Life insurance Rule or Regulation Question

[DHK]

What ForeThought taught drummed in our heads: investment requires putting your money at RISK in hopes of making a profit.

Is a Bank Certificate of Deposit an investment? Yes.
What is the risk factor to the principal? Zero.

What else would it be? Yes, it could be considered an insured savings account, but the only reason to do it is for principal protection with modest interest gains.

Is real estate an investment? Yes.
What is the risk factor? Depends on the numbers, anticipated profits for resale or asset value growth over time, money, time, and expertise to fix it up, and time on the market... and what else you could've done with the money.

I think there are 7 criteria (possibly more) for evaluating ANY "bucket of money": risks, anticipated returns, costs to invest, terms, agent or advisor compensation, intangible considerations, and tax considerations.

https://davidkinderfinancial.wixsit...a-To-Evaluate-and-Compare-Capital-Investments

This recent post in the Annuity forum has helpful guidance: https://insurance-forums.com/community/threads/new-annuity-suitability.95909/

I would suggest that one use the terminology that they wouldn't have any trouble defending if they were in a courtroom on trial for their sales activities.

 

[Newby]

Is a Bank Certificate of Deposit an investment? Yes.
What is the risk factor to the principal? Zero.

What else would it be? Yes, it could be considered an insured savings account, but the only reason to do it is for principal protection with modest interest gains.

Is real estate an investment? Yes.
What is the risk factor? Depends on the numbers, anticipated profits for resale or asset value growth over time, money, time, and expertise to fix it up, and time on the market... and what else you could've done with the money.

I think there are 7 criteria (possibly more) for evaluating ANY "bucket of money": risks, anticipated returns, costs to invest, terms, agent or advisor compensation, intangible considerations, and tax considerations.

https://davidkinderfinancial.wixsit...a-To-Evaluate-and-Compare-Capital-Investments

This recent post in the Annuity forum has helpful guidance: https://insurance-forums.com/community/threads/new-annuity-suitability.95909/

I would suggest that one use the terminology that they wouldn't have any trouble defending if they were in a courtroom on trial for their sales activities.

I don’t 100% know if these people were right or not. But by their logic no a bank CD is definitely NOT an investment and can never legally be called an investment. It is a savings vehicle.

To be legally called an investment it must have risk to principle through no fault of your own. And you must be licensed for investments to sell investments.

People like us (insurance agents) can get in deep doo doo if we advertise anything we are licensed to sell and call it an investment. Money put in a CD or an insurance policy or a fixed annuity is not at risk of loss (other than failure of the bank or insurance company) and so it is not an investment.

Real estate IS an investment. Because it can definitely go up or down.

If it only can go up it is a savings vehicle. Not an investment. An investment can not be a sure thing.

That’s how I understand it anyway.

 

[Golfnut2112]

Is there a rule/regulation (NAIC?) stating that agents should not sell life insurance as an investment and/or a savings account?
or is it that consumers should not buy life insurance as an investment and or/a savings account?
Anybody know?

Just google Ohio agent loses license leap. That should answer your question

 

[AndrewRoche]

Golfnut2112 Thank you! I did the google thing and found the LEAP article.

 

[DHK]

Like most legal complaints, it's easy to extrapolate what you want to find rather than the harder facts and problems in the process:

Look at the press release itself: Lt. Governor Taylor Revokes Agent’s License After $800K Misrepresentation

The Ohio Department of Insurance found Willms, from 2011 to 2013, led clients to believe that the complex Life Economic Acceleration Process (LEAP) strategy and the resulting purchase of whole life insurance policies was an investment that replaced, or would replace, their previous investments.

Further, Willms misrepresented the value of the whole life insurance policies sold stating they would pay for themselves through earned dividends, would not increase out-of-pocket expenses and would increase his clients’ wealth.

1) It's not often that LEAP'ers use a written plan to explain why they recommend what they recommend. They just use the Wealth-in-Motion software simulation to show off what they know. So when people think back to why they bought life insurance... they don't remember why they bought it.

2) I've often seen other FINRA complaints about people selling out mutual funds to purchase permanent life insurance. Why are these complaints there? Because, again, they forgot why it was a good idea at the time.

3) Specific to this complaint - selling a "dividend offset of policy values" (because "vanishing premiums" isn't compliant anymore, if it ever was), and that the insurance would not increase out-of-pocket expenses (based on "finding the money" through other inefficient uses and repositioning assets and cash flow)... all speaks to the process used and expectations set at the time. Dividend offset could only "possibly" happen after the 20th year, and probably much further out than that.

If this agent had documented his recommendations in a client-friendly manner, so that the client understood why the purchase was in their best interest... these complaints wouldn't have ever happened. Instead, it often feels like these software system sellers believe that "if you get people into a deep enough trance, they'll buy from you." But once the trance wears off... they had better feel good about having worked with you and remember why they bought what they bought.



