Unconventional Wisdom. M. Business beyond usual. Since M Financial’s founding, we’ve succeeded by questioning conventional thinking, charting our own path and reinventing the industry in the process. We’ve proven that “it’s better to be bold than sorry.” That the secret to luck is to create your own. And the road yet to be traveled is the only way to go.
“Everything about M Financial – our commitment to sharing, to innovation, to success, and to our clients – is unconventional, and as a result we continue to revolutionize the industry.” Peter Mullin – Mullin TBG
M
F i n a n c i a l
G r o u p
2 0 0 6
A n n u a l
R e p o r t
Dear Stockholders,
Sales increased substantially in many of our core business lines. Commissionable life premium was up 41%. Corporate DI and LTC sales were up 35%, and annuities and 401(k) sales were up 78%.
���������
���������
���������
The David Gerber Symposium encouraged presenters to look inward and share insights on the factors that have made their firms more successful. Our unique willingness to share ideas and perspectives for the benefit of our peers is the hallmark of M Financial.
���������
Our history of growth and success is more than just a trend – it is our identity and culture. A billion dollars in sales is impressive, but the track record it represents is even greater. 2006 was the tenth consecutive year of record high annual sales, with a 17% increase over 2005. M Financial’s compound annual growth rate from 1996 through 2006 is also a phenomenal 17%.
The key words for September’s Marketing Meeting were “distinction” and “vibrancy,” both synonymous with M Financial Group. The meeting was a reaffirmation of the Power of M, with inspiring program content and rich opportunities for building relationships.
���������
In 2006, M Financial reached a milestone that conventional wisdom would have said was impossible for a group of independent Member Firms. M Financial’s 2006 sales totaled $1.137 billion, the first year in which our sales passed the billion-dollar mark. Our most successful year ever was the culmination of nearly three decades of vision, determination, and distinction.
���������
Distinctive and vibrant.
��
��
��
��
��
��
����������� � ��������������������������������������������������������������� ������������������������
The younger generation within M was showcased with a number of speakers under the age of 40. Their dynamic energy and progressive spirit is part of what makes M so distinctive and sets the stage for continued industry leadership.
Proprietary Product Development. Differentiation in action. 2006 Highlights: Brilliant Collaboration. Spectacular Results.
M Financial Holdings’ income grew 14% (before taxes and ICP) to $105 million. Since the inception
������
������
������
������
������
������
������
�������
M Securities processed a record number of transactions – over 680,000 – and restructured to enhance RIA support for Member Firms. Member Firms also benefited from expanded M-sponsored tools in underwriting, competitive studies, marketing reports, and technology.
M Financial is more resourceful and more prepared than ever to take on new challenges. Our past performance is remarkable. Our future looks even brighter.
������
We welcomed two new Partner Carriers – Sun Life and Nationwide – in 2006, bringing depth and diversity to our Carrier line-up. M Fund assets totaled $874 million at year-end and assets in MAGNASTAR® – M’s proprietary private placement variable life offering – grew to $688 million. M Financial Re’s total face amount assumed totaled $43 billion.
of the ICP through the 2006 Plan Year, the total amount credited to Members through the ICP exceeds $640 million.
������
An industry leader does not live by sales figures alone. The strength of M runs deep – with powerful relationships and a collaborative energy that fuels and sustains our growth.
��
��
��
��
��
��
��
��
��
��
�����������
�������������������������������������������� �����������������������������������
M Financial’s proprietary product activity achieved an all-time high. In the last ten years, we developed 18 proprietary products. In the next two years, M expects to add significantly to the number of proprietary offerings available to Member Firms. In addition to the credible experience pool that clearly reflects the extraordinary mortality,
persistency, premium volume, and high average face amounts of ultra-affluent clients, and our continued focus on delivering innovative solutions to the clients of our Member Firms. This development acceleration is further aided by the addition of two new Partner Carriers.
Inforce Improvements. In service to our clients. M Financial’s commitment to inforce management – treating existing clients just as well as future clients – has translated into nine repricings with real benefits for your clients, including a 15% to 20% reduction in annual premium while still achieving endowment; a 45 to 150 basis point increase in life expectancy (age 85) cash value
IRRs; and a reduction in the adverse effect of market declines, which helped to keep policies on track to endow in volatile markets (versus lapsing without improvements). This commitment may be M’s most powerful differentiating characteristic. No other organization provides this level of service to its clients.
