By Elisabeth Boone, CPCU
Brian Cohen is president of Farmers Financial Solutions, LLC.
When the going gets tough, the tough find new ways to grow and prosper. Fierce competition and aggressive consolidation have severely shrunk agents' profit margins on property/casualty business, and agents are seeking out new avenues for building revenue. At Farmers Insurance, agents who just a year ago knew nothing about investment products are now working with existing property/casualty clients to help them fund college expenses, retirement and estates for future generations. Whatever trepidation agents might have felt about entering the unfamiliar world of financial services, it's long since given way to enthusiasm, confidence--and profits. No doubt about it: enhanced client relationships plus a strong new profit center is a hard combination to beat.
Farmers is no stranger to bold leaps and out-of-the-box thinking. In 1998 when its former parent, British American Tobacco Industries, merged its financial services division BAFS with Zurich Insurance, independent agents of the former Zurich Personal Insurance began to sell Farmers auto and homeowners products in eastern states. This not only marked Farmers' entry into the East Coast market but also was the first time that products of the exclusive agency giant had been offered by independent producers. That innovative distribution venture has proved successful, and Farmers' financial services debut likewise is turning out to be a big win for agents, their clients, and the insurer.
Leveraging relationships
Why did Farmers decide to enter the financial services arena, and how did its agents respond to the idea of becoming registered representatives?
Cindy Vance, Cindy Vance Insurance Agency in Sussex, Wisconsin, has achieved top producer status for FFS in less than one year.
"Competition for property/casualty business is getting more severe every day," says Brian Cohen, president of Farmers Financial Solutions (FFS), LLC, Farmers' wholly owned broker-dealer. "Farmers' strategic advantage is the relationships our agents have with their customers. Our approach is to give agents the tools they need to broaden and deepen those relationships. Offering financial products and services allows agents to increase retention levels, get a bigger share of each client's business, and to prosper, not just survive."
Overcoming anxieties
Many agents appreciate the advantages of offering financial products and services but are intimidated by the perceived complexity of selling investment products and the difficulty of becoming a registered representative. Some Farmers agents, Cohen says, were eager to master the new techniques and use them to build relationships and revenue. Others expressed apprehension, at least initially. "Some agents were afraid they would fail the licensing exams and feared they wouldn't have the expertise as property/casualty agents to help their clients plan for college and retirement," Cohen says. "Some agents simply didn't believe their clients had enough money to invest." From the client's perspective, he says, "Surveys showed that our customers did in fact have funds to invest, were comfortable with their agents' offering financial services, and thought the agents would do a good job." Cohen, a CPA and corporate and securities lawyer turned marketing executive, tells agents they're a natural to offer investment products: "The property/casualty agent protects a client's two most valuable assets: their home and their vehicles. The agent already has undertaken a tremendous responsibility in helping safeguard these assets. The transition to helping clients invest their money should be relatively easy."
Keep it simple
To allay agents' fears about offering investment products, Cohen says, "We showed them products that are relatively simple to grasp: variable annuities, variable universal life, mutual funds. Our agents are already selling fixed annuities and traditional permanent life products. We're simply adding an equity component to these existing insurance products." Selling mutual funds, he acknowledges, "can be more of a leap." To simplify the process, Farmers Financial Solutions chose mutual fund companies that offer "Funds of Funds": mutual funds that invest in other mutual funds. Farmers Financial has selling agreements with three mutual fund companies, WM Group of Funds, Goldman Sachs, and Zurich Scudder Investments, which offer fund of funds portfolios to meet a variety of investor objectives: income, income with growth, balanced, growth with income, and growth. "Agents asked us: 'How do I evaluate 17,000 mutual funds to find the one that's right for my client?' The Funds of Funds approach took away that fear," Cohen says.
Although the majority of Farmers' business is personal lines, "Many of our agents also sell commercial insurance and wanted to offer their clients tax-qualified retirement plans like 401(k)s and SEPs (Simplified Employee Pensions)," Cohen explains. "Several of the mutual fund companies we offer have these plans. We trained 500 agents on a test basis, and it's gone well. The funds have been very impressed with our results."
