The Future of Selling Life Insurance ?

[Mike Siegal]

I was doing a little research and found this Article written by some "attorney" regarding selling life insurance post DOL ruling. I'm a newby and looking for a niche product to sell, but this doesn't sound too friendly for agents.

LINK

He says here....

"Complying with the strict language of the DOL rule may make it difficult to also comply with the spirit of Bulletin 11-4. Now, insurance-only agents must seek to meet a consumer’s overall investment needs and objectives while not crossing a state or federal investment advice-without-a-license line."
​

I'm brand new to the biz and looking for a niche, but it looks like the future of Life sales will require some kinda securities license as well as a state license.

1. How can i circumvent getting a securities license and still sell Life insurance in light of the DOL ruling?
2. What's my responsibility as a licensed agent only, with regards to selling life insurance?
3. What am i allowed to say, and what am i not allowed to say?

Can some of the experienced pros PLEASE chime in on how yet another gov. ruling will affect our business?

Thanks for your constructive input.

~

 

[DHK]

Let me help you as simply as I can:

WHAT YOU MUST NOT DO:
1) You cannot professionally give advice regarding securities: buying, selling, holding, or analysis.

A thin line may be: Calculating whether a client gained or lost money on a given statement period. That's not analysis of holdings, just a calculation of performance. Be careful there that you don't go past that.

WHAT YOU CAN DO:
1) You can provide alternatives to securities (annuities, permanent life insurance strategies, etc.). Talking about an alternative does not require a securities license at all.

2) You can provide GENERAL INVESTMENT OR MARKET INFORMATION for EDUCATIONAL purposes only. In fact, the DOL made that distinction, in my opinion, in FAVOR of insurance-only professionals.

3) If you create any of your own marketing materials, website, social media, etc., you can include a disclosure like this:

"[Your Name] does not provide investment advice, specifically: buying, selling, holding, or any analysis of securities portfolios. He does provide general investment information available for educational purposes. For advice regarding securities, taxes, or legal matters, please consult a licensed professional in your state."

YOUR RESPONSIBILITY is to give all the material facts and make suitable recommendations in light of your client's situation and needs.

 

[jboussea]

Let me help you as simply as I can:

WHAT YOU MUST NOT DO:
1) You cannot professionally give advice regarding securities: buying, selling, holding, or analysis.

A thin line may be: Calculating whether a client gained or lost money on a given statement period. That's not analysis of holdings, just a calculation of performance. Be careful there that you don't go past that.

WHAT YOU CAN DO:
1) You can provide alternatives to securities (annuities, permanent life insurance strategies, etc.). Talking about an alternative does not require a securities license at all.

2) You can provide GENERAL INVESTMENT OR MARKET INFORMATION for EDUCATIONAL purposes only. In fact, the DOL made that distinction, in my opinion, in FAVOR of insurance-only professionals.

3) If you create any of your own marketing materials, website, social media, etc., you can include a disclosure like this:

"[Your Name] does not provide investment advice, specifically: buying, selling, holding, or any analysis of securities portfolios. He does provide general investment information available for educational purposes. For advice regarding securities, taxes, or legal matters, please consult a licensed professional in your state."

YOUR RESPONSIBILITY is to give all the material facts and make suitable recommendations in light of your client's situation and needs.

So what about someone who wants to generally talk to clients about investments ... let's say the person gets a 65 .. he still has to be careful unless he's an IAR or RIA??

I saw a thread on producers web.. . I think you were going back and forth with Roccy on this matter... you refused to register because of liability reasons.. please clarify ...

 

[DHK]

Before the DOL ruling, we had this issue called the "Source of Funds" issue. The "Source of Funds" issue was whether or not an insurance-only agent can recommend someone to liquidate their portfolio and place the proceeds into a fixed indexed annuity.

Now, if you're reading carefully, you'll notice that you CAN'T do that. However, you can present an alternative for the account. You don't give an analysis of the holdings, talking about "how much risk you have", etc when you are not licensed or registered to give such advice.


If you get a series 65, it's only valid when you are an IAR (person) for an RIA (firm). You can create your own firm or join an existing RIA. Until you are registered with an RIA firm, your license doesn't do any good. Your license will expire within 2 years if not associated with the RIA.

Here's the liability: You cannot just get securities licensed unless you plan to SELL securities services.
- Series 6/7/63: sell securities for commissions through a broker/dealer
- Series 65: managing money for fees and ongoing advice through an RIA firm.

However, Roccy, in that article was advocating getting the license JUST so you can "give advice" regardless of what you're selling. THAT'S BAD!

There was another thread that was moved to the new CFP section here:
http://www.insurance-forums.net/for...alling-yourself-financial-planner-t27412.html

In that thread, there was a "planner" who was using his license ONLY to sell fixed indexed annuities. He wasn't selling "wealth management" services.