The M Community. Growing on all fronts. Complementing the organic growth of existing Member Firms, M continues to welcome new Firms to the M Community. M remains the best choice for the successful independent, entrepreneurial firm. New Member Firms bring new ideas, perspectives, and energy to our organization. In 2006 M welcomed 25 new Principals and Marketers into the M Community, through the expansion of existing Member Firms and the addition of new firms.
MFH Governance. New members. New boards. M Financial welcomed new members to two important governance committees: the Member Firm Relations Committee (MFRC) and the ICP Committee. M Securities also involved key members of the M Community with two new boards: the Broker/ Dealer Advisory Board and the M Securities RIA Advisory Board.
M Business Diversification. Strategic growth.
The M Brand. Putting a face on success. Another significant initiative focused on building the M brand, with M Financial’s first national advertising. The campaign promotes the power of M Financial and the benefits of partnering with an M Member Firm.
����������
����������
M Wisdom. Impossibilities happen. ����������
���������
���������
���������
As the needs of Member Firm clients evolve, M Financial strategically diversifies to fuel revenue growth and support Member Firm activity in complementary markets. In 2006, M Corporate Benefits, which includes disability insurance, long term care, and employee benefits, was formally launched. The team introduced a new website, and versatile employee benefits resources, including a customizable client (HR) newsletter, and a benefits survey tool.
When you pass a significant milestone, it can be difficult to see what is next and what is possible. But just as we once wondered if $1 billion in sales was a possibility, we stand here today having accomplished that goal. What some see as impossible is M Financial’s reality, and we will continue to realize the impossible. Thank you for a great 2006. Together, we’ll keep on doing what “they” say can’t be done. Best regards,
��
�������
�������
During the mid-term elections in November 2006, Americans voted for change. Meanwhile, �� �� �� �� �� �� the relationships and recognition M Financial enjoys on the national political level continued ���������������������������� ������������� to grow. As Congress evaluates tax reform — ������������������������������������������������� including estate tax — and other legislation that ���������������������������������������������������� affects our industry, our influence becomes ������������������������� critical to preserving our clients’ ability to plan effectively and with certainty. Historically, M Financial has been the largest contributor to candidates endorsed by the Association for Advanced Life Underwriting (AALU) and we remain dedicated to leadership.
M’s Carrier Partners operate in an environment of continued consolidation, distribution conflict, mergers and aggressive pricing. M remains well-positioned to convert these challenges into opportunities. Through M Financial Re, we are able to segregate our superior experience and performance advantages. We reinsure the products Member Firms sell, putting significant capital behind the highest quality business in the industry.
M Financial Wealth Management (M Wealth) continued to grow, hosted two M Wealth Colleges and helped Member Firms establish or expand their investment practices. M Wealth is poised for a breakthrough year in 2007. Consistent with M Financial’s history of differentiation, M Wealth’s innovative wealth management offering is not a one-size-fits-all
�������
Legislative Activity. Leadership amidst change.
M Carriers. Partners in opportunity.
M Wealth. Comprehensive. Customized.
�������
The vision, guidance, and insight of M’s Product Development Group (PDG) is driving our growing differentiation in proprietary products. The PDG is also playing an integral role in identifying opportunities to develop differentiated services — most notably in connection with the underwriting process.
�������
offering. Instead, solutions are built on a core investment philosophy and further customized for each client’s goals, objectives, and risk tolerance.
�������
Product Development Group. Inspired innovation.
��
��
��
�������������������
��
��
��������������������������������������������������������������� �����������������������������
Fred H. Jonske President and Chief Executive Officer
wisdom
unconventional
M Members are what if thinkers. Radicals with a cause – to offer every client a better solution. Mavericks who believe that the free exchange of ideas brings out the best of the best. Peers who trust in their relationships and welcome new partnerships. M Members understand that the more you share, the more you grow. And when open minds come together in an open atmosphere – anything is possible. While some may be content with the status quo, we continue to build on our success to blaze new trails for our clients. “Shared Knowledge, Independent Strength” isn’t a platitude at M Financial. It’s our passion.
We have nothing to fear but old ideas.
M e m b e r Fi r m s and P r ov i s i o na l M e m b e r Fi r m s 1934 Group ALCOS Alliance Resource Group American Benefit Corporation AM&M Financial Services, Inc. ArchPoint Insurance Services, LLC Barefoot Wealth Management, Inc. Barry, Evans, Josephs & Snipes, Inc. BCG Companies Benefit Concepts, Inc. Benefits Resource Group The Brown Company BryanMark Financial Group, Inc. Bryant Group, Inc. The Capital Group Capital Path Advisors, LLC Capital Plan, Inc. Capital Strategies Group, Inc. Capital Strategies Partners, Inc. Carlson Capital Management, Inc. CFG Business Solutions, LLC Chaffee & Associates LLC Chamberlain Group Insurance Services, LLC CMS Companies Colorado Financial Group, Inc. Cornerstone Financial Consultants, Ltd. Corrigan & Company The Coyle Company Insurance Agency, Inc. Cypress Strategies Dodd Consulting, LLC The Downey Group, Inc.
