The Syrup: structuring commissions
I started my brokerage firm in 2005, when I was 26 years old. And for a few years, it was just me, myself and I doing the best I could to grow…
Fast forward almost two decades and we now have about a dozen outside producers here in New York, as well as in California, Wisconsin, New Jersey, Illinois and Florida.
I get people that ask from time to time, “How do you get them?” The answer is pretty easy: you ask.
Here is a quick list of the types of professionals we have as sub-producers:
- Financial planners
- Out-of-state brokers and consultants
- Property & casualty brokers (depending on the state)
Financial planners: This is the no-brainer. In most instances, they are licensed to do health and employee benefits in addition to their financial planning work and could be looking to partner with you. Often, they are going to want a back and forth referring relationship; if you are able to offer that, great. But for us, we know we won’t be able to refer them in most instances, as we have the capabilities of offering the same services as they do. The alternative? “Cash is king.” As long as the financial planning firm has an open architecture allowing them to have outside income, you can pay them commissions in the states in which they are licensed when they refer you.
Out-of-state brokers: Sometimes they will refer and walk away because they don’t want to deal with licensing in your state, but if it’s a state where you frequently get people transplanting, let them know there is money to be had when they add on your home state as one of their non-resident licenses.
Property & casualty brokers: Before you go after these professionals, you need to check out the rules for your state. In some states, like New York, P&C brokers have “life & health Authority” so you can actually pay them a referral fee for health and employee benefits business.
The second thing I get asked about is, “How do you decide what to pay?”
Have you ever heard of the MDRT (The Million Dollar Round Table) split? This is something that financial planners definitely understand, and it’s a great starting point that prescribes a breakdown for how commission splits should loo,.
- 20%—Prospect delivery: This is basically someone giving you a name and walking away.
- 20%—Data collection: Fact-finding and gathering information in order to quote.
- 20%—Case design: The broker designs the strategy and quote illustrations.
- 20%—Closing: Basically, whoever sold the case and got the client to sign.
- 20%—Ongoing service: This is the delivery of the policy, annual reviews, continuous updates for the clients, etc.
This doesn’t mean that all your contracts will be the same and that each outside producer will get the same percentages; they are in sales after all, so there’s always room for negotiations. You also need to decide, is this contract going to be for the life of the client? One year?
These relationships need to be fostered, but typically once they start getting paid each month and see this “side hustle” grow, it kind of takes care of itself. It’s always important to remember that you are a reflection of them, so you must understand whether they want their clients to be on communications or just want the peace of mind in knowing that you’re looking out for their clients’ best interests. I would also strongly recommend using ACH or direct deposit to pay them. After you’ve had to chase down a few checks that have yet to clear, you’ll be glad you did this!
You are building a little sales force for your company where you don’t have the overhead of W-2 employees, but it also gives you relationships that may turn into full-time producers for your company if the opportunity ever arises!
Keep choosing your own adventure and slaying some dragons as they come your way!