These changes by both the CFP Board and the state of New York force long overdue reform to the US life industry. Of all financial products, life insurance remains the most complex and long-held financial product most consumers will buy. Cogent advice about which company to choose, how to adequately fund these policies and perhaps, most importantly, how to manage these policies over time requires professional advice. Those who really wish to be “life insurance professionals” should not fear these higher standards but welcome them as an important point of differentiation from those who want to “sell something” and move on.
An example of one of the firms we are assisting to disrupt the “status-quo” life insurance delivery model is Long Road Risk Management Services. They serve fee-based advisors and their clients under a best interests standard, are able to align with these firms to deliver insurance recommendations and ongoing policy management in the same way they deliver wealth management advice to their clients. They have voluntarily chosen to operate under the highest standards of care in the financial services industry by using a best interests standard while incorporating the elements of the CFP ethics requirement. One of the most important differentiators of their offering is the mandatory use of annual policy management reports produced each year for clients. The annual reports ensure advisors and clients are continuously evaluating their insurance portfolio as it relates to their overall wealth plan.
When we compare the standards for transacting general account life and annuity products to every other kind of financial transaction and products, it should not be the clients who have to determine if the policy is in their best interests. Nor is it fair to say their primary legal protection to consumers comes from their having read and understood these increasingly complex contracts. If financial advisors or insurance agents really want to be compared to physicians, CPAs or other professionals, we should welcome the opportunity to really understand the client’s situation and be willing to document why our recommendation makes sense for that client’s individual situation.
The existing state-based standards actually incent life insurance companies and less-ethical or less-informed agents to create or present illustrations that are prone to understate costs and overstate benefits. Not only has this problem persisted for more than thirty years, it has gotten worse. This has resulted in the perverse outcome that life insurance companies and agents that are willing to create the most outrageous assumptions in their illustration to gain market share because consumers, directed by their agents, compare illustrations without thought of the underlying economics or contractual terms of the contract.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM