Q2 2019 Earnings Call
Q2 earnings results conference call and webcast.
All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session.
If youd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If youd like to withdraw your question press the pound key thank you.
I will now turn the call over to Nicole Russell head of Investor Relations Mrs. Russell you May begin your conference.
Thank you Jack and good morning, everyone. Welcome to Primerica's second quarter earnings call a copy of our earnings press release, along with materials relevant to today's call are posted on our Investor Relations website.
Investors that primerica dotcom.
Joining our call today are Chief Executive Officer, Glenn Williams, and our Chief Financial Officer, Allison Rand, Glenn and Alison will deliver prepared remarks, and then we will open the call up for questions.
During our call some of our comments may contain forward looking statements in accordance with the Safe Harbor provisions of the Securities Litigation Act.
Excuse me our Securities Litigation reform.
The company does not assume any duty to update or revise these statements to reflect new information. We reference you to our most recent Form 10-K filing as modified by subsequent Form 10-Q filings for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied.
We will also reference certain non-GAAP measures, which we believe provide additional insight into our company's operations reconciliations of non-GAAP measures to their respective GAAP numbers are included at the end of our earnings press release and are available on our Investor Relations website I would like now I would now like to turn the call over to Glen.
Thank you Nicole and thanks, everyone for joining us today.
I'll focus my prepared remarks today on the highlights from our most recent quarter then offer some early observations about our biennial convention and Allison will review our financial results.
Turning to slide three in our presentation deck, you can see we reported another quarter with strong financial results adjusted operating revenues increased 7% to $501 million adjusted net operating income and diluted adjusted operating EPS were up 10% and 14% year over year, respectively, and adjusted operating our away he was 25.1%.
These are exceptional results with all time highs and adjusted operating revenues adjusted operating earnings per share and adjusted operating our away. He just to name a few.
We also set new records in our I.S.P. business with record sales and client asset levels.
In addition, we continue to execute our capital deployment plan by repurchasing $57 million of common stock in the second quarter for a year to date total of $111 million.
We expect this pace of repurchases to continue through the second half of the year.
The second quarter's distribution results can be seen on slide four recruiting was up 13% during the quarter, reflecting the impact of a series of incentives announced at the convention, including a reduction of our licensing fee, which brought a heightened level of excitement to the final 10 days of June .
The positive impact on recruiting occurred too late in the quarter to be reflected in the second quarter's new life licenses, which were down 19% year over year due to weakness earlier in the year.
The size of our sales force was slightly lower than June 30 last year.
The discounted licensing fee remained available through the first 15 days of July and continues to positively impact momentum after the program ended.
While it's still very early we are encouraged by the rate at which these new recruits are progressing through our system.
Licensing glass attendance is particularly strong as is the use of our own lunch study too.
We're optimistic about licensing trends, which suggests solid year over year growth between 8% and 9% in the second half of the year.
Although we recognize it will be difficult to overcome weakness earlier this year.
Based on these results. We now expect 2019 full year recruiting to be flat, new life licenses to be lower by 3% in the size of the sales force to be comparable to December 2018.
As we turned our term life business on slide five we expect positive momentum in recruiting to impact production later this year.
However, second quarter results still reflected softer trends from prior periods.
During the quarter, we issued nearly 79000, new term life insurance policies down 6% compared to last years second quarter.
Productivity was within our historical range at 0.20 policies per life insurance license representative per month.
With productivity returning to the historic range and distribution momentum building, we expect to see our sales results strengthened during the remainder of the year.
I believe the second half can grow about 2%.
However, the weakness in the first half of this year will be difficult to overcome and as a result year over year results for issued life policies is currently projected to be down approximately 3%.
On slide six we show results from our investment and savings products. This segment continues to break records.
Well that asset values hit a new high watermark in June at $65.9 billion propelled by record sales during the quarter of nearly $2 billion and favorable equity markets New client net new client flows of $305 million. During the quarter were also very strong.
