- 10,322
Ike,
imo
It is very hard to be a true Fiduciary when you have a captive contract.
And I am not a fan of calling your self a Fiduciary when selling insurance.
You are making a sale, which in and of itself is not a Fiduciary function.
When you step out of advisor role and put on your agent cap you are no longer acting as a Fiduciary for the client. jmo
I feel that you let the Financial Strength argument take precedent over the actual product at hand.
Not only that, but as important as Financial Strength is, it is not necessarily the end all be all.
Imo, the Ratings importance to the sale vary by product.
Im not trying to attack or say you are not acting in a Fiduciary manner as dictated by the CFP board.
I dont doubt that you disclose any conflicts of interest to the best extent that you can.
But that last portion of the last sentence is the problem.
It is extremely difficult the quantify your NWM comp in an equal and understandable way when compared to an Indy contract.
Although you have a lower first year comp, you do have expense credits, pension credits, and if you are housed your overhead is greatly reduced.
It is very hard to compare those last three equally to a straight indy contract.
Disclosure issues aside.
You seem to hold Ratings above product features and performance.
I do understand your mindset to an extent. In the investment world managing risk is important. And since Insurance is about safety, the highest ratings must mean the best product right?
But not necessarily.
A few points to consider;
First, there is one company with the exact same ratings as NWM. Its NYL. NYL has actually been around longer than NWM.
MM is just one off with just one rating agency, other than that the ratings are the same. That equals a 1/20th difference in ratings. (actually 1/21 difference)
Guardian has the same as MM.
So when you recommend NWM because of their ratings over those other three, do you tell the client that there is a 1/20th difference in the rating of NWM and the other three?
And just because NWM pays the most dividends does not mean they necessarily pay the most per policy holder. Or even more importantly, per dollar of premium.
I am not saying they have "bad" products. But they are by no means above and beyond their competition in any way shape or form.
Also, the dividend doesnt really mean much without something to reference it to.
LTCI & DI only receive a reduction in premium. So at the end of the day the Dividend on either of those types of policies is a commodity that affects premium alone.
I will let the LTC experts on here let us know if NYL still has better policy language than NWM. When I was with them 5 years ago they did, and it was priced lower, and they pay dividends 1st year if I remember correctly.
But to say you are acting as a Fiduciary and not recommend NYL over NWM is at minimum a very grey area.
And why would you not lay out the top two options and say "is a 1/20th difference in financial ratings worth this much more premium?
You talk about cash flow planning. And you speak of the lost opportunity cost of the high premium of a 10 pay; but what about the lost opportunity cost of a $1k or $2k per year difference in premium? You contradict yourself in that aspect.
I can understand getting hung up on ratings when it comes to dividend paying life insurance. If you are buying based on assumptions of policy performance dependent on dividends, then dividend history and financial strength are important.
But LTCI and DI are purely Guarantees.
And the DOI forces all ICs to set aside enough reserves to cover their contractual guarantees.
So to say that your guarantees are safer at a AAA IC, vs. a AA or A IC is a bit misleading.
The reserve requirements make all IC guarantees a solvent guarantee.
Also, the SGA safety net is something unique to insurance that your old bond and stock world did not have. Its basically a secondary guarantee behind the reserve requirement.
Even when companies have gone through receivership policy holder claims are still paid out.
Investment grade is above BB+ on Fitch's scale.
IMO, a true Fiduciary would design the LTCI plans benefit design.
Then they would shop all of the investment grade ICs to see which company has the most competitive policy language and price.
If this is done NWM will never be on top for LTCI...
And when it comes to WL.
Just because NWM has a history of a bit higher dividends does not mean that the policy allows for greater distributions.
In fact, NWM ranks very poorly when it comes to CV distribution from their WL policy. They also have a very poor conversion option on their term.
You might meet the CFPs definition that is designed to coincide with a dual registered industry. But it does not meet the traditional definition. Nor will it meet the DOLs definition if they get their way...
imo
It is very hard to be a true Fiduciary when you have a captive contract.
