Industry Reaction to Obama’s Push for Fiduciary Standard

[Gulfman]

Can someone break this down for a Simple Man.

What are the bullet points of this proposal?

 

[Charpress]

Can someone break this down for a Simple Man.

What are the bullet points of this proposal?

Here's the only bullet point you need to know:

• You must put the client's interest ahead of your own

That's an easy sell to the public, isn't it? Shouldn't everyone giving advice for pay to someone else be required to put the other person's interest ahead of their own?

Like most stuff coming down the pike, it sounds good. But stop and think where this can go -and, in fact, where it has gone in some litigation cases against agents.

Could it not be argued that the very fact you get paid a commission by an insurance company is de facto putting your own interests ahead of the client?

Are you going to be put into the position of proving that every piece of advice and every product is in the client's best interest?

For those of us dually licensed, don't we already have the issue of how we sell insurance products? If you recommend an annuity as part of a client's retirement plan, do you have to justify how you arrived at an annuity in general and the recommended annuity in particular?

There is a lot of ignorance out there on what annuities are and how they can legitimately fit into a financial plan. Life insurance doesn't seem to have as much of a prejudice problem because people basically understand what life insurance is and they trust the concept.

One thing all of us need to understand is that the very people regulating us are, on the whole, a pretty stupid bunch of people. THAT is the fundamental problem with regulating in general. Those regulators who aren't necessarily stupid are more dangerous. They are the political animals who want to make points by "protecting" people at the expense of the poor slob who is trying to make a living and help their client.

 

[nylife11023]

the poor slob who is trying to make a living and help their client.

And therein lies the problem. Anyone who can fog a mirror can get a license to cheat, steal, and defraud people via insurance and some annuities.

Perhaps if the corridor of entry was a bit narrower... perhaps requiring at least a two year degree or perhaps an internship or perhaps a rigorous exam (like the 7 but more relevant to everyday transactions) OR perhaps more/better continuing education where only the 'best and the brightest' have entry to the financial industry 'profession' ... perhaps a fiduciary standard would not be needed.

I'm for all of the above as it would help keep many/most of the bozos out of the biz.

To agents who are 'afraid' of a fiduciary standard for insurance professionals... I call into question their own morals and ethics. I think there is something more going on here than an objection to increased paperwork and CE... something a bit more sinister perhaps.

Help, master, help! here's a fish hangs in the net,
like a poor man's right in the law.
Shakespeare, Pericles, Act 2 Scene 1)

 

[DHK]

Are you going to be put into the position of proving that every piece of advice and every product is in the client's best interest?

nylife11023,

You need to re-read that post... and fully internalize this part.

Can you PROVE to a court of law, that every single life insurance recommendation is the BEST recommendation for your client?


Yes, it sounds great to always put your client's needs first... but how do you PROVE it to others who are NOT in your industry?

The comments in this thread have some interesting points: ProducersWeb - Retirement - A stand-in for the fiduciary standard?

David, I share your concerns. Insurance pros generally have NO problem with the obligation to work in the client's best interest OR to keep that client's interest ahead of their own. But the devil is in the details. If I sell a life insurance policy in which the premium is higher than some hypothetical "better" plan, who is to determine which policy is "better" for that client in that specific facts situation? And how will that be done?

As Dick Weber is always saying, buying life insurance isn't like buying a refrigerator. Premium (price) CANNOT be the sole metric by which the policy's worth is measured. Neither, for that matter, is the combination of premium, cash value, and death benefit. Most life policies sold today are "indeterminate premium" contracts; many are Indexed UL. There are just SO MANY ways to structure such a product that I doubt that ANYONE can state, with any authority or credibility, what the "best" way is, or if a given structure is necessarily "better" than another (except, of course, if one uses a reliable method of determining whether the policies being compared are likely to produce the benefits illustrated.

Now, my concerns here rest upon the worry that application of a fiduciary standard to my insurance sales activities will carry the baggage of "did he sell the BEST policy?". Personally, I think that's useless baggage, as it's a question that cannot be answered reliably. Rather, I think that the application of fiduciary duty will, and should, focus on the PROCESS that the agent in question used to determine the policy recommended. THAT can be assessed reasonably. But, even there, questions remain. Does an agent who sells only one company's policy fail the fiduciary standard? Sect. 913(g) of the Dodd-Frank Act says that this will not "in and of itself" constitute a breach of fiduciary duty. Nor will receipt of commissions, "in and of itself", be such a breach. But a reading of that section should make clear to anyone that it leaves a lot to be determined later.

Bottom line: I have no objection to being held to placing my client's interest ahead of my own (I've been doing that for decades), nor in having to demonstrate, if required, that I used diligence in making my recommendations. But I'm all too aware of the sharks circling the fiduciary debate for whom the vagueness of the standard (as if there is a single standard that can cover those who give investment advice and who sell products, where the advice is ancillary to the sale) is an invitation to a feeding frenzy.

 

[Charpress]

Anyone who can fog a mirror can get a license to cheat, steal, and defraud people via insurance and some annuities.

Not too condescending, are we?

In my state the testing to get an insurance license is pretty rigorous, especially the ethics portion.

I have no problem with more training or higher standards to get licensed, but the fiduciary standard AS IT IS OFTEN APPLIED is a huge gray area that gets political in too many cases.

I would rather see the NAIC set some specific standards rather than the nebulous "put his interests before yours" -not that we don't already have some pretty specific standards that the insurance industry together with the NAIC have put into place in the last few years.

 

[Norwayguy]

And therein lies the problem. Anyone who can fog a mirror can get a license to cheat, steal, and defraud people via insurance and some annuities.