As I've noted in the past our term life and investment product lines are complementary in nature.
The strength and solid performance in our ASP business provide forward momentum as we work to rebuild strength in distribution growth in life sales.
Combined our businesses offer greater breadth of product offering to clients complimentary income streams to our sales force and more diverse financial results to the company.
Now, let's review the impact of our convention.
As I've discussed previously we deliberately lay a foundation for this event months in advance.
Last quarter I outlined our three pronged approach to change which include short term incentives incremental improvements and longer term higher impact initiatives.
The convention gives us the opportunity to leverage these improvements across a large number of people and add some excitement through incentives announced at the event.
Confident that we can create recruiting momentum after the event. We worked in advance to have a strong infrastructure and field leadership field leadership focus on licensing and field training of new recruits.
We believe we're seeing some early positives from this approach.
Well, an influx of new recruits puts downward pressure on pull through ratios, we have not seen significant erosion in the early results as mentioned earlier life's licensing classes are full and online tools are getting heavy usage.
Keep in mind that the convention itself is a massive endeavor with multiple facets.
The event spanned four days and included nine workshops with attendance per workshop, ranging between 1600 to 10000 people covering a wide range of topics.
The four general sessions provided vision for the future as well as recognition of important milestones and achievements.
And an exhibitor area with 48 exhibit booth staffed by 800 home office and strategic partner Representatives provided attendees with an opportunity to interact with our business partners share knowledge and ideas and network with their peers.
This year's event drew over 45000 attendees up 7% compared to 2017 with an estimated 12% increase in workshop attendance.
Our efforts in the first half of the year to drive distribution growth combined with the impact of the convention are showing positive results in the short term. Our goal now is to extend that momentum into new licenses growing sales force and improved productivity, while continuing to support the natural momentum in our SP business with that I'll now turn it over to Allison.
Thank you Glenn and good morning, everyone.
Starting on slide seven term life operating revenues increased 9% versus the prior year period, adjusted direct premiums increased 10.5% year over year continue to drive the segment's top line growth.
Incurred claims for the quarter were in line with historical trends.
Benefits and claims ratio at 58.2% was within the expected range for 2019.
Higher than the prior year period, which benefited from lower incurred claims.
Well your expectations for the benefits and claims ratio remained at 58% to 58.5% for 2019.
At 14.3% the DAC amortization ratio this quarter was consistent with the prior year period and in line with our expectations.
Persistency was consistent with the prior year as well.
We typically see a lower DAC amortization ratio in the second quarter, but continue to expect the full year DAC amortization ratio to be around 16% for 2019.
Net insurance expense ratio for the quarter was 8% down slightly from the prior year ratio.
I will discuss companywide expenses later in the call, but we expect the term life insurance expense ratio increased slightly to the low 8% range on a full year basis.
Term life pre tax income for the quarter was 84 million up 11% versus the prior year period.
Term life operating margin at 20.6% was consistent with the prior year and reflects the typically lower DAC amortization in the second quarter.
We expect the full year operating margin or 2019 could be between 18.5 and 19%.
Over the past few quarters, we've shared adjusted direct premium growth projections based on various production levels.
I stated these projections to reflect our current expectations for 2019 issued policies.
As Glen mentioned earlier, we expect issued policies to be up by 2% in the second half, but this will not overcome the shortfall experienced in the first half.
Our current projection is that on a full year basis issued policies will be down around 3% year over year.
Yes modestly reduces our adjusted direct premium growth rate projection for 2019 to around 10.5%.
We expect the second half sales momentum will continue into next year.
Opinion, adjusted direct premium growth rate at or above 9% and 2020.
Turning now to our investment and savings product segment on slide eight in the second quarter revenues increased 6% in income before income taxes increased nearly 10% year over year.
As Glenn noted we saw a record product sales this quarter up 10% versus second quarter of 20 team.
Southeast revenues increased 11% accordingly.
Average client asset values during the quarter were 64.4 billion, increasing 5% in driving a 5% increase in asset based revenue.
