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If only there was a big Neon Sign ….

If only there was a huge neon sign that floated high in the air for everyone to see that said “For the love of all that is good, before making a decision regarding life insurance, please, please find someone to ask questions of who knows what they are talking about”.

There are plenty of agents who are capable and do what they sincerely believe is in the best interest of their clients every time.  But you don’t have to be a huge cynic to understand that there are many players who don’t behave this way.

There are also very many agents who are well meaning but just don’t know any better.  There is something called institutional indoctrination that is more powerful than many people can understand.  Most agents come into the industry through a specific company, more so in the old days than now but it is still common none-the-less. These companies often specialize in a particular product class, meaning they are predominately a whole life company or a variable life company or a term company and are apt to design a sales training process which leads their agents to approach prospects and develop sales which nicely fit with what they are trying to sell.

It should not be difficult to imagine a marketing message from one company which leads one to think that no one should ever buy cash value insurance and should only buy term and invest the difference and they offer convincing models and marketing materials to “prove” this.  Alternately, the message from another company might be that every newlywed and new parent needs to buy a $100,000 or $250,000 whole life policy and the marketing materials will be full of examples, often tear jerking, of how that policy changed someone’s life and created opportunity and/or held disaster at bay.

Maybe the company has a diversified portfolio.  Then the product with the sales that rise to the top each year probably have much to do with what is going on in the markets or with the economy or what is being strongly promoted and incentivized by the carrier.  A rising or declining interest rate market benefits one policy type more than another.  A bull market drives a certain kind of sale and a bear market another.  This might not be inappropriate for true investments which can be shifted when conditions change but these life insurance decisions are being made on policies which will purportedly be on the books for many decades but are being based on factors in the market at that point in time which could be different by the same time next year.

At the very least consider this, any problem a prospect might have must be able to be solved with the product the agent currently has at disposal.  It can be accomplished more effectively than any other product another agent has and if the competition has the same type of product then clearly the company I represent is a better company to do business with.  Sure, the Ford and Chevy salesperson might have the same issue but at least the typical consumer knows if he or she needs or wants a pickup truck, a minivan, a sports car or a hybrid.

On the other hand there are others in the financial services industry that have no background in life insurance and no understanding of the market and products but they have managed to pass the licensing requirements.  They invite their company’s life insurance specialist or the regional insurance wholesaler to find, present and close transactions and these individuals have a one track sales mentality.  I’ve seen too many situations where the front line advisor ends up feeling as victimized as the client.

Given this cynical view of the market, doesn’t it merit a third party opinion?  I continue to be surprised at how many advisors and analysts some people will employ in the process of a real estate transaction or business acquisition or investment of almost any kind, while they are willing to enter into very significant life insurance transactions without reviewing any details of the strategy or the contracts.  This is especially amazing in light of everything that has gone wrong in the industry in the past number of years.

I am getting more and more involved in litigation support and expert witness work.  Many of these engagements are regarding situations where, at a glance, an astute third party could see almost instantly that it simply wasn’t a good idea.  The power of the sales process cannot be underestimated.  Sales isn’t inherently bad by any means.  In fact, many worthwhile and beneficial things need to be sold because they simply aren’t going to be bought.

However, advising on ill-fated insurance funded executive benefit plans, premium financing deals, non-qualified retirement strategies, bleeding edge funding strategies, “interestingly” concocted products, etc, which look so great on paper but have little chance of panning out as planned will keep me busy for years to come.  This doesn’t even include all the situations where there is a legitimate claim of incompetence or malfeasance.  Consumers and advisors need to remember that words like advanced, cutting edge and innovative don’t always go along with words like appropriate, smart and reasonable.

The value of a devil’s advocate cannot be underestimated.  If you saw what I see you could only wonder how otherwise smart people could get themselves wound up in some of the situations they have.

I am regularly involved in situations where I can only wonder at the extent of the unimaginable attorneys fees and waste of one’s valuable hours in an attempt to fix a deal gone bad, not to mention the mental baggage of dealing with these time intensive processes and the financial baggage of being saddled with significant adverse financial and/or tax consequences.  I was recently in a FINRA arbitration hearing for a few days as an expert.  There were 15 people in the room!  The time and money wasted is shocking and all for something that never had to happen if there was a minimal level of understanding and education.  These particular policy owners appear to have been legitimately hosed as opposed to people looking for recovery when the markets go the wrong way.  They weren’t even looking for damages.  They only wanted out with a waiver of surrender charges, even if it meant going into a more appropriate product with the same carrier!  The costs would have been a tiny fraction of the legal fees incurred by the insurance carrier so far.  The case isn’t done and more hearings are being scheduled.  Time and time and again I see the insurance company dig in and fight, even in light of a much easier, smarter and financially advantageous solution.

I realize I risk being a downer regarding life insurance and I get criticized for airing dirty laundry, but I too often see the results of unconscionable behavior and it doesn’t have to be that way.  I especially feel bad for the parties suffering with failing policies or flawed strategies who don’t even know it yet.  Oh, but they will some day and usually at a point where the price tag for understanding is not only uncomfortable but often unaffordable.

 

 

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  1. August 30th, 2013 at 07:52 | #1

    As an advisor who started his career at one of the major life insurance companies, I can attest to the truth in what Bill says about the fact that there are many agents who are well meaning but just don’t know any better.

    Most consumers assume that agents receive tons of training on the ins and outs of the policies they sell. However, the truth is, most of the training isn’t on how the policy works; but, rather how to sell the policy.

    Since transitioning from insurance agent to financial planner, I’ve witnessed the consequences of many of these well-meaning but inappropriate life insurance transactions. Bill is absolutely correct, a third party opinion can help avoid bad policies and flawed strategies.