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Please explain this as I am familiar with the CFP practice standards and so not understand your comment. Thanks, Jim
Life Insurance Vs Investment Account
- Thread starter elizavalentina
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Please explain this as I am familiar with the CFP practice standards and so not understand your comment. Thanks, Jim
- 11,273
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DHK, You have been helpful to many folks on this forum over time and that includes me personally, so I know you must just be in a hurry, but please tell me your not basing your comments about CFP fiduciary responsibility on a Kim Butler video. Aside from the fact that the video mentions nothing about fiduciary responsibility, it is outright wrong about the "CFP classes looking unfavorably on whole life" - you know this because the life Insurance class for the CFP is also part of the CLU curriculum.
as for kim Butler herself, she is an energetic self promoter who understands the value of the internet better than most. Her views on WL are far from ground breaking and the thin books for sale on Amazon are rehashes of Yellen, Nash, Bloom etc..The only difference being her checkered past with Partners 4Prosperity on Ripoff report.
I wholeheartedly recommend correctly designed Life Insurance as a cash accumulation tool and concurrently use the CFP designation. The CFP practice standards endorses using different methods to reach client goals.
as for kim Butler herself, she is an energetic self promoter who understands the value of the internet better than most. Her views on WL are far from ground breaking and the thin books for sale on Amazon are rehashes of Yellen, Nash, Bloom etc..The only difference being her checkered past with Partners 4Prosperity on Ripoff report.
I wholeheartedly recommend correctly designed Life Insurance as a cash accumulation tool and concurrently use the CFP designation. The CFP practice standards endorses using different methods to reach client goals.
- 11,273
Thank you for the kind words. Sometimes my brains don't quite work well in the morning... and we've got a newborn in the house (not mine) and I've had a hard time sleeping.
If we look at the CFP designation ITSELF... there generally shouldn't be any bias towards various solutions over others. However, it is true that the CFP curriculum barely covers anything on the advanced uses of Life Insurance. Even my ChFC designation (which included 6 modules of CFP curriculum) barely covered anything. Just a few blurbs in "Fundamentals of Insurance".
The CLU has three required courses that specialize in life insurance that are not part of the CFP or even ChFC curriculum: "Individual Life Insurance", "Life Insurance Law", and "Planning for Business Owners and Professionals". These go into much better detail over the "Fundamentals of Insurance" course that I went through.
Financial planners (generally speaking) are trained to "pay off all debt" (regardless of the type of debt), pay off your house, save in your qualified plan and IRAs, buy term and invest the difference in your debt payoff or in your retirement plans.
What Kim Butler was trying to get across is to determine whose bias is behind that advice? Where did such advice come from? Is it prudent?
One can say that it is prudent to pay off all your debt... but without going deeper into the situation, not all debt is bad.
A lot of these "prudent man strategies" are traced back to the times of the great depression, when laws and consumer protection was minimal to say the least. Times have changed since then, and leveraging and parlaying one's assets is the new "name of the game".
But let's look more broadly: The CFP is the 'defacto' financial planning designation... primarily for investment advisors. That's whom I see has it more often than not. A CFP who also focuses on life insurance strategies is more rare, but they obviously exist. Moreover, if an attorney or CPA were to enter into the financial planning world, they too would pursue a CFP designation... giving more "credibility" to that particular credential.
The Life Insurance industry has its CLU and ChFC designations as their 'flagship' designations. Most of those who have these, are career agents and independent insurance agents.
Seeing who has and uses these designations, we can generally assume (damn, there's that word) what kind of advice they are giving and why. When I see authors of various financial planning articles, I see such AUM biases in CFP designees... hence "buy term and invest the difference (with me)" is their mantra. CLU & ChFC want to sell you permanent life insurance... but the general public doesn't necessarily understand why it could be in their best interests.
When we look at WSJ, Barrons, Money Magazine, Suze Orman, Dave Ramsey, and other authors and media content, we can see their biases. They are biased more towards investment solutions than insurance. They may even trash the permanent life insurance without any justifiable reason. Why? To satisfy their sponsors and sell more books, etc.
So, is it a violation of a CFP's fiduciary standard to recommend permanent life insurance? Not specifically... but I can't say that most CFPs support and endorse that level of thinking.