M
Dungan & Associates DWG Consulting, Inc. ECI Companies Ehlert Financial Group, Inc. Eslick Financial Group, Inc. Evergreen Consulting, Inc. The Executive Compensation Group, LLC Executive Financial Services, Inc. Financial Concepts, Inc. Financial Designs Ltd. Garlikov & Associates, Inc. Gateway Financial Group, Inc. Gencorp Insurance & Financial Services G.H. Brown & Company Greenberg & Rapp Financial Group, Inc. Greenberg, Wexler & Eig, LLC Greenwald, Deitemyer, Kase & Co. Hoffman & Associates Financial & Estate Advisors, Inc. The Holleman Companies Horan Associates, Inc. Insurance Management Consultants, LLC John D. Becker & Associates The Kentor Company Kibble & Prentice Holding Company The Koptis Organization The Kornreich NIA Organization The Krizek Group Laugharn & Wilson Financial & Insurance Services, LLC Lindberg & Ripple, Inc.
F i n a n c i a l
G r o u p
The Longmont Group, Inc. The Lyman Group, LLC Mack Financial Group, Inc. The Madison Group M Advisory Group M/Barrington Corporation M Benefit Solutions MCM, A Meisenbach Company Meridien Benefits Group, Inc. Meristem, LLP Mezrah Financial Group Michael I. Silverberg, LLC Molewski Financial Partners MullinTBG Nease, Lagana, Eden & Culley, Inc. New Century Planners, LLC The New ECS, Insurance Solutions, LLC Newton One Advisors Ormiston Jamieson, LLC Ownership Advisors, Inc. Pacific Advisory Group Pacific Capital Strategies, Inc. Pappas Financial Paul L. MacCaskill Peter M. Williams & Company Pfleger Financial Group, Inc. Plybon & Associates, Inc. Pollock Financial Group Premier Partners, LLC Queally Group, Incorporated Retirement & Insurance Resources, LLC Richard F. Swider & Associates, Inc. Roberson Insurance & Financial Services, LLC
2 0 0 6
A n n u a l
Sage Consulting & Wealth Preservation, Inc. Scott, Doerschler, Messner and Gauntlett Holdings, LLC SilverStone Group, Incorporated Sitzmann Morris & Lavis, Inc. Southeast Financial Group, Inc. Stephens Insurance, LLC Swartzbaugh-Farber & Associates, Inc. Symphony-Financial Services, Inc. The Teekell Company, Inc. Thomas Financial Group Trademark Capital Services TRC Financial Insurance Services Valley Forge Financial Group, Inc. VisionLink Corporate Insurance Services, LLC Walsh Financial Group The Warner Companies WaxmanCavnerLawson Wealth Advisory Group, LLC Wealth Management Advisors, LLC Wealth Preservation Associates, LLC Wealth Strategists, Inc. Winged Keel Group, Inc. Xcorp
R e p o r t
wisdom
unconventional
Call it necessity or insatiable innovation; M Financial has always been driven to create exclusive superior performing products for Member Firm clients — and then continually search for opportunities to make them even better. In 2006, we added two new Partner Carriers and teamed with long-term Partners to accelerate proprietary product development. We introduced seven new proprietary life products, redesigned six existing proprietary products and improved pricing on five proprietary products for inforce clients. In the next two years, M expects to introduce a number of new proprietary offerings available only to Member Firms and their clients. Because in this industry, proprietary is the mother of success.
Necessity is the mother of proprietary products.
