FMOS Morphing out of the Bricks and Mortar into Digital Dynamos
In the 1980s, the career agency system began imploding as regional offices were shut down and larger metro offices consolidated as agency contract were sliced, diced and changed. A lot has been said in these blogs among the continued advance into an abyss for FMOs for many of the same reasons that the Schwab’s, TD Ameritrades, and Quotesmiths have prospered: technology, regulation and a continued decline in the number of agents and advisors in the business. Last week, the United Kingdom became the seventh country to disallow commissions along with a Value Added Tax (VAT) for those that offer any kind of advice. Next year will be a groundbreaker after years of delay for the distinction of what advisers do and what constitutes “working in the client’s very best interest”. The reasons for these changes will include a constituency that is simply too big to ignore-77 million baby boomers who vote and a rejuvenated FINRA, SEC and state regulatory apparatus. It reminds me of the transition from trains to planes as the railroad failed to keep with the way people traveled.
The other reason why the bricks and mortar will melt slowly is even simpler: much of the personnel in an FMO doesnot need to work out of a high priced office and can work out of their home. This model is the norm in regional wholesaler infrastructure and has been for 25 years. Variable Annuity, REIT, Oil and Gas etc. have mostly operated out of their houses and continue to successfully. Costs have been pruned primarily by cutting chronologically gifted calendar wise wholesalers and replacing them with the young and restless 20- something crowd at half the benefit levels. That’s why, according to headhunter firms, there are 40% less wholesalers out there “carry the bag”. To this writer, even though I am one of those calendar wise wholesalers, intermediaries who cater to the senior market such as the Fixed indexed Annuity market or Muni market, make a huge mistake matching senior advisers and their clients with junior wholesalers who just learned the difference between a muni bond and bail bond in the last year or so. By the way, the muni bond still builds the jail and the bail bond gets you out of the jail. Most of our jurisdictions down here in Georgia control both sides of that transaction but you get the point. Buffet was right when he advised not to invest one’s hard earned wealth when anyone under 40 with no gray hair .After the last 12 years, there’s plenty of gray to go around in our industry. The problem is finding new eager hungry advisers
Let’s get to the final expose of why the FMO model of today will wither away like a fig tree in the hot summer sun soon. Aetna provides the perfect example in a recent Wall Street Journal article as to why the wisdom of FMO marketers may shift to the converted office bedroom from the boardroom and cubicle. In 1996, Aetna was worried about losing some of its talent after acquiring U.S. Healthcare in 1996. It decided to let some employees work from home. Even so in 2006, only 9% of the employees worked from home. With margins squeezed and costs skyrocketing, now nearly half of the firm’s employee’s work from home with the simple reason according to Elease Wright of Aetna Human Resources is, “real estate costs”. What seemed impossible five years ago will impact FMOs as well. After working in an office for 6 years out of the house as National Sales Manager and wholesaler for 20 years, that most of the employees can do the same function out of their home in an instant messaging, video conferencing, webinar environment. Aetna estimates that the real estate costs are 25% lower than they would have been. With life and health carriers margins squeezed because of higher regulatory costs and record low interest rates, it’s time to go downstairs now and pick up the pop tart in the kitchen before the next call in.