If we look at the CFP designation ITSELF... there generally shouldn't be any bias towards various solutions over others. However, it is true that the CFP curriculum barely covers anything on the advanced uses of Life Insurance. Even my ChFC designation (which included 6 modules of CFP curriculum) barely covered anything. Just a few blurbs in "Fundamentals of Insurance".
The CLU has three required courses that specialize in life insurance that are not part of the CFP or even ChFC curriculum: "Individual Life Insurance", "Life Insurance Law", and "Planning for Business Owners and Professionals". These go into much better detail over the "Fundamentals of Insurance" course that I went through.
Financial planners (generally speaking) are trained to "pay off all debt" (regardless of the type of debt), pay off your house, save in your qualified plan and IRAs, buy term and invest the difference in your debt payoff or in your retirement plans.
What Kim Butler was trying to get across is to determine whose bias is behind that advice? Where did such advice come from? Is it prudent?
One can say that it is prudent to pay off all your debt... but without going deeper into the situation, not all debt is bad.
A lot of these "prudent man strategies" are traced back to the times of the great depression, when laws and consumer protection was minimal to say the least. Times have changed since then, and leveraging and parlaying one's assets is the new "name of the game".
But let's look more broadly: The CFP is the 'defacto' financial planning designation... primarily for investment advisors. That's whom I see has it more often than not. A CFP who also focuses on life insurance strategies is more rare, but they obviously exist. Moreover, if an attorney or CPA were to enter into the financial planning world, they too would pursue a CFP designation... giving more "credibility" to that particular credential.
The Life Insurance industry has its CLU and ChFC designations as their 'flagship' designations. Most of those who have these, are career agents and independent insurance agents.
Seeing who has and uses these designations, we can generally assume (damn, there's that word) what kind of advice they are giving and why. When I see authors of various financial planning articles, I see such AUM biases in CFP designees... hence "buy term and invest the difference (with me)" is their mantra. CLU & ChFC want to sell you permanent life insurance... but the general public doesn't necessarily understand why it could be in their best interests.
When we look at WSJ, Barrons, Money Magazine, Suze Orman, Dave Ramsey, and other authors and media content, we can see their biases. They are biased more towards investment solutions than insurance. They may even trash the permanent life insurance without any justifiable reason. Why? To satisfy their sponsors and sell more books, etc.
So, is it a violation of a CFP's fiduciary standard to recommend permanent life insurance? Not specifically... but I can't say that most CFPs support and endorse that level of thinking.
maxherr
Expert
- 67
Very cogent (and perhaps, rested) words from DHK, who also closed with:
The whole problem with the folks running the CFP ship is that they cannot comprehend the combination of "fiduciary responsibility" and "commissions" in the same transaction. I treat each client with the same respect and "fiduciary responsibility" any person deserves, and do my best to meet their insurance needs with the most beneficial and cost effective solution -- could be term, could be WL, possibly even some form of UL (if they can understand their responsibilities to the contract). My primary objective is to NOT abuse someone and their money.
I don't count my commissions prior to a sale, and I don't even know what my commission will be until the check/EFT deposit arrives. I could care less. As a L&D Analyst, I am in a position to charge fees for analysis and advice, but I cannot charge a fee and collect a commission if my analysis leads a person to a new insurance product. One or the other only. In some instances, a fee could be more than the commission, in other instances the commission would be greater. The cost of the product does not change. I have to maintain an ethical relationship between myself and my clients, and from my perspective, ethics and fiduciary responsibility go together more than fiduciary responsibility and fee-only planning.
And when I do the math, I often see the fee-based planners raking in far more in their 1% AUM fees over a few years than the same client would have paid in either mutual fund A-share sales charges or per trade costs in a brokerage account at Vanguard, Schwab, Scottrade or Fidelity (and a few others). Market Up - Market Down - doesn't make a difference, as long as there are assets under management, the client pays a fee for "advice" -- good or bad.
The whole problem with the folks running the CFP ship is that they cannot comprehend the combination of "fiduciary responsibility" and "commissions" in the same transaction. I treat each client with the same respect and "fiduciary responsibility" any person deserves, and do my best to meet their insurance needs with the most beneficial and cost effective solution -- could be term, could be WL, possibly even some form of UL (if they can understand their responsibilities to the contract). My primary objective is to NOT abuse someone and their money.
I don't count my commissions prior to a sale, and I don't even know what my commission will be until the check/EFT deposit arrives. I could care less. As a L&D Analyst, I am in a position to charge fees for analysis and advice, but I cannot charge a fee and collect a commission if my analysis leads a person to a new insurance product. One or the other only. In some instances, a fee could be more than the commission, in other instances the commission would be greater. The cost of the product does not change. I have to maintain an ethical relationship between myself and my clients, and from my perspective, ethics and fiduciary responsibility go together more than fiduciary responsibility and fee-only planning.
And when I do the math, I often see the fee-based planners raking in far more in their 1% AUM fees over a few years than the same client would have paid in either mutual fund A-share sales charges or per trade costs in a brokerage account at Vanguard, Schwab, Scottrade or Fidelity (and a few others). Market Up - Market Down - doesn't make a difference, as long as there are assets under management, the client pays a fee for "advice" -- good or bad.
- 11,273
That brings up the "conflict of interest" theory... and yes, it's a theory.
CFP "fee-only" advocates think that charging a fee eliminates the "conflict of interest" because you are only interested in helping your client and they are the one's paying you.
However, what is the "conflict of interest" there? The conflict is in how many plans can you sell? How much time can/will you devote to those plans?
Since you're not "driven by evil commissions"... you don't need or want to recommend permanent life insurance or annuities, right? So the "fee only" advice looks like this: pay off all debt, build up an emergency fund, invest in your 401k, open a Roth IRA with no-load funds... and you'll be just fine... because you're not "paying commissions".
And since everything is about "costs and commissions"... this is the most "prudent advice" you can get, right? And all it cost was a few hundred or thousand dollars to get that advice.
Since that's the "purest" CFP & NAPFA dogma out there... that's why everything involving "high commission insurance" is "evil". Why is it 'evil'? Because it doesn't fit into their "fee only" planning model.
Financial planning and financial services is NOT a charity. If you want a charity or other non-profit to give you advice, you probably need a Consumer Credit Counselor from a credit counseling service.
Every form of advice out there involves fees or commissions or both. At least with insurance-based solutions, you have certain contractual guarantees that provide more peace of mind, than the idea that you got a low-cost financial plan from a planner that has no 'conflict of interests'.
Except that they need to charge you the most out of your pocket that you can bear... and get referrals from you... in order to stay in business... but that's besides the point.
CFP "fee-only" advocates think that charging a fee eliminates the "conflict of interest" because you are only interested in helping your client and they are the one's paying you.
However, what is the "conflict of interest" there? The conflict is in how many plans can you sell? How much time can/will you devote to those plans?
Since you're not "driven by evil commissions"... you don't need or want to recommend permanent life insurance or annuities, right? So the "fee only" advice looks like this: pay off all debt, build up an emergency fund, invest in your 401k, open a Roth IRA with no-load funds... and you'll be just fine... because you're not "paying commissions".
And since everything is about "costs and commissions"... this is the most "prudent advice" you can get, right? And all it cost was a few hundred or thousand dollars to get that advice.
Since that's the "purest" CFP & NAPFA dogma out there... that's why everything involving "high commission insurance" is "evil". Why is it 'evil'? Because it doesn't fit into their "fee only" planning model.
Financial planning and financial services is NOT a charity. If you want a charity or other non-profit to give you advice, you probably need a Consumer Credit Counselor from a credit counseling service.
Every form of advice out there involves fees or commissions or both. At least with insurance-based solutions, you have certain contractual guarantees that provide more peace of mind, than the idea that you got a low-cost financial plan from a planner that has no 'conflict of interests'.
Except that they need to charge you the most out of your pocket that you can bear... and get referrals from you... in order to stay in business... but that's besides the point.
That brings up the "conflict of interest" theory... and yes, it's a theory.
CFP "fee-only" advocates think that charging a fee eliminates the "conflict of interest" because you are only interested in helping your client and they are the one's paying you.
However, what is the "conflict of interest" there? The conflict is in how many plans can you sell? How much time can/will you devote to those plans?
Since you're not "driven by evil commissions"... you don't need or want to recommend permanent life insurance or annuities, right? So the "fee only" advice looks like this: pay off all debt, build up an emergency fund, invest in your 401k, open a Roth IRA with no-load funds... and you'll be just fine... because you're not "paying commissions".