Sales and asset based commission expenses generally increase with the respective revenue.
County, St revenues decline account based revenues declined 3% year over year due to the transition of client accounts from the freedom portfolios to our new lifetime investment platform.
As a reminder, the freedom portfolio client fee structure included record, keeping and custodian fees, whereas a lifetime platform.
Hi, Pete operating expenses declined 3% versus the prior year period due to our ongoing efforts to reduce cost and realize operational efficiencies.
As previously noted last year, we began seeing the benefit of our renegotiated record keeping fee arrangement. We can 2019 continue to generate year over year expense reduction.
This year, we negotiated a reduced cost structure with a managed account service provider to further drive down our cost.
From an operational standpoint, we continue to identify and implement changes to reduce account administration.
These savings, which on a full year basis are between four and $5 million more than offset expenses expense expected increases from growth in the business and inflation.
Let's continue the operating expense discussion by taking a look at companywide insurance and other operating expenses on slide nine.
For the second quarter. These expenses totaled 100 million and were 2% higher than the second quarter of 2018.
We saw our typical year over year growth from employee related costs and growth in the life insurance business as well as some technology investments.
Expense reductions achieved in the I.S.P. segment, partially offset these increases.
Insurance and other operating expenses for the second quarter were about $4 million was lower than we guided to on last quarter's earning call, but the main driver being the pace at which we are executing on our technology investments.
At the start of the year, we indicated that technology related expenses would increase by 10 to 14 million in 2019.
We had an aggressive hiring plan for the year and while we've added some incredible talent the pace has been slower than expected due to the highly specialized in India in nature up the resources.
We want to make sure that every dollar spent provide a real value to our organization. So we are taking our time to fully vet project on the front end.
We have also focused on the elimination of redundant or eliminate these platforms to reduce our business than usual spend.
We expect to see a year over year increase in technology expenses in the second half of the year of about $6 million when combined with a 4 million dollar increase in the first half the total increase in technology related expenses year over year is expected to be about $10 million because at the low end of the range provided at the beginning of the year.
Given this downward revision, we expect insurance and other operating expenses in the third quarter to be around 102 million.
Fourth quarter to be around 104 million and for all your expenses to be about 416 million, which would reflect an annual increase of approximately 18 million or four and a half a percent.
Approximately 70% of the net increase will be reflected in our term life segment and the remainder will hit so you know.
Hi, Pete operating expenses are expected to remain relatively flat year over year, given the cost savings I discussed earlier.
Let's move now to a review of adjusted net investment income and our invested asset portfolio on slide 10.
The $2 million or 10% increase in adjusted net investment income year over year was predominantly due to growth in our invested asset portfolio as well as higher book earnings versus the prior year on assets backing the reinsurance deposit assets.
In the current low rate in flat yield curve environment, we are carefully looking for opportunities to replace maturing yields with new purchases, while remaining committed to maintaining a relatively conservative high quality portfolio, which currently has an average rating a day.
Finally on slide 11, our tax rate of 23.5% during the quarter is consistent with our full year estimate of 23%.
Our balance sheet and capital position are strong and we we continue to have ample liquidity.
As of June Thirtyth, Primerica life insurance company's statutory risk based capital ratio is estimated to be at around 440% and holding company liquidity is approximately 230 million.
We plan to continue to take ordinary dividend from Primerica life to the extent available with the goal of maintaining our near term RBC ratio in the low to mid 400 range now, let's open the line up for questions.
Certainly at this time, if you'd like to ask a question. Please press star one on your telephone keypad.
[noise] Ryan Krueger with KBW Your line is open.
Thanks, Good morning, I had a question on the expenses first in terms of the reduced guidance on expenses for the year. So.
I understand that correctly about 4 million of the lower expenses is more due to the timing of technology spend but I think it looks like Theres. Some additional you expect in addition to that lower expenses.
Overall, it is that mainly because of the savings initiatives and I S. P and should we think of that as kind of something that will continue beyond this year.