And here's the Founder of LEAP Systems (Bob Castiglione) talking about the values of permanent life insurance:



Here's the manuscript of the presentation for reference:
http://www.imdrt.org/mentoring/pro_creatingWow.pdf

 

[DHK]

Real Wealth Media hosted a webinar with Van Mueller, Marv Feldman, John Wheeler, and Jim Silbernagle on a panel for NAIFA's national conference.

In that webinar / panel, Van Mueller said this:
"Don't ever get caught in the dilemma of thinking that you have to compete with life insurance being an investment. It's not an investment. That's demeaning to life insurance. Life insurance is a flexible foundational product that allows you to do multitudes of things on behalf of prospects, clients, and businesses."

 

[AndrewRoche]

“They don’t remember why they bought it“
“They forgot it was a good idea at the time” “The purchase was in their best interest” No offense DHK, but it seems like you are trying to extrapolate what you want to find rather than the facts. I don’t know anything about the case, but I’m not going to assume that the agent was in the right just because he promoted a known investment life insurance program.
Could it be that these types of investment life strategies have a place in the affluent market with sophisticated clients but too many agents are selling them to clients who just want life insurance?
If the client has no need for death benefit protection and life insurance is being “sold” as an investment, I say document and sell the hell out of it, but I really don’t think that’s the case in our market. Clients come in looking for death benefit protection and leave with an investment. Maybe that’s why clients can’t remember why it was a good idea at the time. Thoughts?

 

[DHK]

I always look for the bias.

I'm going to switch the scenario a bit. Here's another case - about fixed indexed annuities. This guy, Tracy W. Mitchell, was a Series 65 licensed advisor who primarily sold fixed indexed annuities, but promoted himself as a fiduciary securities advisor.

https://insurance-forums.com/community/threads/watch-calling-yourself-a-financial-planner.27412/

Now, I've read the court documents (link below). While the total complaint brought up EVERYTHING he did wrong (as attorneys will do), the gross negligence was one primary thing:
1) He discussed the benefits of fixed indexed annuities, but on the actual annuity applications, he allocated 100% of the balance to the FIXED INTEREST segment. No indexing benefits chosen! (That, to me, is the biggest issue as it showed pure incompetence.)
2) I believe that he also surrendered current annuities with surrender charges and put the proceeds into bonus annuities to "make up" for the surrender charge. (Bad idea all the way around.)

But they brought up EVERYTHING else that this guy did - because that's what attorneys do:
- He promoted himself as a fiduciary advisor but only had 10% of his clients assets in securities investments. (Was that the real problem?)
- He had a designation that wasn't accredited. (Big deal.)

You can read more about that particular court case in this link here:
https://www.sos.mo.gov/cmsimages/securities/orders/AP-10-45.pdf

Attorneys and compliance people will ALWAYS blow everything out of proportion and find EVERYTHING that they can to ensure to paint this guy as a danger to the public. Why? Because that's how regulators justify their existence as a protector of the public and promoting "how wrong" this agent's actions are/were.

I always look for the bias in everything and then I search for the truth.

 

[Golfnut2112]

“They don’t remember why they bought it“
“They forgot it was a good idea at the time” “The purchase was in their best interest” No offense DHK, but it seems like you are trying to extrapolate what you want to find rather than the facts. I don’t know anything about the case, but I’m not going to assume that the agent was in the right just because he promoted a known investment life insurance program.
Could it be that these types of investment life strategies have a place in the affluent market with sophisticated clients but too many agents are selling them to clients who just want life insurance?
If the client has no need for death benefit protection and life insurance is being “sold” as an investment, I say document and sell the hell out of it, but I really don’t think that’s the case in our market. Clients come in looking for death benefit protection and leave with an investment. Maybe that’s why clients can’t remember why it was a good idea at the time. Thoughts?

Your right, life insurance as a savings strategy is more for the affluent that don’t qualify for a Roth or possibly someone that has maxed out their ROTH.
The problem is to many agents try to sell life insurance as some spectacular investment because they are not licensed to sell investment products or want the big life commission. How many people have been sued for selling a Roth as an inappropriate investment?

 

[VolAgent]

Your right, life insurance as a savings strategy is more for the affluent that don’t qualify for a Roth or possibly someone that has maxed out their ROTH.
The problem is to many agents try to sell life insurance as some spectacular investment because they are not licensed to sell investment products or want the big life commission. How many people have been sued for selling a Roth as an inappropriate investment?

Since a Roth is an account designation for tax purposes and not a product, none.

Now if you are asking how many people have been sued for putting mutual funds inside a Roth, the answer would still be none. Anyone selling mutual funds would be covered by FINRA which would be arbitration and not a lawsuit. So the B/D would either settle it or go to arbitration over it. And quite a few mutual fund transactions generate FINRA complaints.

But yes, I do agree with your premise. Lots of people look at life insurance as a way to generate big commissions, so they try to justify putting more premium into life insurance than may be appropriate.