And I am not a fan of calling your self a Fiduciary when selling insurance.
You are making a sale, which in and of itself is not a Fiduciary function.
When you step out of advisor role and put on your agent cap you are no longer acting as a Fiduciary for the client. jmo
I feel that you let the Financial Strength argument take precedent over the actual product at hand.
Not only that, but as important as Financial Strength is, it is not necessarily the end all be all.
Imo, the Ratings importance to the sale vary by product.
Im not trying to attack or say you are not acting in a Fiduciary manner as dictated by the CFP board.
I dont doubt that you disclose any conflicts of interest to the best extent that you can.
But that last portion of the last sentence is the problem.
It is extremely difficult the quantify your NWM comp in an equal and understandable way when compared to an Indy contract.
Although you have a lower first year comp, you do have expense credits, pension credits, and if you are housed your overhead is greatly reduced.
It is very hard to compare those last three equally to a straight indy contract.
Disclosure issues aside.
You seem to hold Ratings above product features and performance.
I do understand your mindset to an extent. In the investment world managing risk is important. And since Insurance is about safety, the highest ratings must mean the best product right?
But not necessarily.
A few points to consider;
First, there is one company with the exact same ratings as NWM. Its NYL. NYL has actually been around longer than NWM.
MM is just one off with just one rating agency, other than that the ratings are the same. That equals a 1/20th difference in ratings. (actually 1/21 difference)
Guardian has the same as MM.
So when you recommend NWM because of their ratings over those other three, do you tell the client that there is a 1/20th difference in the rating of NWM and the other three?
And just because NWM pays the most dividends does not mean they necessarily pay the most per policy holder. Or even more importantly, per dollar of premium.
I am not saying they have "bad" products. But they are by no means above and beyond their competition in any way shape or form.
Also, the dividend doesnt really mean much without something to reference it to.
LTCI & DI only receive a reduction in premium. So at the end of the day the Dividend on either of those types of policies is a commodity that affects premium alone.
I will let the LTC experts on here let us know if NYL still has better policy language than NWM. When I was with them 5 years ago they did, and it was priced lower, and they pay dividends 1st year if I remember correctly.
But to say you are acting as a Fiduciary and not recommend NYL over NWM is at minimum a very grey area.
And why would you not lay out the top two options and say "is a 1/20th difference in financial ratings worth this much more premium?
You talk about cash flow planning. And you speak of the lost opportunity cost of the high premium of a 10 pay; but what about the lost opportunity cost of a $1k or $2k per year difference in premium? You contradict yourself in that aspect.
I can understand getting hung up on ratings when it comes to dividend paying life insurance. If you are buying based on assumptions of policy performance dependent on dividends, then dividend history and financial strength are important.
But LTCI and DI are purely Guarantees.
And the DOI forces all ICs to set aside enough reserves to cover their contractual guarantees.
So to say that your guarantees are safer at a AAA IC, vs. a AA or A IC is a bit misleading.
The reserve requirements make all IC guarantees a solvent guarantee.
Also, the SGA safety net is something unique to insurance that your old bond and stock world did not have. Its basically a secondary guarantee behind the reserve requirement.
Even when companies have gone through receivership policy holder claims are still paid out.
Investment grade is above BB+ on Fitch's scale.
IMO, a true Fiduciary would design the LTCI plans benefit design.
Then they would shop all of the investment grade ICs to see which company has the most competitive policy language and price.
If this is done NWM will never be on top for LTCI...
And when it comes to WL.
Just because NWM has a history of a bit higher dividends does not mean that the policy allows for greater distributions.
In fact, NWM ranks very poorly when it comes to CV distribution from their WL policy. They also have a very poor conversion option on their term.
You might meet the CFPs definition that is designed to coincide with a dual registered industry. But it does not meet the traditional definition. Nor will it meet the DOLs definition if they get their way...
Last edited:
