Don't Become a Fiduciary... Unless You Mean It!

[Charpress]

RIA/IAR.

As PFG said, as long as its on your form ADV and you are disclosing when you are acting as agent and when you are acting as Adviser then you are fine.

Also, best practices would be to have a separate entity for running insurance biz through so it is all completely separate.

And I have to walk a triple thin line. As a lawyer who does estate planning, I also have potential issues with conflict of interest that the Bar would not like.

So, yes you can sell insurance products. But, you create complexities if you have other licenses and those complexities have to be addressed. It is not for the feint of heart and you have to be careful.

The point of this thread made by DHK is the Fiduciary Standard and where we are all headed. This is probably coming even for folks licensed in insurance only. That is, there may be a requirement (or already is in some states) that you have to put your client's interests ahead of your own. Not necessarily a good thing, IMHO.

 

[DHK]

It's not about putting your clients interests above your own. Anyone with any sense of ethics has no problem with this.

It's PROVING it in a court of law.

THAT'S what I don't want. Life Insurance and Annuities are too complex that I wouldn't dare want a jury to decide whether I put my clients interest above my own.

And having seen what happened to Glenn Neasham and HIS public trial... I don't want anything like this to happen to anyone.

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I shared the same concerns in the comments of this article here.

ProducersWeb - Retirement - A stand-in for the fiduciary standard?

This is how John Olsen, CLU, ChFC, AEP, and author of "Taxation and Suitability of Annuities for the Professional Advisor" responded to me (and as far as I can tell, he is NOT a Series 65 licensed professional either):

David, I share your concerns. Insurance pros generally have NO problem with the obligation to work in the client's best interest OR to keep that client's interest ahead of their own. But the devil is in the details. If I sell a life insurance policy in which the premium is higher than some hypothetical "better" plan, who is to determine which policy is "better" for that client in that specific facts situation? And how will that be done?

As Dick Weber is always saying, buying life insurance isn't like buying a refrigerator. Premium (price) CANNOT be the sole metric by which the policy's worth is measured. Neither, for that matter, is the combination of premium, cash value, and death benefit. Most life policies sold today are "indeterminate premium" contracts; many are Indexed UL. There are just SO MANY ways to structure such a product that I doubt that ANYONE can state, with any authority or credibility, what the "best" way is, or if a given structure is necessarily "better" than another (except, of course, if one uses a reliable method of determining whether the policies being compared are likely to produce the benefits illustrated.

Now, my concerns here rest upon the worry that application of a fiduciary standard to my insurance sales activities will carry the baggage of "did he sell the BEST policy?". Personally, I think that's useless baggage, as it's a question that cannot be answered reliably. Rather, I think that the application of fiduciary duty will, and should, focus on the PROCESS that the agent in question used to determine the policy recommended. THAT can be assessed reasonably. But, even there, questions remain. Does an agent who sells only one company's policy fail the fiduciary standard? Sect. 913(g) of the Dodd-Frank Act says that this will not "in and of itself" constitute a breach of fiduciary duty. Nor will receipt of commissions, "in and of itself", be such a breach. But a reading of that section should make clear to anyone that it leaves a lot to be determined later.

Bottom line: I have no objection to being held to placing my client's interest ahead of my own (I've been doing that for decades), nor in having to demonstrate, if required, that I used diligence in making my recommendations. But I'm all too aware of the sharks circling the fiduciary debate for whom the vagueness of the standard (as if there is a single standard that can cover those who give investment advice and who sell products, where the advice is ancillary to the sale) is an invitation to a feeding frenzy.

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He later went on to say:

An agent should obtain his 65 and RIA/IAR status IF AND ONLY IF he or she (a) is competent to act as an investment advisor and (b wants to do that on an ongoing basis. I firmly reject the idea that getting your 65 is wise even if you want only to sell fixed insurance products. In fact, as the Mitchell case in MO demonstrates, claiming RIA protections without acting as an investment advisor and obeying the rules that apply to them could INCREASE your liability.

 

[Charpress]

It's not about putting your clients interests above your own. Anyone with any sense of ethics has no problem with this.

It's PROVING it in a court of law.

THAT'S what I don't want. Life Insurance and Annuities are too complex that I wouldn't dare want a jury to decide whether I put my clients interest above my own.

Yes, that is what I implied with my observation that this would not be a good thing for us -but you put it better.

And in the life insurance arena, if a jury heard that the agent got, for example, a $45,000 commission on a $45k target case, what would be their reaction? Would you perhaps have a hard time convincing them that the commission was not the prime motivation?

You would have to prove all sorts of standards and that the commission was in line with practices across the industry. But you know Juror #5 would be thinking "Damn. I didn't know those SOBs got that much."

And right now E&O coverage is dirt cheap compared to other malpractice coverage I have to get. I'm happy to write out that little E&O check every year. Guess where that will go if the standards change?

 

[jmarkk1]

Just wondering where are all the lawsuits against securities based products? I'm sure they exist.
Does it seem like courts are against insurance/commissions vs assets tied up in securities?

 

[Tahoe Ray]

Just wondering where are all the lawsuits against securities based products? I'm sure they exist.
Does it seem like courts are against insurance/commissions vs assets tied up in securities?

I think that those cases rarely make it to court....when you purchase a security through a broker/dealer, you likely agreed to binding arbitration.

That being said, there are plenty of brokers out there with dings on their U4 due to settlement of these cases.

I would wager a lot more...just look at who pays more for E&O. Those advising on securities (regardless of the standard they're being held to) pay 4-5 times the E&O premiums that the average insurance agent pays.

 

[DHK]

I had a mentor who went through an arbitration process over a client complaint.

He won. But the way the prosecuting attorney twisted his meanings and intentions... well, he was much more detailed in his notes going forward.

Time-stamped notes are some of your best defensive tools. It's the primary reason I have a CRM program. Eventually, I'll subscribe to CopyTalk and have another source of time-stamped notes for client files.

 

[Gulfman]

Good info....thanks for sharing...

 

[DaKine]

I read this case and it was pretty bad even without a fiduciary responsibility. He told a client their contract could not be annuitized so he could sell them another annuity. He replaced perfectly good annuities with other annuities incurring surrender charges just to generate commissions. That's bad business and he should have been disciplined even without the 65.