Wednesday, September 28, 2011

Differences Between Asset Targets & Production Targets for a Broker

Insurance brokers and financial advisors commonly work as independent contractors and rely heavily on their ability to generate new business and acquire new clients. A steady flow of qualified prospects is essential for a broker's success.

Additionally, selling insurance to new clients and opening new investment accounts is typically the only activity that results in compensation for brokers. Production and asset targets are fixed figures set by insurance carriers and investment firms, each one directly affecting a broker's earnings.

The Broker's Function


When dealing with clients and prospects, the broker's role is as a liaison to the insurance carriers, mutual fund companies and other involved or related organizations. Brokers do not work for these companies, but instead work for their clients.

As independently contracted representatives, brokers are free to work with any insurance carrier or investment company, and are under no obligation to sell or otherwise solicit one particular company's products.

Production Requirements


Life insurance brokers earn higher commissions for gaining large numbers of new clients and selling more new policies. The aggregate sum of the new premium received by the insurance carrier is called the production level.

Brokers who achieve production levels above the minimum standard set by an insurance company will enjoy higher commissions. Conversely, some insurance companies can terminate a broker's affiliation for consistently poor production.

Asset Targets


Aside from selling insurance policies, brokers seek to acquire investment accounts and manage money for their clients. The total sum of all money within investment accounts managed, overseen or otherwise controlled by a broker is referred to as assets under management.

Included in these asset calculations are ordinary brokerage accounts, annuities, IRAs, college savings plans and variable life insurance cash value. Like life insurance, a broker receives higher commissions when his assets under management exceed specific thresholds.

The Relevance of Targets


Target figures for both assets under management and production levels are used by insurance companies and investment firms to gauge the success of their representatives. Historical figures and actuarially calculated industry statistics allow carriers and other service-related companies to set benchmarks for minimum performance.

Utilizing targets, companies can determine where their employees are lagging, and who is a candidate for possible termination.

References


Million Dollar Round Table: 2012 Membership Requirements -- Production Requirements
National Insurance Agency: Agent Production Requirements
Life Insurance Selling: The Broker-Dealer Dilemma - To Change Or Not To Change
Investment News: Why Brokers Are Leaving the Big Firms in Droves
Forbes: Brokerage House Blues


Article originally published by The Motley Fool (09/28/2011), later on The Finance Base