M Lines of Business
Pa r t n e r C a r r i e r s John Hancock Financial Services, Inc. Lincoln Financial Group Nationwide Financial Pacific Life Insurance Company Prudential Select Brokerage Sun Life Financial Unum
1991 2002 2006 1983 1987 2006 1991
Sponsor Carriers Genworth Financial ING Life Companies Lincoln Benefit Life
M
Wealth Building and Transfer Estate Planning Executive Compensation and Benefits Investment Management Business Planning Charitable Planning Disability Income Protection Employee Benefits Long Term Care Insurance
1998 1978 1998
F i n a n c i a l
G r o u p
2 0 0 6
A n n u a l
R e p o r t
wisdom
unconventional
Being an M Member Firm is like playing on an all-star team and owning it, too. M Member Firms are entrepreneurial, fiercely independent, and own 100% of their success. In 2006, M Financial strengthened our position as the nation’s top life insurance design and distribution company serving ultra-affluent clients and Fortune 1000 corporations. Our network of independent Member Firms brings together the most successful entrepreneurs in the industry, along with scale, expertise, and unrivalled resources. As stockholders, M Member Firms own M Financial, sharing their talents for the benefit of all. Which tends to leave our competition a little green.
The grass is always greener when you own the playing field.
S e l f - g ov e r na n c e C o m m i t t e e s Member Firm Relations Committee (mfrc) Jim Cheney, Chair Eugene LoVasco Campbell Gerrish Michael Silverberg John Lagana Incentive Compensation Plan Committee (ICPC) Dave Downey, Chair Tim Malarkey John Barry Peter Mullin Richard Mack Product Development Group Mac Nease, Chair Jim Clary John Barry John Meisenbach Rick Chaffee Member Firm Growth Committee Richard Mack, Chair John Lawson Alec Berkman Don Morris J.R. Burke M Securities Broker/Dealer Advisory Board Jane Hayes, Chair — The Downey Group, Inc. Jim Belk — Executive Compensation Solutions of Virginia, Inc. Michael Glickman — Mullin TBG David Graffagnino — The Executive Compensation Group, LLC Ron Greenberg — Greenberg & Rapp Financial Group, Inc. Tom Love — Nease, Lagana, Eden & Culley, Inc. 2005 National Advisors Conference Program Development Committee Ezra Ripple, Chair Vernon David Briggs Holleman, III Michael Brink John Marshall
2006 Marketing/MPRO Meeting Program Development Committee Tim Malarkey, Chair Tom Hollinger John Barry, Chair-elect Richard Mack Ed Albers (mpro) Mike Molewski Brodie Barnes Mike Padon Mary Beth Barbara Paul (mpro) Barrett-Newman Mike Cohn Don Friedman Tony Perricelli Michael Glickman Gray Teekell Morey Goldberg Jerry Turley (mpro) Fred Hill 2006 National Advisors Conference Program Development Committee Mark Eden, Chair John Marshall Mary Beth Bob Plybon Barrett-Newman Ezra Ripple Michael Brink Mike Cohn 2007 M Insight Program Development Committee Karen Cecile, Chair Tom Love Daphne Boyle Nancy Shepard Mary Herriott Barb Tomeo Bob Lang Peggy Volkov 2007 M Marketing Meeting & M Renaissance Weekend Program Development Committee John Barry, Chair Robert Kozloski Mike Molewski, Chair-elect Sid Levine Mike Benson Don Morris David Byers Matt Phillips David Coyle Jeff Sharp Dennis Eslick Joel Stephens Morey Goldberg Bo Wilkins Terry Horan
M Financial Investment Advisers, Inc. (mfia) Victor Palmieri, Chair Mike Kiley Jim Cheney Richard Mack Skip Cowen Mac Nease Morey Goldberg M Wealth Advisory Committee Paul Emrick Anthony Pace Richard Mack Jeff Sharp Deanna McMahon Business Opportunities Committee Peter Mullin, Chair Don Morris Dave Downey Victor Palmieri Don Mehlig DI Advisory Committee Mike Griffin Dan Toney Tony Perricelli Bill Walker Jim Pfleger Lee Warner Technology Committee Victor Palmieri, Chair Richard Mack Dave Downey Michael Molewski Tom Love Don Morris Employee Benefits Advisory Committee Jim Anderson Tony Perricelli Bill Gallagher Neal Robin Scott Greenberg Matt Sitzmann Deb Johnson Leigh Speicher John LoVasco Bob Swartzbaugh Karen Mook Ned Weeber
wisdom
unconventional
In life, one can be either a farmer or a miner. As one of M’s founders, Mark Solomon, explains – miners only take from the ground, while farmers replenish the soil and plant seeds for the future. At M, we believe in farming. M Members put those words into actions that make a difference – in our industry, in our communities and for our clients. From our unparalleled membership and leadership within the Association for Advanced Life Underwriting (AALU) to promote the value of life insurance and advocate for our clients, to the many charities and causes supported by Member Firms. From the sharing and relationship building fostered at M events – Marketing/MPRO Meetings, National Advisor Conferences, M Sabbaticals, Case Design Seminars, and M Marketer Forums – to our shared focus on helping clients meet their goals for generations to come.