Perhaps if the corridor of entry was a bit narrower... perhaps requiring at least a two year degree or perhaps an internship or perhaps a rigorous exam (like the 7 but more relevant to everyday transactions) OR perhaps more/better continuing education where only the 'best and the brightest' have entry to the financial industry 'profession' ... perhaps a fiduciary standard would not be needed.

I'm for all of the above as it would help keep many/most of the bozos out of the biz.

To agents who are 'afraid' of a fiduciary standard for insurance professionals... I call into question their own morals and ethics. I think there is something more going on here than an objection to increased paperwork and CE... something a bit more sinister perhaps.

Help, master, help! here's a fish hangs in the net,
like a poor man's right in the law.
Shakespeare, Pericles, Act 2 Scene 1)

So can you prove to a court of law your recommendation of nylife is in the clients best interest? Determined By who AND On WHAT Basis?

 

[scagnt83]

So can you prove to a court of law your recommendation of nylife is in the clients best interest? Determined By who AND On WHAT Basis?

Because of their ratings and they are a mutual company... policies from top rated mutual companies are always in the best interest of the client... dont you know that Peter??

And of course a captive environment never creates a conflict of interest...

 

[nylife11023]

So can you prove to a court of law your recommendation of nylife is in the clients best interest? Determined By who AND On WHAT Basis?

I look at it this way. If you CAN'T justify that what you sold is not in the client's best interest... then obviously it isn't.

As for proof in court, that is what (E&O) lawyers are for.

The current suitability standard simply gives crooked agents that opportunity to be crooked, with little if any liability. If you think that is a good system and are for some reason afraid of a fiduciary standard, in my opinion it is your standard of morality and ethics that need justification beyond the issue of what was sold to the client being suitable much less in his/her best interests.

I think this must be generational. Young agents that I know and hang with don't seem to have an issue with standing up and saying "I only do what is in my client's best interest and have no problem being held to that standard morally, ethically, and legally."

"Thus conscience does make cowards of us all"
Shakespeare, Hamlet, Act 3, Scene 1

 

[DHK]

It's not about ethics.

It's about liability.

By what basis will your recommendation be scrutinized to be in the BEST interest, AND the BEST POLICY for your client in a court of law?

Will it be by commission?

Company ratings?

Premium?

Death benefit?

Riders?

By what basis will your recommendation be scrutinized in a court of law and judged by a jury of your peers to be the BEST POLICY POSSIBLE?

Here's the answer: You don't know.

And I don't know either.

This is above suitability. This is fiduciary duty - and being a fiduciary is MORE than just having your client's best interests at heart. It's about PROVING what you recommended is in their best interests and able to defend that recommendation if necessary.


E&O doesn't defend against FRAUD accusations.

Oh, you don't think this could be a case of FRAUD? Here's the definition of Fiduciary according to the SEC:

http://www.sec.gov/divisions/investment/advoverview.htm

As an investment adviser, you are a “fiduciary” to your advisory clients. This means that you have a fundamental obligation to act in the best interests of your clients and to provide investment advice in your clients’ best interests. You owe your clients a duty of undivided loyalty and utmost good faith. You should not engage in any activity in conflict with the interest of any client, and you should take steps reasonably necessary to fulfill your obligations. You must employ reasonable care to avoid misleading clients and you must provide full and fair disclosure of all material facts to your clients and prospective clients. Generally, facts are “material” if a reasonable investor would consider them to be important. You must eliminate, or at least disclose, all conflicts of interest that might incline you — consciously or unconsciously — to render advice that is not disinterested. If you do not avoid a conflict of interest that could impact the impartiality of your advice, you must make full and frank disclosure of the conflict. You cannot use your clients’ assets for your own benefit or the benefit of other clients, at least without client consent. Departure from this fiduciary standard may constitute “fraud” upon your clients (under Section 206 of the Advisers Act).

Yes, this relates to RIAs and IARs. But this is also the definition of "fiduciary" according to the SEC.

Where do you think new legislation will get their definitions if a fiduciary standard is imposed upon all financial agents? Right here.

E&O doesn't cover fraud accusations.

Oh, and that E&O? That premium will skyrocket too.

 

[nylife11023]

It's not about ethics.

To some of us it is

It's about liability.

In the financial sector EVERYTHING is about liability.

By what basis will your recommendation be scrutinized to be in the BEST interest, AND the BEST POLICY for your client in a court of law?

I ask the same question about the current suitability standard that insurance agents now work under.

Personally I'd rather stand up in court and argue that what I sold was to a fiduciary standard than merely 'suitable' for the client. Why? Because that is how I do my business. If I don't have good reasons to believe that what I sell is not in the client's best interest, I don't sell it.

For those who want to "skate" by and sell questionable products under the current lax standard, that is their privilege. I would, however, venture a guess that too many unsuitable products have been sold to too many people that the "clamor" for a stronger standard has evolved from the public.

For the insurance industry to stonewall and say "Suitability is good enough, we don't need to be held to a higher standard like our security licensed brethren," is simply a poor strategy.

Yes, the fiduciary standard makes for good press. It's an easy 'sell.' Why? Because it makes a lot of sense.

If an agent is afraid they are going to be sued for a product that could be construed to be not in the client's best interest, then perhaps the agent shouldn't sell it?

I would like to think that the motives of those who are opposed to a fiduciary standards are pure... but reading this thread I'm having doubts.

Anyway, I think it is moot. It's going to come... if not in your lifetime than surely in mine.


"There is a tide in the affairs of men.
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries."

Shakespeare, Julius Caesar Act 4, scene 3,