MLM Financial Model Overview

Part
01
of two
Part
01

MLM Financial Services: Size

Available information suggests that the number of financial advisors in the United States MLM-model financial advisory space is in the region of 163,809. This is based on the assumption that Primerica, World Financial Group, and Transamerica Financial Group Division have the lion's share of the market. While the total number of clients could not be reliably determined given the limited information on the subject, available figures suggest that the number of active client accounts is less than 10 million. The historical growth of Primerica's number of representatives and clients suggests as well, that the total number of advisors and clients in the market is likely to grow in subsequent years.

METHODOLOGY

As information on MLM-model financial advisory services is scarce and credible reports or articles covering the topic are unavailable, we looked at the three sample companies provided, Primerica, World Financial Group, and Transamerica Financial Group Division, and gathered insights from these companies' disclosures. We scoured these companies' websites for information on the number of financial advisors and the number of clients. There were differences in labels, with Primerica calling its advisors sales representatives and the World Financial Group calling its advisors entrepreneurs, but overall, we were able to find the companies' current number of advisors and clients. To determine if the number will likely grow in the future, we referred to Primerica's historical data. As Primerica is a public company, its most important metrics, including the number of representatives and clients, are readily available. Please note that we searched for similar companies and these three companies' competitors, as Primerica, World Financial Group, and Transamerica Financial Group Division are likely not the only players in the space. The companies that turned up, however, are non-MLM insurance companies, so we assume that the three companies have the lion's share of the market and their performance is indicative of the market's performance.

NUMBER OF ADVISORS

130,736 + 60,301 + 3,339 = 194,376

Neither Primerica nor the World Financial Group have disclosed the number of financial advisors they currently have in the United States, but given that at the end of 2016, 97,827 of 116,827 Primerica's sales representatives were based in the United States, we estimate that the United States accounts for 84% of the sales force.

97,827 / 116,827 x 100% = 84%

Applying this percentage to the sales forces of Primerica and World Financial Group, we estimate that Primerica and World Financial Group have 109,818 sales representatives and 50,652 entrepreneurs, respectively, in the United States.

130,736 x 84% = 109,818
60,301 x 84% = 50,652

Summing up Primerica, World Financial Group, and Transamerica Financial Advisors's sales forces in the United States, we get 163,809 representatives, entrepreneurs, or advisors.

109,818 + 50,652 + 3,339 = 163,809

NUMBER OF CLIENTS

Primerica has more than two million client investment accounts and around five million lives insured as of December 31, 2018. Meanwhile, the World Financial Group has disclosed that, in 2017, it had helped 415,497 families "prepare for a better financial future." It also disclosed that it has helped a total of around 3.5 million families since 2001. Transamerica Financial Advisors, on the other hand, has disclosed that it has over 300,000 customer accounts as of January 2019. Unfortunately, as far as Primerica and World Financial Group are concerned, we have no means of isolating the portion accounted for by the United States. The numbers reported by Primerica and World Financial Group are inclusive of both the United States and Canada. Also, as the numbers disclosed by the three companies are in different units, we could not add them up.

INDICATORS OF GROWTH

While there are no reports in the public domain that readily provide how the number of clients or advisors will grow, the historical growth of Primerica's number of clients and representatives offers some insights. Given that Primerica appears to be the largest of these MLM financial services organizations, its numbers may be indicative of the overall market in the country. Primerica's latest annual report shows that its number of sales representatives in North America has grown steadily in the past five years. As can be seen below, the company's number of sales representatives had increased from 98,358 in 2014 to 130,736 in 2018. This means that the number of sales representatives had grown at a CAGR of 7.4% during the period 2014-2018.

2014: 98,358
2015: 106,710
2016: 116,827
2017: 126,121
2018: 130,736

CAGR = ((130,736/98,358)^(1/4)-1) x 100% = 7.4%

This may be a sign that the overall number of advisors in the United States market for MLM-model financial advisory services is on track to grow in subsequent years. Primerica's number of clients in the past five years has increased as well, with the number of lives insured growing from over 4.3 million in 2014 to around five million in 2018. Primerica's number of client investment accounts had grown too from around two million in 2014 to more than two million in 2018.