Now, the real reason this moron got in trouble was because he screwed up the FIA sale. He didn't allocate to the proper index segment, instead choosing the fixed interest bucket and also didn't describe the contracts correctly. In short, he was incompetent.

However, that being said, EVERYTHING was used against him - including a violation of fiduciary duty because he held himself out as a fiduciary advisor but was only doing so to sell FIAs.


So, if you get securities licenses, you are EXPECTED to produce securities business for your broker/dealer. Otherwise, it's called "parking". It may be slightly different for RIAs... but I wouldn't form or join an RIA without the intention of gathering assets for that RIA. To NOT gather assets is to expose yourself and your practices to a waiting complaint that may inevitably happen down the line.


Now, all that being said, there is ANOTHER WAY to have your license and be a purist. If you look up in the IAPD database the firm "Partners for Prosperity", you can look up their ADV part 2 filing. They are a FEE ONLY firm that does NOT sell or recommend securities. Instead, they charge planning fees for individuals only and charge those fees so they can recommend life insurance and other strategies. They charge a $3,500 planning fee for their services.

You can also look up Roccy Defrancesco in the same database... and you won't find him. Kinda says something to me about his articles and "advice".

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Let me be clear that I'm not a compliance professional or an attorney, so you may need/want to contact the companies you represent for compliance advice. (There. I covered myself.)

 

[jboussea]

Before the DOL ruling, we had this issue called the "Source of Funds" issue. The "Source of Funds" issue was whether or not an insurance-only agent can recommend someone to liquidate their portfolio and place the proceeds into a fixed indexed annuity.

Now, if you're reading carefully, you'll notice that you CAN'T do that. However, you can present an alternative for the account. You don't give an analysis of the holdings, talking about "how much risk you have", etc when you are not licensed or registered to give such advice.


If you get a series 65, it's only valid when you are an IAR (person) for an RIA (firm). You can create your own firm or join an existing RIA. Until you are registered with an RIA firm, your license doesn't do any good. Your license will expire within 2 years if not associated with the RIA.

Here's the liability: You cannot just get securities licensed unless you plan to SELL securities services.
- Series 6/7/63: sell securities for commissions through a broker/dealer
- Series 65: managing money for fees and ongoing advice through an RIA firm.

However, Roccy, in that article was advocating getting the license JUST so you can "give advice" regardless of what you're selling. THAT'S BAD!

There was another thread that was moved to the new CFP section here:
http://www.insurance-forums.net/for...alling-yourself-financial-planner-t27412.html

In that thread, there was a "planner" who was using his license ONLY to sell fixed indexed annuities. He wasn't selling "wealth management" services.

Now, the real reason this moron got in trouble was because he screwed up the FIA sale. He didn't allocate to the proper index segment, instead choosing the fixed interest bucket and also didn't describe the contracts correctly. In short, he was incompetent.

However, that being said, EVERYTHING was used against him - including a violation of fiduciary duty because he held himself out as a fiduciary advisor but was only doing so to sell FIAs.


So, if you get securities licenses, you are EXPECTED to produce securities business for your broker/dealer. Otherwise, it's called "parking". It may be slightly different for RIAs... but I wouldn't form or join an RIA without the intention of gathering assets for that RIA. To NOT gather assets is to expose yourself and your practices to a waiting complaint that may inevitably happen down the line.


Now, all that being said, there is ANOTHER WAY to have your license and be a purist. If you look up in the IAPD database the firm "Partners for Prosperity", you can look up their ADV part 2 filing. They are a FEE ONLY firm that does NOT sell or recommend securities. Instead, they charge planning fees for individuals only and charge those fees so they can recommend life insurance and other strategies. They charge a $3,500 planning fee for their services.

You can also look up Roccy Defrancesco in the same database... and you won't find him. Kinda says something to me about his articles and "advice".

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Let me be clear that I'm not a compliance professional or an attorney, so you may need/want to contact the companies you represent for compliance advice. (There. I covered myself.)

so in order to call yourself an adviser. .you' are required to sell higher risk items .. if you don't ... you get yourself in trouble.. ??

now did he get himself in trouble because he only sold one particular product?? ... or do you reallly have to show you're selling securities..

Don't get me wrong ...there's nothing wrong with securities.. but if I'm holding myself as an adviser .. who like focus on low risk vehicles.. the market would be a secondary investment tool for me...

Anyway I'm not even there yet but it's interesting that this is happening when I'm just joining the industry

 

[DHK]

There are only a few regulated titles: Investment Advisor, Registered Representative, Investment Representative, Investment Advisor Rep, and Insurance Agent.

Except for certain states, anyone can call themselves a "Financial Advisor" or "Financial Consultant" or "Financial Planner". In California, they have a problem with the word "senior" - especially "senior designations". But in NC, TX, and MO (I think those are the 3 states?), if you want to use those titles, you have to have a Series 65.


Tracy Mitchell held himself out as a Financial Planner in his seminars, which has a fiduciary duty to his clients because that is the standard he promoted himself with. He sold different products from different companies, but they were all FIAs, and ALL of them had issues with how they were explained and index segment allocations. That is per the court documents.

While there may be no "official" requirement to gather a certain amount of assets as an IAR/RIA (but broker/dealers definitely will to show you aren't "parking your license"), you really should do some in order to show that you ARE recommending that service and doing the job you hold yourself out to the public in doing.

If a complaint should occur, they will go through your books. They will determine how much in assets you are managing and how many annuities you have been selling... and you had better believe that information will be part of the court proceedings.

You're really not paranoid if they really ARE out to get you.

Now, I actually read a lot of that Tracy Mitchell complaint case to see the particulars. (They even brought up the fact that his ChFEBC designation was not an accredited designation! They WILL rake you over the coals over everything if you are brought to trial.)

But if you want a more in-depth look at that and other things, I'd recommend John Olsen's book "Taxation and Suitability of Annuities". It's a dry read, but a great resource to reference.


Now, *I* call myself a financial consultant. I can do that in my state and it is not a regulated title. It's also a true measure of the service I provide - which is a consultation to help people make informed decisions that feel right to them. It would also be hard to use my title against me in the event of a complaint because I'm a Chartered Financial Consultant and that designation IS accredited. I don't mind being held to a higher standard because I can back it up.

If one is ONLY selling products on a feature/benefit/cost perspective, I would suggest that being a financial consultant wouldn't be an accurate description... but you *could* use it. You could use "Financial Advisor" or "Financial Planner" too... if that's an accurate description of what you do (and you don't live in a state that is regulating those terms).

 

[LostDollar]

Let me help you as simply as I can:

WHAT YOU MUST NOT DO:
1) You cannot professionally give advice regarding securities: buying, selling, holding, or analysis.

A thin line may be: Calculating whether a client gained or lost money on a given statement period. That's not analysis of holdings, just a calculation of performance. Be careful there that you don't go past that.

Is looking at an account statement and commenting on the reasonableness of a trustee's service fees for managing the securities considered to be "analysis"?

 

[jboussea]

what about taking what somebody is putting in their 401k over the match of their employer... is that a no-no? you're not taking money from the 401k technically ..but is that a thin line that we don't want to cross

 

[VolAgent]

Is looking at an account statement and commenting on the reasonableness of a trustee's service fees for managing the securities considered to be "analysis"?

Doesn't depend on what we say, but the regulator or attorney who is questioning you later.

I wouldn't think that qualifies. However, I would say it is best to not even comment about the investments in any form. Instead, ask questions and let the client/prospect comment.

 

[DHK]

Learn how to talk about fees and expenses in a general way:
- Mutual Fund A-shares vs B-shares vs C-shares
- Mutual Funds with Insurance (variable annuities)
- Mutual Funds with active management (asset management services).

You can tell them which one they have and how they GENERALLY work. Use publicly available resources to back-up your assertions. I have fee disclosures from a couple of RIA ADV Part 2 disclosures showing that they charge "up to 2.5%" or whatever it is. You can find prospectuses online and show how mutual fund expense charges work. You can learn how variable annuities charge an M&E fee (the privilege of annuitizing the annuity contract), mutual fund expenses, and living benefit rider fees all totaling about 3-3.5% (or more).

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what about taking what somebody is putting in their 401k over the match of their employer... is that a no-no? you're not taking money from the 401k technically ..but is that a thin line that we don't want to cross

I'm not your compliance person, nor does the DOL ruling address such advice.

However, *I* created a comparison matrix comparing 401(k) & IRA vs Roth IRA vs 529 vs Mutual Funds (brokerage) vs Life Insurance on 23 different points. There are only 3 points on that sheet where life insurance is not "superior":
- Tax-deductible contributions (not deductible outside of a qualified retirement plan)
- Tax-deductible realized losses (there are no losses other than in a variable contract),
- Capital Gains tax-rates on gains >12 months. It's tax-deferred and tax-free as long as the policy stays in-force. If the policy lapses, it could be susceptible to ordinary income taxes on gains - including on outstanding loans - which are called 'phantom income'.

So *I* am quite comfortable having that conversation regarding reallocating savings dollars to life insurance because I can back up my recommendation and assertion that it is a SUPERIOR way to save for the future.

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BTW, that worksheet is something that I leave with EVERY policy delivery to help the client remember why they bought what they bought from me. I don't expect them to remember this stuff, but they can read up and reference it if they choose long after I've left.