I know what you're thinking. Are you seriously publishing this for all the world to see? The subject of money is always touchy.
How an FMO gets paid – or how any of us gets paid – is just one of those things that's not talked about.
But, as you can tell, we're going there. From who pays who to chargebacks, you're going to learn more about how FMOs get paid than you probably care to know.
What is an FMO?
An FMO is a Field Marketing Organization. Some companies also call it an IMO, or Independent Marketing Organization, but it's still the same thing. It's really just whatever a company wants to call it.
NMO, or National Marketing Organization, is also the same thing, but it just lets people know you have a national footprint versus a regional footprint.
Years ago, there wasn't a market for an FMO because the insurance companies took care of it with captive agents. However, staff members require health insurance, a 401 (k), a salary, travel expenses... it gets expensive, and the insurance companies were looking for a way to get away from that model.
The reason FMOs exist is because most insurance companies got away from captive agents. (That's also why most insurance companies are led by lawyers and actuaries.) They were looking for ways to get more distribution, so they went to people like us who had built a strong agency and said, "Why not build a marketing company?"
So that's how New Horizons came to be, and that's how most other FMOs came to be.
How FMOs/IMOs Make Their Money
An FMO deals in volume.
An insurance company goes to an FMO and asks them to market their product. To be an FMO, you have to promise them however many millions worth of business. In exchange, that insurance company gives you a contract that's high enough to make an override.
It's not uncommon for an FMO to have a number they have to hit – say $4 million in production.
Does the Override Come Out of the Agent's Commission?
The override the FMO gets doesn't come out of what the agent gets. The insurance company pays the agent and the insurance company pays the FMO.
Is the Override Different on Different Products?
Yes, the override does fluctuate from product to product. Life products and ancillary products have a much higher override than a Medicare Supplement.
Do FMOs Get Charged Back Just Like Agents Do?
The FMO is also responsible if the agent does something illegal. For example, if the agent takes an advance and never places the policies, they can run off with the advance. Guess who has to pay that back? The FMO. That's actually happening to us right now.
That's also why most FMOs don't feel great about giving advances unless you're a proven, trusted producer.
Why Does an FMO Deserve an Override Anyway?
An IMO or FMO ought to have a staff in place to help with contracting, accounting, and in today's world, digital marketing. That's what separates a true IMO from a general agency.
If they're going to have a website, a quote engine, etc., that costs us money to produce and to keep it up and going.
FMOs help with leads sometimes, so lead costs, marketing campaigns, Christmas bonuses, etc.
You also have out-of-state license fees, and for every carrier, you have to pay that. For some states, if you don't think you're going to write much there, it isn't worth it.
If I'm an agent out here writing, I'm asking questions like:
- Does the FMO give you contests to win where you can win additional cash?
- Does the FMO have trips you can win that are coming from the FMO?
- Do they offer training?
All those things.
If an FMO is doing all that, they deserve an override. If they do nothing, I'm not sure they do.
Read more: Why New Horizons?
Why Not Become an FMO to Get the Highest Commission?
It's no secret that a great personal producer can put a lot of money in his pocket. However, new agents can sometimes be a bit naive in their thinking.
It's not uncommon for a new agent to say something like, "I'm going to write $30,000 in production, so I want the top contract!"
It just doesn't work that way. To have the top contract, we're talking in the millions.
Many personal producers are lucky to do $200,000. Most produce less than $50,000. To have a number of $3 or $5 million – that's why an FMO can get a top contract.
It Takes Money to Grow
Quite honestly, most people don't want to make the investment to get to that next level, which is an IMO or FMO. It's going to cost you money to get there. An agent has to decide – am I going to get out of personal production and get into management?
A personal producer also doesn't have to worry about all the other things you do when it comes to running an organization. However, the idea is if you can get big enough, you can make numbers you can never make on your own.
You gotta go big or go home. You can't be a small IMO.
I remember when John and I were an MGA (Managing General Agency), and we wrote about $400,000 per year. They said, "Listen, just keep going and hiring and it won't be long until you'll be writing $3-4 million per year."
I thought there was no way, but it turned out they were right.
It takes a while, and now we're right around $20 million in Medicare Supplement production.
It's been a good, gradual growth, and that's thanks to all of the hard-working, motivated agents we have out in the field. If you're reading this, thank you for helping us grow, and we sincerely value your friendship.