For comparison purposes, the number of employees in the United States financial planning and advice industry grew at a CAGR of 2.8% in the past five years, according to IBISWorld. Employees, in the context of IBISWorld's report, may pertain to office employees, however, as financial advisors are typically independent contractors.
Part
02
of two
Part
02

MLM Financial Services: Market Share

While there is not enough information in the public domain for the amount and market share to be triangulated, Primerica's performance suggests that the amount managed by MLM-model financial advisors in the United States is likely to grow in the coming years. The company's in-force term life insurance face amount, issued term life insurance face amount, client asset value, and sales have all grown in the past five years. A leading company in the space, Primerica has USD 781 billion of term life insurance face amount in force and USD 57.7 billion in client asset values.

METHODOLOGY

In answering this request, the first thing we did was check if market research firms have published reports on the United States market for MLM-model financial advisory services. This initial step did not produce relevant results, however, so we proceeded to look for segmentations of the financial advisory services market or the MLM market. A market segmentation could enable us to do a top-down analysis. Unfortunately, this change in strategy proved futile as well. We were unable to find any helpful segmentation. IBISWorld has a report on the country's financial planning and advice market, but it does not contain any information on the MLM segment.

To gain a better understanding of the market, we examined the websites of sample companies Primerica and World Financial Group. Reviewing the websites of Primerica and World Financial Group, we learned that these two companies do not describe themselves as providers of financial advisory services. Primerica describes itself as an independent financial services organization that, on behalf of third parties, distributes term life insurance, mutual funds, annuities, and other financial products. It has a network of independent sales representatives instead of financial advisors. The World Financial Group, on the other hand, describes itself as a financial services marketing business that distributes a broad range of financial products and services. It has entrepreneurs or affiliates instead of financial advisors. The two companies do not describe themselves as MLM companies due perhaps to the negative connotations associated with MLM. The World Financial Group describes its business model on its website though, and a Seeking Alpha article describes Primerica as "comparable to a multi-level marketing firm."

Armed with a better understanding of the services that Primerica and World Financial Group provide, we proceeded to look for the revenues and market shares of these two companies and Transamerica Financial Group Division. We figured we could use the revenue and market share of any of these two companies to triangulate the size of the MLM segment. The market share of Primerica, World Financial Group, or Transamerica could not be located in the public domain, however, and all that is available are the revenues and Primerica's share of the life insurance market. An attempt to triangulate the revenue of the market for insurance and securities brokerages, using NAICS codes and the AmericanFactFinder, was made as well, but the portion accounted for by companies using the MLM model could still not be ascertained.

As a bottom-up analysis is not feasible as well given the scarcity of data, we resorted to examining Primerica's financials for insights on the total amount the company manages. Unlike World Financial Group and Transamerica Financial Group Division, which are both part of much bigger companies, Primerica is a public company, and its financials are readily available. Primerica's performance may be indicative of the performance of the market it operates in.

TOTAL AMOUNT MANAGED

While Primerica does not provide an industry overview in any of its publications, it recently disclosed that it has USD 781 billion of term life insurance face amount in force and USD 57.7 billion in client asset values. Primerica's revenue in 2018 was USD 1,899.843 million, and the breakdown of this revenue was: term life insurance (USD 1,123.200 million), investment and savings products (USD 655.076 million), and corporate and other distributed products (USD 121.567 million). We note, however, that these figures cover both the United States and Canada. Primerica's revenue in the United States in 2018 was USD 1,607.140 million, accounting for the bulk of the company's total revenue. The World Financial Group, in contrast, has around USD 50 million to USD 100 million in revenue. Similar to Primerica, the World Financial Group has operations in the United States and Canada.

Primerica describes itself as a leading provider of financial products but unfortunately, how big or small Primerica is compared to the whole MLM market for financial advisory services could not be ascertained. In early 2017, Primerica accounted for only 1.38% of the country's life insurance market.

SHARE OF FINANCIAL ADVISORY MARKET

As the total amount managed by MLM-model financial advisors could not be determined and there is limited information on the topic, MLM's share of the country's financial advisory market could not be triangulated. IBISWorld estimates, however, that this year, the size of the financial planning and advice market in the United States will be around USD 60.4 billion, with the amount encompassing business and government financial planning and investment management, personal financial planning and investment management, trust products, brokerage, and others. The revenues of insurance brokerages and securities brokerages in the United States were USD 106.8 billion and USD 120.4 billion, respectively, in 2012, according to the American FactFinder. Unfortunately, the Census Bureau has not released more recent figures.