Uh huh.
Yes, the the items I discussed on I.S.P. are absolutely I'll say permanent needs to give you a thing that we have built into our negotiations with service providers and you know within our walls have really focused on cutting operational expenses out things associated with maintaining the administration of especially our mutual fund client accounts and so those are things that are that are well stick with our business structure and again, we continue to strive to increase those savings over time to offset the natural growth, we would otherwise see just from the growth in the book of business.
On the technology front on you know we are really carefully looking at what it is we're going to do and making sure there's value to it.
One of the things that we've really been focused on this year is taking a hard look not just at what we want to spend that's new but also focusing on what we're currently spending just to support our business as usual operation. So I I would say that part of the way that we'll look to control the growth in technology spend while still meeting the needs and the growing needs of the organization is to balance new things that we want to add against you know curbing are cutting back on things that we no longer get value out. So that's just sort of a mindset weve been running we have here can make sure that everything that we're currently spending money on makes sense to continue to make sense to spend money on you know and as well as anything new we want to add really drives the business value. So I I, while I expect to see I T costs continue to rise in the future because you know just from the sheer sake of staying current in the marketplace and protecting our client's data you know.
We know there are things that will continue to emerge our goal is to maintain that cost increase as much as possible by holistically looking at what we're spending our money on so again you know just to highlight I think expense management is a critical component of what we do we will always look to spend money. When we think it will drive results, but just as important is making sure that were were trimming whatever we spend that doesn't need to be spent in order to just maintain the business.
Thanks, and then on term life sales.
Computer regionally thought there would be some increase this year and now you're talking about a 3% decline is that more due to just what occurred in the first half of the year because it sounds like your.
Momentum in building following that the conventions I'm just curious if the reaction to the convention is consistent with what you expected in your revised expectations margins due to what what transpired in the first half of the year.
Yes, that's exactly right. We were very pleased with the results of the convention I would categorize it is one of our most successful events ever.
But the unique dynamic this year as opposed to the last two conventions that come to mind. Most quickly is that we had some weakness in our numbers in the first two quarters first half the year prior to the convention and the convention is a is a momentum multiplier. So the momentum more momentum you have when you arrive the more noticeable results you'll get to the full for the full year of of the convention year and so we are seeing very positive results. The challenge is we just said so much weakness in the first half right now as we kind of project out we're probably not going to recover in every area from the weakness of the first half even though we are seeing the positive results and seeing some growth in most of our key metrics coming out of the convention.
Great. Thank you.
Yes.
Andrew Carter women with credit Suisse. Your line is open.
Well, Andrew Hey, Thanks, Thanks, a lot good morning.
[noise] question so.
Prudent was boosted and you cited the.
Discounting in the licensing fees.
And.
I think you did something like that two years ago and.
A little ways out maybe a year or so out.
That was a real.
Lapse in the agency that there were a number of departures. So what gives you confidence.
That you'll be able to retain these newly recruited.
Producers.
Given that that a fair amount of them may have come on because the licensing fee was discounted.
Yeah, Andrew it's been it's been a number of years since we've done actually used a discounted fee. We always have an incentive that creates excitement and you should think in terms of the excitement is greeted there's really more in the minds of our recruiters.
A 50 dollar discount is not life changing for somebody if they are deciding to pay $99 for licensing figure $49. It's it but it is significant enough that it excites those that are delivering that message.
However, when you do have a significant influx of recruits over a short period of time, we recognize that that puts pressure on our pull through ratios, but where do you see it is not necessarily in terminations of licenses. Most licenses last two years after people get them. So you it would be a long time before you said Oh my gosh, we recruited and a large number of people that are not committed they were somehow committed enough to get the license, but two years later, they let it lapse rather than renewing it where you will see the erosion is in the number of those recruits that get the license up front and of course that part of our game plan and this is what we worked on the first half of the year was laying that foundation, we had significant effort on our focus in communication around licensing and field training and the effort there was to develop some muscle memory. So that if we did get the anticipated influx of recruits after the convention, which we did very pleased with that then we would have a track for them to run on and get more of them why since that's the that's.
