If I Could Change One Thing About the Insurance Industry, This Would Be It
Here is a question I have been asking a lot of advisors lately. If you could snap your fingers and change one thing about the financial services industry, specifically inside the insurance space, what would it be?
I’ll start.
Transparency from the bottom up.
I want to be clear about what I mean, because “transparency” is one of those words the industry loves to throw around without ever quite defining it. So let me back up a step and lay out how the chain of accountability actually works in this business.
If you draw the hierarchy on a whiteboard, it looks like this. At the top, you have the insurance carrier. Below the carrier, the IMO. Below the IMO, the advisor. And at the bottom of the stack, the client.
Insurance carrier. IMO. Advisor. Client.
That is the order, top to bottom.
Now here is what is strange. There is a growing movement in this industry asking advisors to be more transparent with their clients. I support that movement. Clients deserve to understand what they own, what they are paying, and how the person sitting across the desk from them gets compensated. No argument from me. If we want this industry to earn back the trust it has lost over the last twenty years, advisor-to-client transparency is non-negotiable.
But here is the question I cannot stop asking.
Why is all of the pressure pointed at the advisor?
Why is there so much focus on the advisor being transparent with the client, and almost zero pressure on the insurance carrier and the IMO to be transparent with the advisor?
The advisor is the only one in the chain who is being asked to lift the curtain. Everyone above them gets to stay behind theirs.
That asymmetry is, in my opinion, the single biggest problem in the insurance industry today. And it is the one I would fix first.
What carrier transparency could actually look like
Let me give you a concrete example. Take any indexed annuity or fixed indexed life product on the market right now. Inside that product, there are usually multiple index options. A 1-year point-to-point on the S&P 500. A 2-year monthly sum. Some flavor of buffer or floor. A handful of proprietary indices that did not exist five years ago.
Each of those options has a cap rate, or a participation rate, or a spread. Those rates determine how much of the index’s return the client actually gets credited.
What if carriers were required to disclose how much they are spending, in basis points or in raw dollars, on the options budget that funds each of those index strategies?
Right now, advisors do not see that. We see the cap rate. We see the participation rate. We see the marketing one-pager. We do not see the budget.
So here is the question I keep coming back to. Do you think that if carriers had to disclose what they were actually spending on each option inside the product, we might stop seeing this pattern where caps and participation rates start out unsustainably high at launch and then drop sharply in year two or three, right after the client is locked into the contract?
I think we would. Because the whole game of “introductory rates” only works when nobody can see the math. Sunlight changes the math.
This is not a wild idea. Mutual funds have to disclose their expense ratios. ETFs have to publish their prospectus. The 401(k) world has been forced into disclosure regimes for years. Indexed products are one of the last corners of the financial services world where the actual cost structure is essentially invisible to the people selling the product and recommending it to clients.
Imagine being an advisor who could actually compare two carriers’ options budgets side by side. Imagine being able to look a client in the eye and say, here is what this carrier is spending to fund this strategy, and here is what their competitor is spending, and here is why I am recommending one over the other. That is real transparency. That is informed advice. We do not have that today.
What IMO transparency could actually look like
Now let’s walk down one rung in the hierarchy.
The IMO sits between the carrier and the advisor. The IMO’s pitch to the advisor, in some form or another, is always the same. We are your partner. We have your back. We earn our keep by adding value.
I have spent the last 16 plus years inside this business, and I have sat in hundreds of conversations with advisors about their IMO relationships. Here is what is true. Most advisors have no idea what their IMO is actually making off of them.
So what if IMOs had to publish, on a regular basis, two specific numbers for every advisor under contract?
Number one. How much the IMO earned in overrides and bonuses on that advisor’s production for the month.
Number two. How much the IMO actually spent on that advisor in any non-cash compensation, including the rewards trip, the conference, the marketing reimbursement, compared to what they 1099’d the advisor for at the end of the year.
Just those two numbers. Published monthly. To the advisor.
Do you think that might change how the IMO shows up for that advisor every day?
