So where’s the next big threat to brokers in the next 24 months? Healthcare reform? Pricing elasticity changes? Disruptive new market entrants? Disintermediation? 


Your success depends on your ability to adapt to a market that demands better, faster and cheaper services.

The continuity of your account team may sustain or undermine your agency’s brand equity.

Offices with less than 90% retention often choke on the resource-intensive process of onboarding new clients.

One might argue that, despite the uncertainties about downstream, market-based reforms, the die has been cast. Our success now depends on our ability to adapt to a consolidating market that is demanding our services become better, faster and, in many cases, cheaper. One unintended consequence, spurred by a relentless push for increased sales and productivity, could be playing out in an area of our business we can ill afford to mismanage—account management.

In 1988, J&H tasked a team to lead an organization-wide analysis of best practices that characterized high-performing, middle-market risk and benefits operations. We spent months developing a broad list of purported best practices—those business precepts we suspected to be key factors for achieving sustainable success.

Having mapped what some believed was the genome of brokerage success, we launched an enterprise-wide review of our best and worst middle-market operations to validate or refute the predisposed beliefs.

Our cohort included “Stars” and “Dogs.” These were the best and the worst—the offices characterized either by strong contribution margins and double-digit organic growth or by habitually underperforming practices with zero CAGR and poor profit margins.

The results were surprising. They dispelled some long-held institutional beliefs about what operating traits led to success or failure. In some instances, a universally perceived “best practice” was embraced equally by strong and weak operations. In other cases, poorer operations adhered to practices more than the high performers.

The findings fell into a few key verticals: leadership based on the size of an operation, sales force management, pricing of services, peer review, value proposition deployment, recruitment pipeline and, finally, the quality and engagement of account management. While many were heavily biased toward the notion that sales professionals anchored client relationships, it was very clear how much our office and brand equity were sustained or undermined by the quality and continuity of our account teams.

Our analysis revealed that offices with less than 10% unmanaged turnover in account-management personnel enjoyed better client retention. The loss of any multiyear client due to our own staff turnover required lost business to be replaced by new clients, which, in turn, meant higher first-year cost of sales and lower profit margins. Poor candidate pipelines meant internal disruption when staff turned over. Higher-performing account managers often had to double and triple up on at-risk cases until new staff members could be hired. In the interim, sales stopped, producers quit prospecting and redirected activity to customer retention, and the best people started burning out.

Offices with less than 10% unmanaged turnover in account management personnel enjoyed better client retention.

Offices that boasted 95% client retention rates did not need to sell as much new business to achieve gold standard, double-digit growth rates. Offices with less than 90% retention shouldered considerably higher new business pressures and often choked on the highly resource-intensive process of sourcing, writing and onboarding a higher volume of new clients. In an increasingly profit-driven environment, it was clearly less disruptive and more lucrative to keep an existing customer than it was to write a new client.

Never Can Say Goodbye

Our research also revealed the most common impetus for “not for cause” account losses. They arose out of bankruptcies and mergers and acquisitions. Meanwhile, “for cause” losses arose disproportionately from a change in personnel—either at the client or within our own staff.

Offices experiencing higher unmanaged account management turnover had corresponding higher rates of lost “for cause” business and lower trailing profit margins. These operations had consistently poorer morale, less definition in roles and responsibilities, weak candidate pipelines and poor talent development efforts around training and career development.

Poor performers seemed to live in a two-tier hierarchy where the producer was king and account managers were devalued as interchangeable supporting actors and actresses. We quantified that it was twice as expensive to write a new piece of business in the first year than it was to retain an existing client. An office with 95% retention and 15% sales had a significantly superior margin to an office with 80% retention and 30% new sales.

Margin pressure meant staff strung out across a mass of new customers and an income delay as commissions lagged behind the work required to attract a new account.
In poorly led offices, producers might have high-fived over a new piece of business while account managers quietly sank into deeper depression wondering how they could absorb yet another account with no additional staff support. Conversely, when a case was lost, producers grieved while account managers secretly smiled, recognizing their workload would diminish. In the top-performing offices, management made certain sales and account management were aligned. Sales never wrote a check that account management could not cash.

Offices that paid producers a percentage of revenues with no incentives to manage service cost often witnessed producers giving away value-added services as a means of trying to defend excessive remuneration or curry favor with a tough buyer. Low performers had no pricing of services protocols, and individuals who had no stake in the operating pressure set the cost of services. As value-added costs paid to third-party vendors passed through an office’s P&L, margins were further diluted, reducing the ability of the office to afford better account managers.

The review of operations also made it clear no best practice is a one-size-fits-all remedy. We had to distinguish between the needs of adolescent, smaller operations (less than $5 million in revenues), developing operations ($5 million to $15 million) and mature operations (more than $15 million). The characteristics of how an office sourced, sold, priced, managed and fulfilled its value proposition were leading indicators of its future success. Or failure. 

Some History Doesn’t Change

Twenty-seven years later, these findings remain as relevant as they were when they were tendered to our board. Healthcare reform, a soft p-c market, accelerated M&A, and the need for greater technical resources and tools have all raised the stakes for customer service.

Sales never wrote a check that account management could not cash.

While the margin expectations have not changed for public and private companies, demand for expertise has increased. Generalist producers are leaning more heavily than ever on account management, and business is being won and lost based on the ability of the day-to-day consultant/account managers to remain fluent across a range of value proposition capabilities. More and more, a firm’s expectations collide with operations challenges that arise from compressed margins, industry consolidation (and post-acquisition synergies), the standardization of process management, and a service delivery expectation that increases with each renewal.