Where you're going to see the difference if for some reason we have a less committed a class of recruits coming in and as I said in my prepared comments. So far we're extremely pleased with the licensing classes are full the online. The two usage of our online tools is extremely hot you are at record levels and so is the early in its very early just you know here. We are just a few weeks beyond that it's very early but we're encouraged by what we're seeing early so if we can get that group of people license. The first time, we don't have any reason to expect they would be less likely to renew two years later the key is making sure that we get the pull through rate on the front end that we worked hard to prepare the prepared the road for prior to the convention.
I see I see that's very helpful and then with regard to.
Issue policies, so down 6% in the quarter year over year. So you.
Could you kind of come back to what you think in the second half of the year year over year. So you think you could issue policies up in the low single digits. That's your feeling as we go through the second half of the year.
Yes, as well as we look from where we are right now and of course this perspective changes as his forecast become actuals, but from what we see right now we do expect it will be up slightly in the second half and policies issued but not enough to overcome the significant weakness in the first two quarters. So it looks like the net at the end of the year is going to be down a couple of percentage points and so that's that's the way we see it from today and we cheered the earlier discussion with you. So we thought it was appropriate to update you on what we see from today.
So I am just trying not yet.
I'm trying to understand the moment the momentum element of it I mean.
Youve got everybody charged up from the conference so why isn't there.
A dramatic.
Pickup and maybe maybe could we be surprised and see something dramatic in the second maybe you would be surprised by that but help me understand the momentum issue.
Yeah, well when you.
No. The Formula that works is the size of the Salesforce times productivity and so what you're talking about I believe the question is around can we possibly impact productivity. The salesforce growth comes when those recruits turn into new licenses and.
Overcome the number of Oh, non renewals that we might have in the quarter and grow the size of the sales force, which were clearly committed to but the the productivity has a number of factors that impacted obviously, we would expect it to be positively impacted by an event like the convention in fact, as we saw a and you can't give the convention all the credit for it because it happened in the last 10 days of the quarter, but we did see productivity return to the historical range.
And we continue to work on trying to move it to the upper end or even as we've seen historically outside the historical range on the top side at the convention could definitely help that and of course, the announcements that we made.
We don't make a lot of technical announcement, it's at the convention. The crowd is just too big for a lot of detail to be communicated. So our method is we wrote a lot of that out prior to the convention and then we highlight appropriate things at the convention.
So it's not like we rolled out a new product set or anything like that at the convention. It doesn't work when you've got 45000 people in the room, it's very hard to communicate details, but at the same time, we did add production productivity incentives as well as recruiting incentives and we are seeing some some positive results from that but before I declare us to be back home on track for something we've done historically I'd like to see some more results. It's very early in the process and recruits.
Recruiting activity is helpful for like productivity, because remember we're field training those recruits in their war markets there their family friends neighbors, and so forth and so the more of them. We can put through the field training process again part of the foundation, we laid in the first half the more productivity increase will get but it's just so early in the process that.
I'm not at this point going to make a commitment with a lot of those positive assumptions, but theres clearly the possibility that we can capitalize on some of that.
Got it and just real quickly any any updates on the mortgage and debt consolidation pilot and the likely launch.
Sure.
Yeah, I can be glad to do that very excited about how thats progressing it is a deliberate pilot and as we would remind you since the years ago. When we were in that business the market and the regulations have changed significantly and what we're piloting is just to make sure. We get the same dynamics. There is not a question of is there a huge need in the marketplace.
The debt load on in the middle market is clearly greater than it's ever been and clients want to talk about it more than they want to talk about any of the financial issue. So those two things are very positive for our business. The challenge is under the current regulatory environment and lending environment. We believe that we can take advantage of that meeting that need in the current model and so that's what we're testing and so were out in two states right now, Colorado and Florida. We have only about 40 representatives that are actively involved in the in the pilot.
