Disclosure: Michael Relvas, the owner of MR Insurance Consultants is a paid advertiser on this blog. This post is a loose transcript of an interview I had with him recently. Although this isn't a “paid-for” post, I do appreciate it when you support those who support this website. Please let them know you learned about them here. You can read more about my financial conflicts of interest here.
Mr. Relvas makes more than 90% of his income by selling disability and life insurance policies. Although he can and does sell policies for many different companies, he has a significant association with Guardian, and does about 60% of his disability insurance business with them. Just like me, he doesn't provide legal or tax advice.
Tell me about yourself and your business.
I graduated from college in 2006 and after looking at the major wirehouses, was eventually able to land in a small office with a couple of guys who were really doing insurance sales and financial planning the right way. They sat me down at the beginning and explained what people really needed and what they really didn't. I didn't realize at the time what a huge benefit that was to me. I agree with what you've written on your blog that 95% of the “financial advisors” out there really aren't. So I kind of followed these two around for 3-4 years figuring out the business and gradually starting to do it on my own.
I recently went through the Georgetown Certified Financial Planner (CFP) program and passed the CFP test, which I think was really beneficial, and perhaps better than just doing the course over the internet. I felt like it really helped solidify the relationships between insurance, investment, estate planning, and financial planning in my mind. I've found I really like doing more comprehensive financial planning and am moving my practice in that direction. I am basically building a practice that allows me to do what I enjoy (provide smart people full-on comprehensive financial planning) without doing two things I don't- cold calling and feeling like I'm pushing or selling something that people don't need. I much prefer when people come to me, seeking my help. So I've been trying to build a bit of a web presence through my website, press releases, articles, and ads like the one on your site. [It's over there on the left.] The people who find me over the web are already smart enough to know they need disability or life insurance and just need a little advice and want to be treated fairly.
Tell me about how you make money.
80% of my revenue comes from disability insurance sales commissions, 10% more comes from term life insurance sales commissions, perhaps 2% from permanent life insurance commissions, and the remainder from financial planning and asset management fees. Since I'm associated with Guardian, they set minimums on what I can charge on an assets under management basis, so my fees vary between 0.25% and 1% depending on dollar amount. I don't have a minimum amount of assets, however. Obviously if the portfolio is really small, I just charge more for the financial planning piece. But it is all transparent and fee-only. I'm doing really quite a comprehensive financial plan for people right now for $250. [That's what Vanguard charges for its plan that has been criticized as “cookie-cutter.”] I offer DFA funds for those who prefer a passive approach and Curian Capital portfolios for those who prefer active management. Or, if the person prefers, we can mix and match from various other companies, including Vanguard.
I've always wondered, exactly how much are those insurance commissions?
Well, it differs by insurance company and by how much insurance business you produce for them. But a pretty typical commission for a disability insurance policy is that I'll get 50-70% of the first year's premium, and 10-15% of the premiums for the next 9 years. Usually that's it, but some policies will pay you 2% or so a year even after the 10 year mark. [Ed. Comment: Doing the math, the agent/salesman for a $10,000/monthly benefit policy would get something in the ballpark of $7700, half in the first year and half over the next decade. So don't feel badly about using some of his time to better understand your policy!]
Life insurance works on a similar basis. 40-80% of the first year's premium and then 5-10% after that (but only on permanent policies). A common misconception is that a permanent life insurance policy pays the agent more than a term life insurance policy. That's really not true. I typically get about 80% of the first year's premium for term life, but only about 60% of the premium for a permanent policy. So I make a lot more money [at least in the first year] from selling someone a $1 Million term life insurance policy than from selling them a $50K whole life insurance policy. I suppose if I could get someone to buy a $1 Million whole life insurance policy I'd make more, but even those few who want or need these policies usually don't want or can't afford that much.
Next time we'll continue with a discussion of how to make a claim on your disability policy.