, ultimately, this kind of a concept makes sense as we move into financial integration. As we try to become a full financial intermediary to our customer, we have got to be able to pull together these disciplines into at least some sort of common approach to the customer. Otherwise, we’re just going to have three or four different silos out there pounding away, and we’ll have even more of the conflicts. And then, we’ll get into a situation where, gee whiz, an investment officer’s talking to a customer, who says, ‘Yes, I just met an insurance person two months ago, and he sold me this particular kind of an insurance contract.’ And the advisor says, ‘Oh my gosh, I wish I could have gotten to you before you did that. That’s not a good idea.”’

So Holton believes it’s important to get those attitudes out in the open.

“We’re trying to get those discussions exposed early on,” Holton noted. “So would Wachovia have implemented a team approach without insurance? We probably would have been late to the party. But ultimately, we need to be here, I think.

“The exact compensation numbers are another issue,” he continued. “And I think that needs to be worked on separately, as to what is the value of this, and how do you compensate them for their time. But even if we ratchet it down to a levelized commis- sion philosophy, I still think we have this kind of format, where the goals are shared.”

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REGULATOR PREDICTS SOME SURPRISES AHEAD

hat will state insurance regulation be like in the future? According to Kentucky Commissioner George Nichols

111, banks may be in for some surprises. Nichols has been chairman of the National Association of

Insurance Commissioners (NAIC) Special Committee on Banks and Insurance, and he had alot to say at arecent convention of the

Association of Banks-In-Insurance (Washington, D.C.).

Some surprises ahead? W

As we have reported, Nichols believes that many people are underserved, because it is not profitable to sell insurance to them. But banks shouldn’t be surprised about any future Community

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