So far they submitted about 85 applications. We've closed about 25 of those and the good news is the process is working well our field force is responding well. The technology is working we know this pilot also gives us a chance to work those bugs out there have been a few of those and so forth and so we feel very good about the deliberate start that we've had and now we are asking the question of based on the successes that we've had on the on a very small bases is when would we like to add other states to the pilot there's a regulatory dynamic we have to be approved in every state and get our people improved in every state.
So I would think in terms of first of all very encouraged by the early results.
But I would think in terms of this rollout being something thats measured in many months and more than a year will probably be in pilot phase for a year plus and that is as we learn more about the kind of fundamentals that I described then we start to ask the question is how to leverage it over our large sales force do we do we have a focus on getting a larger number of people license for example that would impact our entire business. If we made that decision because that's not an easy license to get so before we make that decision and create a potential distraction that even for a very positive reason, we want to make sure that we know this thing works for our clients and for Salesforce and for our company. So we're going to move very deliberately so I would summarize very encouraged by the early results. Our sales force is very excited the clients that we've been able to hill have been helped significantly. So we probably validated the easy part now we start to ask the question of how do you leverage this over a larger number of people and to do that we've got to add states and add.
Reps and that's the process that will go into.
And it will be slowed down by the red how fast regulatory processes in each state, but we are marching forward in that in that pilot.
Sounds great. Thanks, so much.
Gledhill.
Your next question comes from line of Mark Hughes with Suntrust. Your line is open.
Morning, Mark.
Good morning.
Health and a question for you on the why our key ceded premium if I'm looking at it the right way it looks like it was up year over year.
Relative to adjusted.
A direct premiums, maybe a 30.9% versus 30%.
Is that.
Normal volatility in that measure that is that reinsurance, becoming a bit more expensive and when I think about kind of the second half.
Is that likewise is going to be up year over year. When we look at it as a ratio of adjusted direct premiums.
So the answer is none of the above.
[laughter], sorry, but the.
And this is a little bit complicated, but let me, let me try to walk through it.
When we do all of our analyses what we what we do in our ratio does we actually take the why our t. premium and we apply it against the benefits ratio and then we do everything as a percentage of adjusted direct premiums. So just to remind everybody. What adjusted direct premiums are those are direct premium less the co insured premiums.
You know that were part of the IPO coinsurance and the reason that an appropriate measure to use is through your denominator in a lot of analytics is with co insurance.
It's a flat ratio that comes right off the top of every dollar premium we collect.
Every every claim we pay every bit of our reserves and obviously on track if not quite as straightforward, but they also share in the back.
So that's very different than why our T.K. wired he has really none of those aspects. So first of all the reason why our tea is growing at a very different pace.
Then adjusted direct premiums or for that matter direct premiums is the latter are collected on a monthly basis from clients.
The wire T. premiums are due to the reinsurers annually on the date the policy renewed.
We happened to have a lot of renewals are a lot of high policy production happening in the second quarter. Historically, so the second quarter tends to have a little bit of a pop in and west how wire t. rates go up but the really big driver on why our T. rate is remember they match the mortality curve.
Of the underlying policies not the not the direct premium payments. So direct premium payments are level for the entire policy term, where as why our t. prepayments start as well with zero under some of the contracts and then grow over time to match the expected mortality of those policies. So we so the two will not grow in tandem and in fact, we always had expected the wire T rate.
Premiums to grow faster than adjusted direct premiums that it's taken a little bit of time for that to happen as the BOP block of business is ground, but that is absolutely a trend we expect into the future, but again that is why we need for our analytic purposes, and what we try to encourage others to do is to take that line and actually apply it again.
The benefit ratio.
And when you look at it there the growth in the ceded premiums to the Contra revenue was actually lower than the benefit we've been getting within our benefits and claims ratio. So so net net we do believe it makes complete sense to do the wire T program and it is a little bit of a an honest tea in the way GAAP requires you to account for it and analytically again, it should be should be looked at against mortality and so does that answer your question.