One thing has not changed: Firms that invest heavily in attracting, growing and retaining strong account management have a higher probability of keeping clients and enjoying a more reference-ready brand. Firms that continue to tolerate a caste system in which account managers remain second-class citizens will be more vulnerable in a highly competitive workplace in which technically competent account managers will be in great demand.

A few tips to overcoming any disequilibrium between sales and account management: 

  • Consider paying your best account managers as a percentage of the book of business they handle. Vesting account managers in their book value aligns their incentives to keeping business with the firm.
  • Pay consultative producers more than generalist initiators. Many agencies compensate for new producer inexperience by teaming junior producers with more seasoned producers. Consider refocusing the revenue share away from senior producers and redirecting it in some fashion to senior account managers.  Revenue sharing helps overcome compensation inequities and keeps senior producers focused on driving new sales instead of living off of junior producer sales initiation. As go incentives, so goes behavior.
  • Reduce producer giveaways. Remember the old axiom: “If a client won’t pay for it, it’s not value added.” Assuming margins are a zero sum game, a 200 basis point reduction in sales expense can help finance your desire to invest more in account management.
  • Communicate, communicate and communicate again. In this period of mergers, rapid reorganizations and perpetual change, firms are getting larger and losing their one-degree-of-separation communication chain that was so valuable when the firm was smaller. Often account managers are tied more to an individual producer than the firm. It’s critical to develop multiple communication channels so account managers don’t have just one person to whom they turn to interpret changes. When management is distracted or insensitive to the need to explain corporate decisions, people often assume the worst. Make sure your account managers are effective communicators who maintain regular forums to clarify and convey key corporate messages.
  • Balance outside and homegrown talent. The highest-performing advisory operations have a balanced blend of outside talent and homegrown employees. It is demoralizing any time a firm must go outside to fill a key position. Junior people may misinterpret an outside hire as a message that they cannot get ahead or are not highly regarded. Going outside can be expensive, as you are often paying at or above market. Well-trained, homegrown employees who understand their career trajectories are loyal and consistently more profitable.
  • A word of caution: Organic talent tends to lag the market in remuneration, so it’s important that a firm does not let salary imbalances develop. Any employee will exhibit higher degrees of loyalty to firms that invest in training, helping them close skill gaps in an increasingly complicated risk and benefits environment. Account managers recognize that this human capital investment allows personal advancement—graduating from more repetitive, lower-value administrative support to more strategic front-line responsibilities. Finally, better-qualified managers make it harder for producers to book sit. Strong ones help push producers out the door to sell more, creating bigger books of business and more financial success for the producer and the firm.
  • Recognize how employee benefits revenues are booked. Well-run operations hire ahead of sales based on expected volumes of new business. A show-me-the-money syndrome that refuses to hire until expected revenues are fully booked can have a devastating effect on sales and service capacity. It can also accelerate burnout of account managers. Benefits revenues often lag completed work by as much as six months when taking into account new business acquisition work and projects completed prior to receiving a single dollar of revenue. A new account might require six months of full-time equivalent work with only one month of revenues booked. Couple this with first-year producer compensation and you can see the drag that benefits revenue can place on a P&L when compared to p-c economics. You have to trust the margin will recover as revenues begin to book. Warning: Producers always overstate new business, so discount expected commissions by 10% and hire account management on that basis.
  • Don’t try to homogenize benefits and p-c account management using identical expense metrics. The risk and benefits businesses are different, and the basis by which each business hires and deploys account management staff is dissimilar. The transaction of placing benefits coverage has been replaced by a cat’s cradle of consulting—service interventions, clinical reviews, managing unbundled vendors, audits and a proliferation of alternative design and financing projects. 

Ratios of account management spend as a percentage of total expenses vary dramatically, with smaller firms often paying three times the cost of account management for sales. These firms look for lower-paid, highly transactional service professionals and a spend of less than 8% of expenses for account support. This contrasts to more than 20% in technically resourced consulting firms, which typically have lower costs of sales and higher corporate overhead.

Increasingly, firms must add the cost of subject matter experts, such as claims, loss control, pharmacy, analytics etc., to the account management expense bucket. Margin is a zero-sum game, and as such any increase in account management must be exacted from some other part of the business.

The new account manager/consultant must recognize when to employ underwriting, financing, administration, implementation, issue resolution, actuarial and plan design. All are prerequisites to winning business in an increasingly advisory-based world. While many corporate decision makers remain generalists, they require specialists and expect highly responsive day-to-day service support.

As agencies seek to drive faster rates of organic growth, some are accelerating producer hiring and expanding new-business channels. Those investments inevitably lead agencies to hire generalist producers who are often tethered more by personal relationships than their own command of the business. As producers look more to account management to free them up to sell more business, the account manager becomes indispensable to enabling the sales and customer retention processes.

Off With Their Heads

There is pressure building in our business. As growth becomes harder to achieve in a mature risk and benefits advisory industry, headcount management and productivity gains become an agency’s primary means to expand or protect its margins. The choice between asking account management to do more with less or paying producers less for sales to afford to pay account managers for the expanding expectations will increase as a third-rail topic for debate.

Remember the old axiom: “If a client won’t pay for it, it’s not value added.”

In a time when service industry human capital is being displaced in favor of technology and process reengineering, account management is at risk of being devalued. Account management is the core of any healthy agency. If account professionals feel marginalized, turnover and poor morale will lead to producers shifting energies away from production to serve as surrogate managers on their own accounts. Sales will slip, and organic growth will be hard to achieve. In a symbiotic system of gaining and retaining business, both sales and account management are inexorably linked. In a business where relationships still matter and continuity of day-to-day relationships counts, we can’t make the mistake of underestimating the value of great account managers.

Thirty years later the best practice of creating a culture around strong account management still holds true. As with much in our business, it seems the more things change, the more they stay the same.