And since everything is about "costs and commissions"... this is the most "prudent advice" you can get, right? And all it cost was a few hundred or thousand dollars to get that advice.
Since that's the "purest" CFP & NAPFA dogma out there... that's why everything involving "high commission insurance" is "evil". Why is it 'evil'? Because it doesn't fit into their "fee only" planning model.
Financial planning and financial services is NOT a charity. If you want a charity or other non-profit to give you advice, you probably need a Consumer Credit Counselor from a credit counseling service.
Every form of advice out there involves fees or commissions or both. At least with insurance-based solutions, you have certain contractual guarantees that provide more peace of mind, than the idea that you got a low-cost financial plan from a planner that has no 'conflict of interests'.
Except that they need to charge you the most out of your pocket that you can bear... and get referrals from you... in order to stay in business... but that's besides the point.
That was almost a great article Dave..
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The CFP board of standards does not require a fee only model , only transparency of fees. I am happy to disclose insurance commissions.
- 11,273
Personally, I never want to disclose my commissions. It's immaterial. It doesn't matter.
Whether I earn $10... or $100k on a policy... doesn't matter. Either the solution fits the situation, or it doesn't. Either it's affordable, or it isn't.
How much the insurance company pays me... is none of the client's business.
Think of it this way: If the client wanted to call up the insurance company and ask them for the EXACT same proposal but without an agent, so they wouldn't have to "pay commissions"? No. The insurance proposal would look EXACTLY the same. There is no difference in the product whether they work with an agent or not.
That's why insurance compensation is truly immaterial to the planning discussion.
I can see there being this discussion with investment management, or selling mutual funds, or VARIABLE insurance contracts... but not fixed insurance business.
And even then, you need to fully disclose all fees in such arrangements... but how much YOU get out of it, or your "cut"... is still immaterial to the planning conversation and client engagement.
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I'm not telling you NOT to disclose... just sharing my perspective.
I also know that in some states, commission disclosure is required. I'm just glad that I don't live in that state... yet. You never know what can happen in California.
Whether I earn $10... or $100k on a policy... doesn't matter. Either the solution fits the situation, or it doesn't. Either it's affordable, or it isn't.
How much the insurance company pays me... is none of the client's business.
Think of it this way: If the client wanted to call up the insurance company and ask them for the EXACT same proposal but without an agent, so they wouldn't have to "pay commissions"? No. The insurance proposal would look EXACTLY the same. There is no difference in the product whether they work with an agent or not.
That's why insurance compensation is truly immaterial to the planning discussion.
I can see there being this discussion with investment management, or selling mutual funds, or VARIABLE insurance contracts... but not fixed insurance business.
And even then, you need to fully disclose all fees in such arrangements... but how much YOU get out of it, or your "cut"... is still immaterial to the planning conversation and client engagement.
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I'm not telling you NOT to disclose... just sharing my perspective.
I also know that in some states, commission disclosure is required. I'm just glad that I don't live in that state... yet. You never know what can happen in California.
- 179
I have a buddy at merril and a buddy at morgan stanley that preach the whole "buy term invest the rest". They would love her first post. The problem is that they're groomed to capture assets and are taught this from day one. I don't hold it against them. When they have a client that "wants" perm or SPL.......I get a phone call
There is really 2 sides to the compensation coin. Series 7 producers at financial firms like merril are paid based off of AUM. So they don't want to see those premium dollars going to a permanent plan even if it's in the clients best interest. On, the other side it could be argued that an insurance agent doesn't have the licenses to provide full market exposure; so they pimp IUL or the like.
There are good advisors out there who want to do right by the client. If you are one of them you educate yourself and surround yourself with a team that can provide everything. In the end, the average client(whoever that is) should more than likely own a combination of term/perm, and have a retirement account that they can contribute to.
There is really 2 sides to the compensation coin. Series 7 producers at financial firms like merril are paid based off of AUM. So they don't want to see those premium dollars going to a permanent plan even if it's in the clients best interest. On, the other side it could be argued that an insurance agent doesn't have the licenses to provide full market exposure; so they pimp IUL or the like.
There are good advisors out there who want to do right by the client. If you are one of them you educate yourself and surround yourself with a team that can provide everything. In the end, the average client(whoever that is) should more than likely own a combination of term/perm, and have a retirement account that they can contribute to.
