Some small MGAs are determined to hold their own in a consolidating market

By Susan Yellin | November 27 2015 07:00AM

Shrinking margins, concern about increased and costly compliance and the potential outlay to get bigger have prompted many medium- and smaller-sized managing general agencies (MGAs) to sell their firms. But amid the ongoing flurry of consolidation in the industry stand a dwindling, but strong faction of MGAs determined to not only survive but thrive in the current environment.

One stalwart is Rod Millard who established Gryphin Advantage in 1998 shortly after the bulk of life insurers’ captive sales forces morphed into the distribution model. Millard says he brought with him a will to succeed and set a culture and tone to his MGA that he hopes will continue to set him apart from his larger competitors.

A former executive at a major national insurance company, Millard’s Hamilton, Ont.-based MGA provides access to life insurance products and mutual funds products from the major financial suppliers, as well as a training facility and compliance department.

Millard acknowledges that Gryphin is not in the same size league as Bridgeforce Financial Group, Financial Horizons Group, HUB Financial, IDC Worldsource and PPI Solutions. But while the Big Five MGAs seem relentless in their quest for one acquisition after another, Millard says there is enough room in the industry for the smaller MGAs – if they are prepared to take the extra steps necessary to survive.

“Look at the large insurance companiesManulife, Sun Life, Great-West Life. Like the ‘Super Five’ MGAs, they are dominant,” says Millard. “But there are a number of smaller insurance companies still around that are able to carve out a niche and do what is necessary to continue to do business in our marketplace.

The Super MGAs

“When it comes to MGAs, there are the ‘Super MGAs’ and ‘the rest of us.’ In my opinion, more important than anything else, it’s the will to survive that is the final assessment. Beyond the processing of business, the role of an MGA is to recruit, to train, to supervise and to motivate advisors. Super MGA or not, the role remains. And with compliance making these tasks so onerous, the challenge is a huge burden on the smaller MGA. But if the MGA owner has the will to persevere and is prepared to perform all these tasks, survival can be achieved.”

Owners of medium- and small-sized MGAs say the Super MGAs come knocking on their doors almost weekly. And with increasing concern that regulation may become too much, many smaller owners have decided to leave, says Jim Ruta, life insurance consultant, speaker and writer.

“Everybody feels they have to be everything to everybody so they keep getting bigger,” says Ruta. “So that means you can’t be just an insurance MGA, you have to be a mutual fund guy too, as well as everything else. So then you fall victim to a ton of regulatory pressure on top of that.”

For Robert Packman, who began Ottawa-based R.G. Packman & Associates group of companies 17 years ago, increasing compliance is one reason why he recently sold his firm to Financial Horizons. But Packman says there are a number of reasons why it’s becoming more expensive to do business as an MGA.

Shrinking margins

“In looking at what was going on in the industry over the past 17 years, the margins had shrunk. There was going to be a requirement from me to add more people and compliance over the next few years, which detracts from the bottom line,” says Packman. “The carriers were demanding more and more production to hit maximum overrides and as commissions were being driven up in the marketplace our margins started to shrink. So I had to make a decision.”

Packman says his firm had acquired other MGAs along the way, as well as a mutual fund dealership and a GIC deposit broker. As time went on, he realized he would have to make a conscious effort to get bigger or sell.

Packman, 59, said that would have meant injecting more of his own capital and borrowing more to make acquisitions, with no guarantee of success. Looking down the road a decade from now, he decided it was better for him to derisk and sell.

Those thoughts are on the minds of most, if not all, the medium-sized and smaller MGA owners these days, even at some family-owned firms where the pull of moving forward with a business started by kin is unique and strong.

 “I agree that tight margins and increased compliance is causing concerns,” says a senior executive at one family-run MGA.

But the executive says smaller, family-run organizations offer a more familiar atmosphere that the larger MGAs cannot duplicate.

“It’s an honour and a privilege to build on what was started by an earlier generation,” says the executive, who asked to remain anonymous. “We believe in others and how a team can come together.”

In the case of Kevin Miller, president at ABEX Brokerage Services Inc. in Calgary, it was his brother and sister-in-law who started the firm in 1986. Miller, 50, entered the MGA more than a decade ago after working at London Life. As well, ABEX has two other offices, one in Vancouver and the other in Barrie, Ont.

There have been requests from the larger MGAs to sell, but ABEX has resisted. Miller says ABEX is large enough to be important to its carrier relationships but not so large that it loses sight of its advisors.

Unlike some MGAs whose owners do not have a succession plan, ABEX has managed to attract the much coveted younger generation of advisors. Its offices in Barrie and Vancouver are run by younger partners and bring another level of relationship to the advisors with whom they are working.

“Our executive team too is a pretty young team with an eye on the future. So as advisors start to transition out of their business and younger advisors step into that practice, we feel we have a connection with those younger advisors because of our younger executive team who are mostly under 40. We feel there’s lots of opportunity in the MGA we’re in.”

An eye on expansion

Miller says he plans to stick around for a while yet, adding there is a lot of work ABEX can do with the industry, including expanding.

“We want to expand into other products. We’re also looking at expanding by buying other agencies that are smaller than us and that may or may not be on the radar of some of the Big Five. But we are definitely looking to expand.”

Gryphin’s Millard says he has firmly put into place a succession plan that promises the much-desired continuity that advisors who drive their business through his company deserve.

He also says Gryphin has had opportunities to buy other MGAs, but he personally believes this strategy would require a change of focus. By acquiring other MGAs, he says his company’s attention would be misplaced on spending time familiarizing new advisors to their new firm rather than servicing and nurturing the relationships he already has with Gryphin advisors – the ones, he says, “who brought Gryphin to the dance”.