For the property/casualty agent who's preparing to become involved in financial services, Cohen says, "The biggest challenge is that P-C business is so labor intensive and service oriented; agents ask us, 'How do I find the time to handle financial services?' We knew that if we came up with a system that didn't mesh with the way P-C agents already do business, it would crash." Again the approach was to keep it simple. "We gave agents a system to classify incoming customer calls and find opportunities to mention that the agency now offers financial services," Cohen explains. "We encourage agents to answer their phones by saying 'Farmers Insurance and Financial Services' instead of 'Farmers Insurance.' On any call from an existing client, the agent asks for an updated work phone number, then segues into a discussion of the employer's pension or 401(k) plans."
Pat Shriver, Pat Shriver Insurance Agency, Inc., in Watertown, South Dakota, likes offering financial services because it helps people change their lives in a positive way.
Likewise, the information on personal lines applications can be a powerful door opener, Cohen says. "On auto and homeowners applications, the limits of liability present the perfect opportunity to ask about the customer's assets and net worth. At this point, the agent informs his/her customer, 'I can also help you manage the money you've accumulated. I see my job as not just protecting your physical assets, but also offering opportunities for growing your savings for retirement, college expenses and other objectives.'"
Gearing up
An agent who wants to offer financial services must take the Series 6 and Series 63 examinations administered by the National Association of Securities Dealers (NASD) and apply to become a registered representative. The agent also must undergo a credit check and a background check. The NASD exams, Cohen notes, are more difficult than state insurance licensing exams; nonetheless, "Today 3,000 Farmers agents in 29 states are registered with our broker-dealer." Currently, investment products are being offered by Farmers' exclusive agents; plans call for the program to be rolled out later to independent agents in the eastern states. "We want to be sure our Farmers agents are successful, then move into our independent distribution channel on the East Coast," Cohen says.
All agents who are registered representatives may sell the three Funds of Funds asset allocation portfolios mentioned earlier. Registered representatives who have met certain criteria may also offer individual mutual funds available from WM Funds, Zurich Scudder Investments, Goldman Sachs Funds, AIM Funds, American Funds, Dreyfus Funds and Putnam Funds.
Once an agent is registered and trained, Cohen says, "Our biggest challenge is to get him or her to quickly experience a sale; to enjoy the excitement, enthusiasm and fun of succeeding in financial services. We're finding that success enhances our agents' sense of self-worth and their professional image as they make the transition into the role of trusted professional."
High fives from agents
Now let's hear from three agents who use Farmers Financial Solutions to build and protect their clients' wealth, enhance relationships and retention, and significantly increase agency revenue.
Beating the mega-brokers
David Sewell, a top agent for Farmers Insurance and Farmers Financial Services, is based in Pasadena, Texas, just outside Houston. He's been extremely successful using a property/casualty or risk-based approach to selling investment products. "My job is not just to protect my clients' current assets; it's to help protect their future against inflation and the unexpected," Sewell says.
The big-name brokers may seem to have the advantage over him, Sewell says, "but they have no system of reviewing a customer's assets as we review them for insurance coverage. We know more about the customer than they do, and we already have a relationship with the customer based on trust and results. I talk about insurance first, then financial services."
What's more, Sewell points out, traditional brokers often shoot themselves in the foot by trying to impress prospects with complex analyses and investment jargon. When a client's husband died, she needed advice about transferring funds from an annuity and from a pension she'd had with her former employer. "When I talked to her about moving that money, she said she had a broker she was working with," Sewell says. "I said I'd like to meet with her and the broker. I talked simply about a conservative approach with a balanced portfolio of mutual funds. The broker went over her head with a sophisticated analysis she didn't understand. The broker asked me, 'How long have you been doing this?' I said, 'Just for a year--but I know how to find what people need.' He couldn't sell against me, and I got the business."
During the course of that conversation, Sewell says, "I asked the broker, 'If you die, who gets your accounts?' He acknowledged that they'd be spread out among other brokers in his firm. I said, 'If I die, my business goes directly to my wife and my little girl.'" Sewell's pride is evident when he talks about his daughter Brittney Lee, who's 11 years old and a straight-A student.
