The Agent's Fiduciary Responsibility ?

Dec 23, 2018

  1. FexBids
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    In the real estate business the broker has a fiduciary responsibility to the seller.

    The real estate agent normally represents the seller and also has a fiduciary responsibility to the seller.

    However, if the agent is an Accredited Buyer's Representative (ABR) the agent has a fiduciary relationship to the buyer.

    I have searched and read everything on the this forum to find a definitive answer as to the fiduciary responsibility between a life insurance agent and a life insurance buyer. If there is a definitive answer on the this forum I can't find it.

    I have searched google to find the answer. It seems the answer depends on the author of the article you are reading. And, that applies to articles written by lawyers who you would think would have the definitive, legal answer. Of course, that isn't true because lawyers earn their money by being able to assert both sides of a legal question. So much for intellectual honesty!

    Then, come to find out on the federal level it's still an open question because of "pending decisions".

    So, what is the answer?

    In the life insurance industry, legally, to which party does an insurance agent (with no special designations) owe a fiduciary responsibility:

    A) The carrier
    B) The FMO/IMO (who is a legal agent of the carrier)
    C) The buyer
    D) To themselves, the agent.

    Though I know it's not the correct answer, "D" seems to be the case when you read about lawsuits where an agent enriched themselves by selling a high commission contract instead of a writing a lower commission contract that would have been more beneficial to the insured. And, for every one you read about, there are probably dozens that never come to the attention of the courts.

    I understand a law or regulation requiring a fiduciary relationship between two parties can't stop unethical, dishonest agents. But, it's good knowing if they get caught violating any such law they can be held accountable and could lose their license to earn their livelihood.

    tinman
     
    FexBids, Dec 23, 2018
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  2. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    When you're talking with a prospective buyer, you work for the buyer. Although there is no formal engagement agreement documentation or money changing hands to indicate any kind of fiduciary relationship.

    When you're taking the application, you are representing the carrier as the field underwriter.

    The FMO/IMO... is not a factoring consideration UNLESS the prospective buyer was a lead generated by the FMO/IMO, then you need to offer the most appropriate product that you have a selling contract with them. You feed the hands that feed you.

    Where it muddies the waters a bit... is if you have a production requirement of any kind with any company (ie. captive companies). If you have a production requirement... now you have a sales quota that you have to meet and by virtue of having a production requirement... is a conflict of interest. Tiered compensation contracts MIGHT fit into that category as well. That's just one reason why Series 7 securities brokers cannot be fiduciaries for their clients OR if you have a special insurance compensation contract... you have a conflict of interest to keep that contract by producing more for that company.

    Real estate sales... everything is documented and clear. The commissions come out of the sales price. People want and need an accounting of what they are paying for after the home sells.

    Insurance... it's more of a "black box". However much an insurance company pays an agent shouldn't matter, but people are making it into a big deal.
     
    DHK, Dec 23, 2018
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  3. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    Now, I admit that the above is my own interpretation.

    Here's the facts:
    - Insurance AGENTS are known to work for the companies they represent.
    - Insurance BROKERS are to represent the proposed insured to the companies.

    http://www.insurance.ca.gov/0200-industry/0120-notices/upload/45810.pdf

    Then there are insurance ANALYSTS (or "counselors" or "consultants" - depending on what each state calls them - who charge fees to analyze existing contracts). These are the "ultimate" fiduciaries. There are very few of them.

    Life and Disability Insurance Analyst

    In short - follow the money and who is paying whom for what.
     
    DHK, Dec 23, 2018
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  4. FexBids
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    DHK,

    Thank you for your fast response.

    You state: "When you're talking with a prospective buyer, you work for the buyer."

    Then you state: "When you're taking the application, you are representing the carrier as the field underwriter."

    Then you state when working a lead you received from your IMO: "You feed the hands that feed you." Do you feed the hand that feeds you if the result is not beneficial to the buyer? If that is the case there is a direct conflict of interest in regards to your first statement.

    Your statement in regards to the source of the lead implies to me if I generate my own leads I don't have to feed the hands that feed me (my IMO) and my total fiduciary responsibility is to the buyer. Is that correct?

    If that is correct, then you're saying the party to which I owe fiduciary responsibility depends on the source of the lead.

    I'm not trying to be argumentative, but that makes absolutely no sense to me.

    tinman
     
    FexBids, Dec 23, 2018
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  5. rousemark
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    rousemark Still Here!