GROWTH INDICATORS

Primerica's recent performance suggests that the amount of money managed by MLM-model financial advisors or agents will grow in succeeding years. As can be seen below, even though Primerica's sales of investment and savings products dropped in 2016, total client asset value dropped in 2018, and issued term life insurance face amount dropped in 2018, Primerica's term life insurance face amount in force steadily increased during the period 2014-2018.

Term Life Insurance — Total Face Amount in Force
----

CAGR: (USD 781.0 billion/USD 681.9 billion)^(1/4) - 1 = 3.45%

Term Life Insurance — Face Amount Issued
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CAGR: (USD 95.2 billion/USD 69.6 billion)^(1/4) - 1 = 8.15%

Investment and Savings Products — Total Client Asset Value
---

CAGR: (USD 57.7 billion/USD 48.7 billion)^(1/4) - 1 = 4.33%

Investment and Savings Products — Sales
---

CAGR: (USD 7.0 billion/USD 5.7 billion)^(1/4) - 1 = 5.27%

The total face amount in force, the total face amount issued, the total client asset value, and the sales had all grown during the period 2014-2018

Sources
Sources

From Part 01
Quotes
  • "We distribute primarily on behalf of third parties. We insured approximately five million lives and have over two million client investment accounts as of December 31, 2018."
  • "We rank among the largest providers of term life insurance in North America with a sales force of life-licensed representatives numbering 130,736 at the end of 2018, of which more than 25,000 are also licensed to sell mutual funds and investment products."
Quotes
  • "We insured approximately five million lives and have over two million client investment accounts at December 31, 2017."
Quotes
  • "We insured approximately five million lives and have over two million client investment accounts at December 31, 2016"
Quotes
  • "We insured approximately five million lives and have over two million client investment accounts at December 31, 2015."
Quotes
  • "We insured more than 4.3 million lives and maintained approximately two million investment accounts on behalf of our clients at December 31, 2014. "
Quotes
  • "In 2017, WFG business owners helped hundreds of thousands of families prepare for a better financial future."
Quotes
  • "At the end of 2016, the company had 97,827 sales reps in the US. "
From Part 02
Quotes
  • "Primerica (NYSE: PRI) is the largest independent financial services organization in North America, serving middle-income households in the U.S., Canada and the territories of Puerto Rico and Guam."
  • "Primerica's core operations focus on the distribution of term life insurance, which is underwritten by the Company (Primerica Life Insurance Company); mutual funds and annuities through PFS Investments, a Securities and Exchange Commission-registered broker-dealer investment adviser affiliate; as well as other financial products, which are distributed primarily on behalf of third parties. Its product and service offerings are generally intended for middle-income consumers with household incomes of between $30,000 and $100,000 (both USD) per year."
Quotes
  • "World Financial Group, Inc. (WFG) is a financial services marketing company whose affiliates offer a broad array of financial products and services. "
Quotes
  • "Primerica, Inc. (“Primerica”, “we”, “us” or the “Parent Company”) is a leading provider of financial products to middle-income households in the United States and Canada with 130,736 licensed sales representatives as of December 31, 2018. This network of independent contractor sales representatives (“sales representatives” or “sales force”) assists our clients in meeting their needs for term life insurance, which we underwrite, and mutual funds, annuities, managed investments and other financial products, which we distribute primarily on behalf of third parties. "
Quotes
  • "Primerica does not operate like many other insurance and financial services firms. The business model is more comparable to a multi-level marketing firm which just happens to sell some insurance and financial products. "
  • "At the end of 2016, the company had 97,827 sales reps in the US. According to the most recent BLS statistics, there are a total 351,300 licensed life insurance agents in the United States. Primerica, with 97,000 life agents, has 28% of ALL life insurance agents in America but has just 1.38% of life insurance market share. "
  • "Sales representatives are independent contractors building and operating their own businesses. This approach means that sales representatives are entrepreneurs who take responsibility for selling products, recruiting and developing sales representatives, setting their own schedules and managing and paying the administrative expenses associated with their sales activities."
Quotes
  • "This industry comprises establishments primarily engaged in acting as agents (i.e., brokers) in selling annuities and insurance policies."
Quotes
  • "This industry comprises establishments primarily engaged in acting as agents (i.e., brokers) between buyers and sellers in buying or selling securities on a commission or transaction fee basis."
Quotes
  • "Our innovative business model helps entrepreneurs succeed together and avoid the obstacles that plague traditional financial services businesses. "