When tropical storm Allison unleashed a torrent of death and devastation in the Gulf states earlier this summer, Sewell says, a client called him saying, "This will wipe me out because I've already lost so much in the stock market." Not only did Sewell have the opportunity to make sure his client's storm-related claims were settled quickly and fairly, he also was able to say, "I can help you build and protect your assets." The result? "I set up an appointment with him for the following week to review his financial situation and recommend solutions," Sewell says. "We understand our customers because we help them every day. We make them feel good when they feel horrible. That's something no traditional broker or '1-800-INSURANCE' facility can do."
Top of the heap
When Farmers Financial Solutions was introduced, perhaps no one was happier than agent Cindy Vance of Sussex, Wisconsin. The top property/casualty agent in her state, Vance had no experience selling investments and in less than a year has become the top producer for FFS.
The opportunity to offer investment products was virtually the answer to a prayer for Vance, whose agency faced a dilemma for which there seemed no good solution. "Wisconsin is the second lowest premium state in the country for personal lines," she explains. "The average auto premium is $300, and the average homeowners premium is $700. That was making it hard to grow my agency. We needed an influx of cash to help us move to the next level, and Financial Services is giving us the means to grow."
In addition to two licensed CSRs, Vance employs a full-time producer who handles all of the agency's property/casualty business while she concentrates on life insurance and financial services. "I've always been a big life producer, and that's a natural segue into offering financial products and services," she explains. "Now I can provide all, not just part, of my clients' financial solutions."
The trust placed in her by her existing clients, Vance says, creates a "huge opportunity" for success. "We make sure we let people know we offer financial services. When they retire, leave a job, or inherit assets, they know they should call us. We take money from them for insurance, so we like to help them accumulate money with investments."
The Customer Profile Worksheet, Vance comments, is a great way to assess a client's needs and risk tolerance quickly and easily. "I tell the client I'm a registered representative and can offer a range of financial services. I offer to do a 10-minute financial profile to identify their goals and find out whether their money is actually working for them," she says. "Most clients who already work with a broker-dealer will give me the opportunity to make a proposal."
In addition to the trust already vested in her by current clients, Vance points out that her agency can provide personal attention and service that large brokerages can't. "We're a true one-stop financial service center for our town," she says, "with the personal touch our clients want."
Thanks to her success in selling financial products and services, Vance says, "We now have the cash to take our agency to the next level." On a personal note, she's in the process of building a new house. "That wouldn't have been possible without financial services," she says happily.
David Sewell is a top agent for Farmers Insurance and Farmers Financial Services in Pasadena, Texas.
Building for the future
Based in Watertown, South Dakota, with a population of just 15,000, Pat Shriver nonetheless is one of Farmers' larger agencies. With property/casualty premium volume of $2.5 million, Shriver has 22% of his area's property/casualty market. Eager to increase his agency's income, he ran some numbers and realized that his profit margins on investment products were much higher than were those on property/casualty insurance.
"Financial services was a new revenue stream we could take advantage of," he says. "With insurance, to increase income, you have to increase rates, which also increases attrition; and if rates get too high, eventually you reach the point of no return. With financial services, we can potentially increase the client's rate of return and decrease attrition." What's more, Shriver points out, "In the early years of selling financial services, there's very little attrition--plus a significant revenue stream."
In recommending financial products and services, Shriver doesn't favor a "one size fits all" approach. "Most of the people we deal with aren't wealthy, so we teach them not just to plan for retirement but also to build multi-generational wealth," he explains. "When people tell us they don't have money to invest, we show them they do if they reduce their expenses. We encourage them to set priorities and identify what's most important to them. We tell them, 'When you get a raise or pay down a credit card, come to us; now you have something to invest.'"
It's not just the increased revenue that has Pat Shriver so excited about offering financial services. "Short of being a doctor, few of us get the opportunity to change people's lives," he observes. "Showing people how to build wealth is really powerful. After 16 years of hearing clients' sad stories about insurance losses, it's great to be part of their financial success. I now hear 'thank you' from my clients more in one month than I used to hear in a year."
We'll give the last word to Farmers Financial Solutions President Brian Cohen. "This whole initiative," he declares, "is a testament to our agents' ability to transform themselves." *
For more information:
Contact: Brian Cohen, president
Farmers Financial Solutions
2423 Galena Avenue
Simi Valley, CA 93065
Phone: (805) 306-3410
E-mail: brian_cohen@farmersinsurance.com
Web site: www.farmers.com