You sell insurance. That sentence used to be a simple declaration. Now it’s an accusation.
The Department of Labor’s fiduciary rule has invited the fee-only financial advisor world to unload on the commission-based world of the insurance agent. Now contributed articles for magazines and comment sections on websites are shot through with angry denunciations.
Phony advisors — that’s what they call agents who advise. The fee-only contingent says you can’t watch out for a client’s best interest and also collect a commission. In fact, that’s why the Department of Labor called its newest fiduciary regulation the “conflict of interest” rule.
According to that crowd, the client should pay the advisor a fee for direction on what financial products, if any, to buy. Then the advisor would not collect any money from another party for the sale of a product and instead would be paid a fee on the assets under management.
What about life insurance itself? How likely is that to be sold by financial advisors? Not terribly.
Who Will Sell Life Insurance?
The fee-only vision seems to be that insurance would just be the thing that might be called in to help some other strategy. Maybe it will turn on the grease that allows a buy-sell agreement to go into effect in the event of a business partner’s death. Financial advisors typically express little interest in selling life insurance on its own.
Will middle-aged parents struggling to raise children and pay other expenses also pay an advisor to look over their finances? Not likely. And few advisors are prospecting for clients with no appreciable assets to manage.
Where will low- and middle-income Americans go when commission-based agents go extinct?
Who will sell them insurance that protects the children if a parent dies at a young age? How will these consumers know about the latest insurance innovation that covers their expenses if, or more likely when, they need long-term care? Not the people who can’t slap a fee on asset-poor consumers.
This is not to say that the fiduciary folks have no valid point. The insurance industry has a problem with agents selling one product to anybody who can pay for it. And it is also a tad dehumanizing for prospects to be handled by salespeople walking them through a sales process designed around closing rather than actually assessing needs and solutions.
Industry Is Already Regulated
Insurance companies and regulators recognized this (well, maybe regulators did first) and are working to solve these problems. Products have been simplified and bad practices have been called out. Inappropriate sales violate the suitability standard, and agents are punished.
But these efforts do overlook a critical issue — the commission. It is not so much the commission itself, assuming it is not excessive. But the issue stems more from the fact that the commission is not revealed during the process. If consumers know the facts in a sale, they are empowered to make an informed choice. If it was true that the higher-commission sale yielded a lesser value for consumers, that would be apparent.
Transparency has been the best aspect of the DOL fiduciary push, but it has been nudged aside in the effort to kick commissioned agents around. The department says it is out to protect consumers, but in fact it is removing some consumer access by pushing salespeople out of the business. Give consumers access to the facts rather than close markets to them.
Salespeople are not inherently evil. How far we have come from the days of Jim Anderson, the insurance salesman dad at the center of Father Knows Best, that we have to say that. We are not in Springfield anymore.
You Might Be a Salesperson
A columnist for a financial publication wrote a riff on the “you might be a redneck” shtick. The “You might be a salesperson …” column had some good points but mostly cheap shots. You might really be a salesperson if … you think everybody in America is underinsured; someday you hope to move up to a Series 7 from a Series 6; your income goes up sharply every time you hear a motivational speaker; the investments you recommend for IRAs are managed by an insurance company; and so on.
This is where we find ourselves this Life Insurance Awareness Month, on the defense and anxious about the future. If the master salesman Ben Feldman could appear in this moment, he probably wouldn’t recognize the industry he loved. The fabled New York Life agent lived to sell insurance. It would be difficult to find someone today who could say that with a straight face.
His son Marv has carried on the mission by leading Life Happens to help spread life insurance awareness. In his conversation with Publisher Paul Feldman (no relation), Marv talked about his father’s legacy of dedicated service. He also learned to do something his father was not so good at — balancing work and family, an important lesson for everybody.
But thinking back to the days of Ben Feldman and other giants of sales past reminds us of the essence of this business: making sure families are protected from risk. Let’s face it; nobody is eager to buy life insurance — it must be sold. And it takes talent and dedication to do that.
There is nobility in that accomplishment, to be able to move people by emotion and help clients care for what they value most. So the next time someone accuses you of being a salesperson, you can tell them “Smile when you say that.”