Yes.
It did and just so I understand the relationship with benefits and claims and to the extent that why our tea is growing a little faster does that imply that benefit and claims to grow a little more slowly.
Or is that.
So I think the way to look at it is that the if you broke it down you look at the Y R. T premiums and how they've grown you can't necessarily see it but when you look at the net benefit in our financial Theres also a why our team benefit component.
Because you do have the opposite there and in fact, the wire to benefit component. This is getting very technical but the wire to benefit component actually grown a little faster than the wire can premium component.
So net net we believe it makes a lot of sense for us to do this obviously as part of reinsurance we are foregoing some future profits potentially if there are mortality improvements because we lock in in upfront, but it also does a great job of reducing period to period volatility and from the standpoint of wanting to look like a distributor and act like a distributor. We think this is inappropriate practices.
Understood.
Sort of sort of that's helpful. Though thank you.
Glenn in the annuities and the IP business, you really had a lot of momentum on the annuities from yes in the third quarter of last year you had a.
Pretty sharp jump in on that.
Category.
How would you describe the momentum there can we still expect growth in the third quarter again.
What 59% growth in the third quarter of last year.
Yes, when you look at kind of underneath the hood at our MSP business, we were very fortunate see growth across the board and we had growth in Canada growth in the U.S. was was roughly equivalent and among all of our product lines.
But you raise a great question because the variable annuity business has grown so rapidly shares dynamics with their managed account business. It grew so rapidly and that we are seeing a flattening of the growth rate and it was it was actually in the quarter pretty flat with second quarter last year managed accounts were we continue to see variable annuities.
Grow with the significant strength above average among all of our products, although they all grew.
And there is going to continue to be pressure to keep up those growth rates, but at the same time the fundamentals of that business are very strong interest in the product is very strong volatility in the market probably plays into that product because it has some controls around the results of the volatility. So I would say there is still the potential for that to continue to grow but you're right I think you're going to see some choppiness in that quarter over quarter. If we had stellar quarters than in the previous year be a little harder to have the same thing happened the next quarter.
And so I think you will see some normalizing of the growth rates, but I still feel good that there's a good potential there and good fundamentals in that business.
And then.
A final question on.
The fee generating accounts total I think Allison you pointed out there is that kind of a mix shift that's going on that.
Leading to a.
That.
Maybe attrition or a you don't flow.
Low decline in the number of accounts.
I think they had been down kind of mid single digits.
Lately year over year at that.
Would we expect that kind of pace going forward as you see that kind of mix shift in your business.
Yeah, and so the biggest driver has really been something that now actually finally complete.
And it was the fact that we closed out our freedom portfolio for managed accounts and we launched obviously several years ago the lifetime platform.
And the fee structures on those two programs are very different the day old program did have account base fees recordkeeping custodial fees and the managed account program does not so essentially what you are seeing and we finally closed out I want to say the last of the freedom account in the first quarter of this year. So that she has been with the gradual decline ban obviously offsetting that ships and the growth in the mutual fund business and that continues to be on our platform. So.
This is sort of the the lagging and Oh, you're going to have year over year changes that are a bit obscured by that that shift in our managed account program by next year, you'll be looking at basically four quarters, where the program was 100% lifetime in both periods. So you should start to see that in a day and you should start to see growth again as we continue to build our mutual fund platform account.
Okay. Thank you very much.
Jeff Schmidt with William Blair. Your line is open.
Hi, good morning, good morning, everyone.
Just wanted to go back to the recruits and the number of licensed reps and I know you touched on this but.
Just thinking about that pull through that conversion second quarter is usually.
I guess.
I guess the fourth quarter ceased to historically had the highest conversion second quarter is the second highest presumably from the convention.
It seems that you said you know this these incentives would bring in maybe some less.
Less serious agents, maybe that hurts that.
Conversion rate the pull through rate but.
