I have been dogged by a somewhat dispiriting thought for most of my professional life: I get into an industry just in time to turn the lights off.
First it was news radio, just as stations started cutting news staffs; then it was newspapers as they discovered the phrase “Do more with less;” followed by an insurance association as associations were hemorrhaging members; and finally, a print magazine in the life insurance industry. A bit of a double whammy on the last one.
The standard greeting was approximately “Welcome! You should have been here 10 years ago — things were great then! Anyway, shut off the lights if you’re the last one out!”
Each one of those industries did sustain systemic change, but it finally occurred to me that I would hear this anywhere. Rarely is there a person who says, “You came here right on time!” Well, not after the job interview.
We find ourselves at a pivotal moment. I could have written that sentence in any Letter From the Editor in the 10 years I have been writing them. It has always been true.
In John Hilton’s main feature this month, he examines the endless flypaper unspooled by regulators to trap insurance agents and financial advisors. As the Department of Labor reconsiders its fiduciary rule, many other entities are racing ahead. The Securities and Exchange Commission, states and the National Association of Insurance Commissioners are all getting in with their own fiduciary rulemaking. And who knows what the DOL itself might do with its rule?
The insurance industry, from company to seller, is nervous about all of it. The DOL rule itself was crafted out of malice toward annuity sellers. The name (the conflict-of-interest rule), tone and stretched evidence all point to a prejudice against commission sales.
Of course, some slimy creatures have abused clients for the sake of a high commission, but that is true of some fee-grubbers and outright thieves in the fiduciary world as well. Just as FINRA and the SEC go after those miscreants, state insurance departments constantly issue press releases trumpeting the latest arrest of an insurance agent.
Critics point to “churning” as a leading offense in life insurance. But exchanging annuities to the detriment of a client is illegal under the suitability standard as well. Offenders don’t just get fined — they also are arrested and jailed. And generally speaking, if an action is against a client’s best interest, it is also considered unsuitable.
The fiduciary system sees a vast number of complaints and crimes. As you can see in an accompanying chart, complaints about financial advisors by far outnumber consumer complaints about annuities. The 2014 figures were in a 2015 report examining the DOL’s reasoning behind the then-proposed fiduciary standard. Jack Marrion, an annuity analyst with Advantage Compendium, compiled the report for Americans for Asset Protection.
The report also identified other areas where data were misrepresented to support the DOL’s conclusion. On top of the questionable basis for the rule, the DOL also locked out annuity sellers and distributors from selling fixed indexed annuities with IRA money. Independent marketing organizations, which serve independent annuity sellers, were not classified as financial institutions, a designation that would be required to sell FIAs.
The financial institution definition and requirement remain in the rule delayed by the DOL until July 2019. If it stays in the rule at that time, it is likely to put almost all IMOs out of business, as Hilton reported in his feature this month.
This is all to say that the insurance industry has plenty to fear from all of the efforts to disrupt the business.
But you don’t have to fear. Because you are reading this, you are the kind of agent or advisor who wants to do your best for your client. You want to be the go-to person.
So you might also know that expectations are changing. Sure, regulators can seem pretty ham-handed in what they are doing, but they are just a small stream in the current.
Institutions are failing many Americans. Their employers are walking away from their pension promises. Health care costs, even when consumers are insured, are draining substantial wealth from most families. Many people are saying that it might be foolish to assume that the full promise of Social Security will be kept when they retire.
With all of these concerns, what are the best-interest people recommending? Typically not annuities. Usually it’s a model plotting how long a client’s money should last. Those models often do not withstand academic review. Several studies show clients outlasting their money.
Those models are the province of the wealthy, which is who registered investment advisors serve. According to Cerulli Associates, 68 percent of the money managed by RIAs comes from high-net-worth individuals. Who serves the rest of America? Commission-based agents agents, primarily.
You are the answer for many families. Their future depends on your excellence. Does that mean broadening to get a securities license or a new accreditation? It might.
But to do what you have always been doing is to surrender. Nobody owes you stability. That never existed.
I came to understand that myself at some point. I had imagined that I was always on a threshold, in the middle of two distinct eras.
But that turned out to be an illusion. Rather than a threshold, it is more like a thin bridge over the rushing river of change. We can stay here or jump in.
It looks like a whole lot more fun in the water.