Now, Northwestern Mutual, a 168-year-old financial services behemoth, has taken the lead to become the poster child for that opportunity for recent college grads. So far, the company’s forecasts have been pretty ambitious. They claim that their financial advisers can make $120,000 in their first year and $1 million by 32. But for most people who come on board at this Fortune 500 company, reality looks quite different.
Northwestern Mutual positions its financial advisers as “expert listeners” and “trusted partners.” Yet the opposite is true—more than 90% of advisers depart the firm. This alarming figure raises questions about the viability of the company’s long-term recruitment strategies. Its intention to recruit an additional 5,000 new reps and advisers this year compounds the worry.
The promise of lucrative pay and career advancement lured droves of ambitious would-be financial advisers. For many graduates, the picture is more complicated and painful, which includes financial burden and a damaged social life. As former Council of Economic Advisers chairman, Jeremy, put it very succinctly, “You’re losing money and starving to death. You’re either accumulating student debt, or you’re moving in with mom and dad.”
The Promise of Wealth
Northwestern Mutual’s recruitment strategy is deeply predicated on that expectation. New financial advisors are lured in by the tempting prospect of making $120,000 their first year. PP projections even predict their lifetime earnings may reach $1 million by age 32. This captivating story helps frame Northwestern Mutual as a compelling choice for young professionals who want to achieve financial freedom.
Deeper than these dazzling numbers is a sobering truth. Those getting recruited in are lured by the prospect of riches. They soon see that the road to achieving it is a treacherous one.
“It felt like the survival of the fittest.” – Jeremy
Many new advisers encounter intense learning curves and competition from fellow newbies. With high commission payouts on whole life insurance policies—approximately 100% of the annual premium—there is significant pressure to succeed quickly. One-half of the commission is deferred for 10 years and only paid if the advisers stay at Northwestern Mutual.
The High Cost of Recruitment
Northwestern Mutual ranks 109 on the Fortune 500 and has been recognized by Fortune magazine as one of the World’s Most Admired Companies. The company has struggled with high turnover among its advisers. Our most recent internal survey revealed that 94% of interns feel that their experience contributes to their personal and professional development. Most of them quickly end up leaving the organization jaded and cynical.
As Cole, my former boss and adviser, put it in a deceptively simple but piercing observation, “Insurance runs the show.” He cautioned that the emphasis on selling insurance sometimes distracts from the overall goal of financial advising. Most advisers will tell you that they feel cut off from their peers and families because the hours are so intense and all-consuming.
“You turn into a stoic human being. You really have to choose your Northwestern career over the friendships that you used to have.” – Jeremy
Isolation is hard on relationships too. As one-time advisers noted, buddies turned out by Northwestern’s unorthodox management shoved a block on them.
The Ethics of Sales Practices
Real concerns about Northwestern Mutual’s sales practices have been raised throughout the years. In 2004, regulators fined the company $1 million for portraying whole life insurance in an unbalanced manner without appropriate discipline for trainers involved. This incident raises questions regarding the company’s ethical guidelines for recruitment and training.
Northwestern Mutual believes life insurance is the foundation of sound financial planning. Critics argue that few clients have a full grasp of what it is they’re really purchasing. Brendan, one of our former advisers, underscored that the typical citizen is not going to sift through a 60-page packet. He thinks they’ll never be able to tell when he’s selling to them versus when he’s selling in their best interest.
This sentiment comes as a breath of fresh air and raises important questions about transparency and consumer protection within the industry.