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    The agent has no "fiduciary" responsibility.. That is a specific legal term and was recently beaten back to keep it from applying to insurance agents.
     
  6. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    It's called loyalty and professional courtesy.

    If you had at least one insurance selling contract with me (I don't recruit), and I send a lead to you, your first job is to determine if the products you have with me are appropriate for their situation. If so, sell it. If not, sell something else... or nothing. The client's needs take precedence... but you fill those needs with products in the order of who gave you the lead... then other products.

    Why? Because this is a business not a charity, and generating leads has a cost - whether direct or indirect. Your first job should be to help me recoup my cost. If you can do that, I'll probably give you more leads. If you can't... I probably won't.

    If one can't figure out the differences AND keep your vendors, suppliers, and especially clients happy... then they probably shouldn't be in business. ANY business.


    Let's use an absurd example: Fast food franchises

    You may or may not know that Pepsico owns Taco Bell, KFC, Pizza Hut, and YumYum donuts all through Yum! brands.

    Let's assume that each franchise owner has a "fiduciary responsibility" to serve the best drinks. And let's assume that Coca-Cola is the better drink brand.

    Does that mean that every franchisee must change their drinks to Coca-cola branded drinks to meet their fiduciary duty? They cannot do it as it would be a breach of contract. So they offer the best drinks they have from Pepsico. Why? Contracts, loyalty, and professional courtesy. Not to mention that all of these name-brands benefit from the branding and advertising done by the parent company (and obviously that has a cost of its own).

    Now, what's different is that these locations CANNOT offer other brands... while we CAN. But it makes business sense that, if the 'parent company' (who gave us the leads) has a product that can fulfill those needs, then we should sell it. If not, sell what's most appropriate.

    Just be happy you don't have to do a "revenue sharing disclosure" for having "preferred funds" like investment firms do:
    https://www.edwardjones.com/images/revenue-sharing-disclosure.pdf
     
    DHK, Dec 23, 2018
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  7. FexBids
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    Rousemark...thanks for your reply. The deeper I search for the answer to my question your reply strikes me as the most accurate. Unfortunately.

    DHK...you state: "It's called loyalty and professional courtesy". I understand that. However, there are no legal ramifications for being disloyal and violating the standards of professional courtesy. But there are, if indeed, insurance agents do have a fiduciary responsibility and they violate them.

    Let me purpose this situation. An agent is marketing Indexed Universal Life. The client says write the policy. Annual premium $10,000.

    A) The agent can set the Target Premium at 70% and earn 90% of $7000 and 3% of $3000 for a total of $7200. Or,

    B) The agent can set the Target Premium at 30% and earn 90% of $3000 and 3% of $7000 for a total of $2910.

    Let's say plan A results in a face value of $500,000 in 30 years.
    But plan B will result in a face value of $1,000,000 in 30 years.

    All other things being equal Plan B is much more beneficial to the buyer. Obviously.

    Now...DHK...under your "feed the hand that feeds you" the agent should choose Plan A because it results in a bigger commission to the IMO and himself.

    But under your "When you're talking with a prospective buyer, you work for the buyer" statement the agent should write Plan B.

    DHK, You can't have it both ways.

    Because under your "interpretation" the buyer will get screwed. Every time.

    tinman
     
    FexBids, Dec 23, 2018
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  8. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    Obviously... you have no clue about fiduciary duty, trying to solve a problem, or how IUL works.

    Answer this question first: What PROBLEM are you trying to solve for the buyer???
    If you're solving for death benefit, then you choose Plan B.
    If you're solving for maximum cash values, then you choose Plan A.

    You are using compensation as the ONLY determining factor and you didn't give enough information here.

    THAT'S how you can "have it both ways". Figure out the priorities that your prospect has and help them figure it out.

    Oh... and we have a maleable product. It's not necessarily "fitting a square peg in a round hole". You can actually customize the product for the hole found.
     
    DHK, Dec 23, 2018
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  9. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    If you want to know about an agent's professional duty to their clients and how agents can protect themselves... learn from an attorney who SUES agents! Here's a playlist with Steve Savant interviewing Ilya Lerma.

     
    Last edited: Dec 23, 2018
    DHK, Dec 23, 2018
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  10. ATM
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    ATM Super Genius

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    Not exactly. Let me propose a scenario to overlay onto your example.

    Client dies in policy year 8.

    Which example is obviously more beneficial?
     
    ATM, Jan 3, 2019
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