Actions speak louder than mission statements
We not only practice what we preach, we also share what we reap.
“M Financial has always attracted the best and the brightest in the industry. When you have smart people committed to working together to find better, more efficient ways to serve clients, the results are very powerful.” Mac Nease – Nease, Lagana, Eden & Culley, Inc.
M
F i n a n c i a l
G r o u p
2 0 0 6
A n n u a l
R e p o r t
wisdom
unconventional
When you lead the way, you never eat anyone’s dust. M’s successes are many and our momentum is formidable. The more the market consolidates, the more we differentiate. M Financial is the only distribution system in the country that offers an array of proprietary products across national brands, with our own policyholder experience.
The competition always looks better in the rearview mirror.
Access to M’s differentiation is coveted. But we never apologize for our advantages; we’ve earned them. We invest our own financial capital in the business placed by Member Firms; have the best intellectual capital in the industry, and a superior track record of success.
M Member Firms see every challenge as an opportunity. This perspective is core to our growth and success in 2007 and beyond. Conventional thinking says quit while you’re ahead. M wisdom says, “You ain’t seen nothing yet.”
Through collaboration, innovation, and hard work, M Financial makes the impossible real. This is the true power of M.” Tony Perricelli – Gateway Financial Group, Inc.
M
F i n a n c i a l
G r o u p
2 0 0 6
A n n u a l
R e p o r t
Financial Highlights. For the years ended December 31, 2002 - 2006 % CHANGE OVER 2004
2002
2003
2004
2005
2006
SALES Life Disability Annuity TOTAL
$610.9 31.3 131.5 $773.7
$666.9 30.9 179.4 $877.2
$803.5 38.6 114.9 $957.0
$753.2 28.9 189.4 $971.5
$873.2 28.7 235.5 $1,137.4
16% -1% 24% 17%
M FUNDS NET ASSETS
$294.9
$437.8
$599.2
$665.9
$874.3
31%
$578.5 49.4 12.8 18.3
$667.1 52.8 10.4 17.1
$688.4 55.9 12.7 20.6
$746.3 62.5 18.3 29.5
$722.9 81.0 17.5 23.9
-3% 30% -4% -19%
$67.7
$69.9
$76.5
$92.0
$104.9
14%
$59.3
$63.9
$68.6
$77.5
$99.3
28%
$6,304
$7,021
$7,724
$8,288
$8,943
8%
102 447
107 464
108 460
112 459
115 497
3% 8%
$ in Millions 1
M FINANCIAL HOLDINGS INCOME Revenues Incentive Compensation (ICP) Expense Net Income Net Income before Taxes Net Income before Taxes and ICP and Other Distributions ICP CREDITED AND DIVIDENDS M FINANCIAL HOLDINGS ASSETS 2 MEMBER FIRMS AND PROVISIONAL MEMBER FIRMS MARKETERS
Notes: Sales represent the amount of annualized new business premium sold by Member Firms and Provisional Member Firms of M Financial Group that result in revenues to the Company. As these sales represent annual first year premium production, they are not the Company’s revenue and are therefore not par t of the Company’s Consolidated Statements of Income.
1
2
Total MFH Assets include assets supporting M Financial Re’s Modified Coinsurance arrangements.
Statements in this Annual Repor t about future events or per formances are for ward-looking statements. Such statements are subject to risks and uncer tainties, which could cause M Financial Group’s actual results to dif fer materially from those described or contemplated by the for ward-looking statements. These risks and uncer tainties include, but are not limited to: changes in general economic and industr y conditions, including changes in M Financial Group’s competitive environment; changes in the demands for M Financial Group’s products; product pricing pressures; changes in legal or regulator y conditions, including the tax laws; acquisitions of Member Firms by competitors; M Financial Group’s ability to obtain additional capital on favorable terms, if needed; lower than anticipated earnings from investment assets associated with M Financial Re’s reinsurance obligations; higher than anticipated mor tality experience; M Financial Group’s inability to develop or acquire the technology necessar y to compete successfully; and adverse consequences of litigation involving M Financial Group. The for ward-looking statements are based on the current beliefs and assumptions of M Financial Group’s management, and M Financial Group assumes no obligation to update the statements if circumstances or management’s beliefs or assumptions should change.
M Financial Plaza, 1125 NW Couch Street, Suite 900, Portland, Oregon 97209 800.656.6960 www.mfin.com