I think it would, and here is why. The current system is built so that the IMO knows exactly what the advisor is producing for them, but the advisor has no visibility into what they are producing for the IMO. That information asymmetry is the entire reason an advisor can be the top producer at an IMO and not get a call back about a question for three days, while a lower producer who happens to be friends with someone in management gets the red carpet treatment.
Transparency forces the IMO to actually compete for the advisor’s business every single month. Not just at the recruiting dinner. Not just at the rewards trip. Every month.
The rewards trip example nobody talks about
Let’s talk about the rewards trip for a second, because it is one of the cleanest examples of the asymmetry I am describing.
The IMO sends the advisor a 1099 at the end of the year. The number on that 1099 represents what the IMO claims the trip was worth. The advisor pays taxes on that number. Now, what the IMO actually spent on that advisor’s portion of the trip can be a very different number. Sometimes it is higher. Sometimes, in my experience, it is meaningfully lower. The advisor does not get to see the receipts. They just pay the taxes on whatever number the IMO assigns.
If you are an advisor reading this, I would invite you to go ask your IMO for an itemized breakdown of what they actually spent on you for the last rewards trip you attended. Not the 1099 number. The receipts. See how that conversation goes.
I am not saying every IMO is gaming this. I am saying the structure of the relationship gives the IMO every reason to keep the advisor in the dark on it, and there is no force in the industry compelling them to do otherwise. That is the problem.
The one IMO doing it right
Out of the 350 plus IMOs in this industry, do you know how many I am aware of that tell every advisor, every month, exactly what they earned in overrides and bonuses from that advisor’s production?
One.
That is not a typo. One.
And here is the thing that should make every IMO executive in this country uncomfortable. That IMO has the lowest turnover rate of any IMO I know of in the business. Their advisors do not leave. They do not get poached. They are not constantly being recruited because they are not constantly looking.
Why? Because their advisors know exactly what they are worth to the firm. They can see it. There is no hidden math. There is no game. There is just a number, sent every month, that says, here is what you earned us, and here is what we earned because of you.
That model is not impossible. It is not even hard. The accounting is already being done. The data already exists. It is just not being shared.
The reason it is not being shared at the other 349 plus IMOs is that visibility costs the IMO leverage. And leverage is what most IMOs are quietly built on.
Why this matters for the client
Now here is the part of this argument that I think gets missed.
The push for advisor-to-client transparency assumes that the advisor is the source of opacity in the relationship. In some cases, sure. There are advisors who are not transparent with their clients, and they should be held to a higher standard. I am all for it.
But in a lot of cases, the advisor is not opaque because they want to be. They are opaque because they themselves have been kept in the dark by the carrier and the IMO. You cannot disclose what you do not know. You cannot explain a cost structure that has been deliberately hidden from you.
True transparency at the client level is impossible until we have transparency at every level above the client. That is what I mean by transparency from the bottom up. It is not just about the advisor lifting the curtain for the client. It is about every layer in the stack lifting the curtain for the layer below it.
Carrier transparency for the IMO. IMO transparency for the advisor. Advisor transparency for the client.
If we get that, the entire industry gets cleaner. Bad actors get exposed. Good actors get rewarded. Products get better because they have to compete on actual economics, not on marketing language. Advisor and IMO relationships get healthier because the advisor finally has the data to evaluate whether the partnership is actually working for them. And clients get better outcomes because the person advising them actually understands what they are recommending.
Your turn
So that is my one snap-of-the-fingers change. Transparency from the bottom up.
What would yours be?
I am genuinely curious. If you are an advisor, an IMO leader, a carrier rep, or a client of any of the above, what is the one thing you would change if you could? Send it to me. The best ones might make their way onto the podcast.
And if you want to talk through how to evaluate the IMO relationship you are currently in, with a clear set of questions designed to surface exactly the kind of asymmetry I described above, that is the conversation I have with advisors every week at Beyond The IMO. Book a private strategy conversation and let’s get into it.
Justin Woodbury is the founder of Beyond The IMO and host of the Beyond The IMO Podcast. He has spent 16 plus years working alongside elite independent financial advisors, helping them scale practices while maintaining true independence. Listen to the podcast here or learn more about working with Justin here.