Here at Retirement HQ, our proudest accomplishment is the network of independent financial professionals we’ve built who have the experience and expertise to help create retirement plans that are customized and well-suited for our clients. What we’ve found, though, is that many of our clients don’t actually know what being an independent financial professional means and how the distinction could affect their plan for retirement. So let’s take a moment to explain it.
When it comes to purchasing an insurance product like an annuity, there’s generally two kinds of agents you can go to: a captive agent or an independent agent. The trend in insurance sales is moving toward independent. In 2014, 50% of agents who left their company chose to go independent, with “seeking out better options for clients” as the most common cause.1 This is because an independent advisor or agent has a bit more flexibility than a captive one. Of course, that doesn’t mean you should rule out ever using the services of a captive agent, as there are benefits to working with both types of agents.
What’s a Captive Agent and When Should You Consider One?
A captive agent works for a specific insurance company and only sells that insurance company’s products. They might be an independent contractor of that company or a regular employee, but what determines if they’re “captive” is what they’re allowed to sell.
They can be a good option for buying directly from a company, as long as you have an idea of exactly what you’re looking for. For example, if you want some car insurance, and you know exactly the coverage you need and what you want to pay, you might choose to go with a specific company to buy it. That company’s representative would be a “captive agent” who only offers that company’s line of products.
There are some benefits to this: Captive agents have specific, in-depth knowledge of that company’s policies and products and might be able to offer discounts and savings that the person may have missed. This makes them a good choice if you know you want to work with a specific insurance company. But what if you don’t know what you want or need? In that case, you might want to look into meeting with an independent agent.
When You Should Consider an Independent Agent
If you don’t know specifically what you want or need for your retirement planning, then you may want to go with an independent agent who can support a wide range of options. Because they’re independent, they’re able to offer an array of items from various companies that can help meet your needs, regardless of your stage in retirement planning.
Usually, the independent agent will meet with a new client, go over their financial information, and then offer choices from several different providers. Some agents might be more experienced in one area, like annuities, but they will offer those options from a variety of companies. Independent agents can be found throughout the financial industry, working through banks, insurance companies, brokerage firms, and more.
Depending on what they offer, the agent might have a large range of certifications — from being a certified financial planner to a certified public accountant. For selling certain items like variable annuities or stocks, they must have certain industry level certifications as well and be registered with a broker/dealer or as an investment advisor as well.
One key thing to remember is that an independent agent is independent because of the products they sell, and not how they get paid. Commissions are standard for captive and independent agents, so how the agent gets paid isn’t always an indication of whether they’re captive or independent.
Where Commission Fits In
Most insurance agents make money in commissions in one form or another. A captive agent will generally receive a base salary from the company they represent plus a small percentage of commission. They might also have quotas to meet, which generally means that they work with higher volumes of policies than an independent. This might not allow them as much time for creating personal relationships with clients.
Depending on the products being sold, an independent agent might charge a fee for their service, might work solely on a commission basis, or might do a little of both if they are selling investment products as well. This is important, as people often mistake agents who receive commissions as those who are captive agents.
How the agent is paid does not determine whether they are captive or independent agents. Simply stated, captive agents can only sell products from a contracted company. Independents can sell products from any company they want. The types of products that both captive and independent agents sell are dependent on the licenses and certifications that they hold. Both are likely to receive commissions for the products they sell. It’s what they’re allowed to sell that determines the difference between a captive advisor and an independent.
The financial professionals in Retirement HQ’s network fall under the umbrella of independent agents, in that they don’t represent one specific company. If you think that an independent agent would be a good fit for you, you might want to take the opportunity to review some of the testimonials of satisfied clients to see how an independent agent can help you reach your retirement goals.
By contacting RetirementHQ, you may be offered information regarding the purchase of insurance products. All of our financial professionals are licensed insurance agents. Additionally, some individuals may also be registered with a broker/dealer or as an investment adviser.