There was a there is a pretty significant drop you think they would still be a net positive impact I mean, it was licensed reps were down almost 20%.
Is there anything.
Else going on with that.
Conversion.
In the quarter, though.
Keep in mind that the length of time all of this takes to develop so we had the convention.
On that roughly a lift the convention around the 20 of the 20 Onest of June so all the recruiting activity we create it happened in the last 10 days of the quarter on average it takes somewhere between.
A month or two in some states are even provinces in Canada.
Nine or 12 months, even for those recruits to convert into licenses. So that's why I said early earlier that it's very early in the process and as we start to project the pull through rate and the productivity impacted so early that were.
We're not driving a steak or deepen the ground on this yet but the early signs because we look at it on a daily basis, we know what kind of progress we should expect day by day and we're seeing good early signs but.
The recruits that came in the last 10 days of June .
Should start to see an impact.
Just by the timing of it third quarter on into the fourth quarter and probably even into the first quarter of next year.
And just anytime you you get people in more than the run rate your own you must assume that some of those joint and we're just a little lift committed than the than the person who might come in without an incentive. We just assume that now were trying hard to prove ourselves wrong and pull through at an equal to or even better right that was the groundwork we laid before the convention was in anticipation of that but it's way too early to see any of that any of the second quarter results were discussing or as a result of the weakness in recruiting that occurred first quarter fourth quarter last year, and even second or third quarter of last year. So thats, how long the pipeline is to be able to see these kinds of results.
Got it okay that makes sense.
And then just looking at the the productivity.
The issue term life policies down 6% I guess, a productivity is the same as it was in the second half last year.
For the remainder of the year I know, you're saying, it's in the historical range, but it looks like it would be.
Given below where it's anywhere that it's been maybe closer to 13 14 levels, but even below that.
So it seems like would be the very bottom of the historical range.
And it's been slightly productivity has been sliding since 16.
Do you think is that just a product of.
You have a 130000 agents versus.
Productivity is better when you have 90000 or is this where we're at in that cycle or what what do you think maybe driving that.
Well again, you are right you've got to consider the math and you know clearly productivity as easier to control and move to smaller your sales force is but that's that's counter productive in the long term.
It's just like that influx of recruits even if they're a little less committed.
The net is going to be greater than if we hadn't done that.
Even if the pull through rate erode a little bit the same is true as we grow the sales force growing the size of your Salesforce mathematically mange going put negative pressure on productivity and perhaps pull averages down.
We contradicted that theory for a couple of years there, but at the same time Theres Theres a lot of things that impact productivity a lot of the things you'd expect we're fortunately we believe the economic situation is probably neutral to positive. So thats, probably not hurting productivity main street seems to have as much disposable income is they've ever had but disruptions of all kinds disruptions in the new cycle.
Gas prices, there's all kinds of things that can go against productivity. So you can't assume that everything that happened in this quarter was identical to what happened in two previous quarters or two previous years in the same quarter. All that said you're right second quarter is normally a high quarter for productivity. We're back in the range, but we're not where we were last year or the year before we're certainly not where we want to be and so that's that's another line of attack that we're always working on is it goes back to that three pronged approach can we adjust our short term incentives are incremental improvements in our bigger major changes in order to push productivity to a higher part of the range or even at the top of the range and that's exactly the play were running right now some of those other incentives that we used at the convention. We're around productivity. There was a temporary bonus that we did for a period of time and.
You can't artificially stimulate productivity permanently because any kind of artificial stimulus loses loses its effectiveness over time. So we do we do a short term bonus that pulls people into the process.
They enjoy the process they make money from being more productive and we hope that that makes it more permanent change over time.
We do the same thing with our incentives and trips is to make sure their productivity drivers and so we have all of those levers in play, but you're right. It becomes more difficult as you get bigger, but we believe there are compensating factors, where we can continue to grow in spite of the increasing difficult.
Okay, great. Thank you.
There are no further questions at this time. This concludes the primary Inc. Q2 earnings results conference call and webcast.
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Yeah.