Why Commission Stinks when Obtaining Financial Products!

October 14th, 2012

Why Commission Stinks when Obtaining Financial Products!

The financial industry, from investments and insurance to mortgage and lending, has always relied heavily on agents or employees being structured as commissioned employees.  You might be asking yourself what this has to do with you and why it is important?

I personally have spent nearly twenty years in this industry and have had the opportunity to work in these commissioned environments.  I have built my own mortgage-banking firm, twice, in addition to working for independent companies, wholesale lenders to large and small community banks.  One common theme continually keeps coming to fruition.  One theme or truth, that continuously arises, is a direct result of the income structures these organizations employ (and other organizations in investments and insurance).  These practices are deeply flawed for many reasons.

Let me explain what I have learned through these experiences.  First, let me show you a working – successful - model of what this income stream or structure looks like.

Example 1: Commission Pay Flow Chart:

More business = more income and pay = employees meeting fundamental survival needs = more profit for an organization

You might be asking yourself what the problem is with this, because I did too.  It wasn’t until I factored in ALL the variables that I realized some fundamental problems.  Now, I am a fan of paying employees for production.   I am also a fan of paying employees on the results of their hard work including high customer service scores.  This is where it gets interesting.

Most employees in the financial industries sector - at least in sales - are not provided a living wage or base salary to support their families or selves.  Now, most companies will refute this statement.  However, in doing so, they leave out one key fact.  This fact is, that while companies who claim to provide this “living wage” do so in the form of a draw.  In almost all cases this draw, or living wage as it is many times called, is recoverable upon future commissions earned by an employee.  This means that the “living wage” is merely a way to avoid many loan officer pay rules or labor laws.  It is in essence a way to avoid the governance of employee pay.

So, having looked at this for a moment, lets now look at a working – unsuccessful – model of what this income stream or structure looks like and the impacts on you the consumer.

Example 2: Commission Pay Flow Chart:

> More time with a customer educating them appropriately =
> Less overall transactions (sales) =
> Less money and ultimately less profits for the financial entity =
> Less profit for share holders =

NET RESULT

> Less commissions for sales people (employees) =
> Inability to pay their bills when educating customers appropriately
(less income from sales compounded by no base income support) =
> Disengaged or actively disengaged employees =
> Customer experiences on the decline =
> A long term sustained loss of customers and revenue

Now, I am not saying that the mortgage and financial crisis of 2008 and 2009 are solely a result of this income structure.  What I am saying is that when an employee has no support through a living wage, they are forced to transact as much business as possible in order to meet their fundamental physiological and safety needs under Maslow’s hierarchy of needs.  The lack of this practice places that employee in a quandary.  It forces them to choose between spending the appropriate time with a customer educating them on the financial products they seek and providing for themselves and their families.

As a business owner, this creates a massive problem.  If you look at the year over year results of the Gallup Q12 survey results (a measure of employee happiness with their job and work), you will see the high percentage of employees who are disengaged or actively disengaged.  This practice is rooted in the Gallup results which state that today 71% of the workforce suffers from disengagement or active disengagement.

I have also spent years in my undergraduate and graduate work at Doane College exploring this exact subject.  Through my own research (and my business experience) I have corroborated the Gallup findings regarding employee happiness factors and engagement.  Additionally, You can read the research here under Matt Fuller’s e-portfolio.

At KeneXsus, our mission is to help you become educated about the financial products you obtain independent from someone who may be forced to choose between doing so and feeding their families.  It is unfortunate that the business community and the public have come to this cross roads, but it is a reality a consumer today must face.  So, take charge of your financial education and future today by utilizing the KeneXsus approach.

The KeneXsus Team